Federal Court of Australia

Chou, in the matter of APR Detailed Joinery Pty Ltd (in liq) [2024] FCA 798

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 57 of the Federal Court of Australia Act 1976 (Cth), the liquidators of APR Detailed Joinery Pty Ltd (in liquidation) (Company), Ernie Kierston Chou and Trent Aaron McMillen, be appointed as joint and several receivers and managers (Receivers), without security, of the assets of the APR Joinery Trust (Trust Property) established pursuant to a deed dated 12 February 1987 (the Trust).

2.    The Receivers are granted all the powers provided for by s 420 of the Corporations Act 2001 (Cth) (other than in ss 420(2)(s), (t), (u) and (w)) as if the reference therein to “the corporation” were a reference to the Trust.

3.    The costs, expenses and remuneration of the Receivers in:

(a)    acting as liquidators of the Company;

(b)    acting as the Receivers of the assets of the Trust; and

(c)    making this application;

(d)    be paid from the Trust Property in accordance with the priority specified in s 556(1) of the Corporations Act.

4.    The Receivers’ remuneration is to be calculated at the professional rates set out in the “Initial Remuneration Advice To Creditors” attached to the liquidators’ report to creditors of the Second Plaintiff dated 3 April 2024.

5.    The parties and any person with a sufficient interest under the Trust be granted liberty to apply on 7 days’ notice.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

Delivered ex tempore, revised from transcript

JACKMAN J

1    The first plaintiffs (Liquidators) were appointed as joint and several liquidators of the second plaintiff, APR Detailed Joinery Pty Limited (Company), by special resolution of the Company’s members, passed on 18 March 2024. By their originating process filed on 18 June 2024, the Liquidators seek to be appointed as court-appointed receivers of the assets of the APR Joinery Trust (Trust), to allow them to sell assets to the Trust and seek ancillary orders. In support of their application, the Liquidators rely on two affidavits by Mr Chou, one of the Liquidators. The Company was appointed as the trustee of the Trust on 12 February 1987, in accordance with a trust deed (Trust Deed).

2    Clause 2S8 in sch 2 of the Trust Deed provides that the office of trustee would be vacated if the trustee is in liquidation. The Liquidators are not aware of any replacement trustee having been appointed and, accordingly, the Company has been, and remains, a bare trustee of the Trust assets since the Liquidators were appointed. Prior to the appointment of the Liquidators, the Company conducted a joinery business from premises in Condell Park NSW (Business). Mr Chou’s evidence sets out the basis for his view that the Company did not operate any business in its own right, and holds its assets on trust for the Trust, and operated the Business in its capacity as trustee of the Trust.

3    In summary, the reasons for that view are as follows:

(a)    the Company does not have an Australian Business Number in its own right;

(b)    the ABN associated with the Trust has an entity name being “The Trustee for the APR Joinery Trust”;

(c)    the Company is only registered for GST in its capacity as trustee of the Trust;

(d)    all invoices that Mr Chou has received, that were issued by the Company, contain the ABN for the Trust;

(e)    all of the payslips to the Company’s employees that Mr Chou has reviewed, contain the ABN for the Trust;

(f)    all employment contracts entered into by the Company, and reviewed by Mr Chou, refer to the ABN of the Trust;

(g)    ATO records for the Trust’s ABN refer to withheld PAYG tax;

(h)    bank statements reviewed by Mr Chou, which record payments to employees (noting those only go back to March 2023), show that those payments were made from the trading account for the Business;

(i)    the Company does not have separate financial records from the Trust; and

(j)    Mr Chou’s view, after having reviewed the Company’s books and records, including its accounting records, is that all creditors of the Company were creditors of the Trust.

4    With respect to whether all creditors are Trust creditors, not all creditors who have registered security interests on the Personal Property Securities Register registered those interests against the Trust’s ABN. Some registered those interests against the Trust’s ABN, and some registered those interests against the Company’s ACN. The relevant regulations require that such a registration with respect to trust assets be registered against the Trust’s ABN, and not the trustee’s ACN: see cl 1.5 of sch 1 to the Personal Property Securities Regulations 2010 (Cth). However, the plaintiffs submit, and I accept, that in light of all the other evidence, the existence of PPSR registrations against the Company’s ACN suggests registration errors, as opposed to any indication that the Company was conducting the Business (or any other business) in its own right.

5    The Liquidators have identified assets of the Business located at the Company’s previous trading premises, which include office equipment, plant and equipment, a forklift, and motor vehicles. Those assets have been valued on 2 April 2024 with a forced liquidation value of $212,570 excluding GST.

6    There are no lease arrangements between the Company and the owner of the premises at which the assets are located. The owner is a related entity. While the owner has apparently not sought payment of rent to date, it intends to lease the premises as soon as possible. Accordingly, the Liquidators are concerned to conduct an on-site sale of the assets as soon as possible to avoid the costs of transporting or storing the assets.

7    Paragraph 1 of the originating process seeks leave (to the extent necessary) to begin and continue this proceeding in relation to the property of the Company in view of s 471B of the Corporations Act 2001 (Cth) (the Act), which prevents a person bringing a proceeding in a court in relation to property of the company while the company is being wound up in insolvency. However, this proceeding is not relevantly in relation to property of the Company, which holds only the bare legal interest in the property of the Trust. Accordingly, such an order is unnecessary, and I decline to make it.

8    By paragraph 2 of the originating process, the Liquidators seek an order under s 57 of the Federal Court of Australia Act 1976 (Cth) that they be appointed as receivers of the assets of the Trust. Section 57(1) confirms that the court may, at any stage of a proceeding, on such terms and conditions as the court thinks fit, appoint a receiver by interlocutory order in any case in which it appears to the court to be just or convenient so to do. As McKerracher J said in Re Hughes in their capacity as joint and several liquidators of Substar Holdings Pty Limited (in liq) [2020] FCA 1863; (2020) 149 ACSR 185 at [27]:

Where a corporate trustee is removed by operation of a disqualification clause in the trust deed (here, cl 7.6), the company assumes the position of a bare trustee. Its powers are limited to protecting the trust assets. The right of indemnity or exoneration persists, albeit that the company’s lien does not confer a power of sale to realise that right.

9    Here, as noted above, the office of trustee of the Trust became vacant as a result of the Liquidators’ appointment. There was no suggestion that a new trustee would be appointed. It is thus necessary to appoint liquidators as receivers and managers, to permit them to further deal with any remaining Trust assets, and to bring certainty to the process of finalising the liquidation. The common course is to appoint the liquidators of the trustee company as receivers over all the trust property for the purpose of realising the assets for the benefit of creditors, and that is clearly the appropriate course in the present case. Accordingly, I will make orders which are broadly the same as those made by McKerracher J in Re Hughes in relation to the appointment of the Liquidators as receivers.

10    The Liquidators also seek orders confirming their entitlement to pay costs, expenses and remuneration. There is a distinction between the manner in which costs and expenses on the one hand, and remuneration on the other, are approved by the court. The payment of costs and expenses from the Trust assets is consistent with the terms of the Trust Deed — cl 2S3 in the second schedule. To the extent that paragraph 4 of the originating process refers to costs and expenses (as distinct from remuneration), the plaintiffs submit, and I accept, that the costs and expenses of the receivership (including legal costs) will be payable by the Liquidators from the Trust assets without the need for any further order to be made.

11    In any event, it seems to me desirable to make an express order pertaining to the costs and expenses of the receivers in their capacity as such. While the Trust Deed does not allow for the Trustee to be paid and receive commission (cl 2S3), court-appointed receivers are entitled to reasonable remuneration in accordance with an order of the court. It is of particular relevance in this case that the creditors of the Company (all of which appear to be Trust creditors) have already approved the Liquidators’ remuneration pursuant to s 60–10(1)(a) of the Insolvency Practice Schedule (Corporations), being sch 2 to the Act.

12    Pursuant to the approval of proposals made by the Liquidators at the time of the first report to creditors, the creditors of the Company have approved the Liquidators’ remuneration in the sum of $60,303 (excluding GST) by way of two resolutions, being: (a) approval of remuneration in the sum of $15,283 (excluding GST) for work undertaken up to 2 April 2024 (being the day before the first report to creditors was issued); and (b) approval of remuneration in the sum of $45,020 (excluding GST) for the period from 3 April 2024 to the finalisation of the liquidation. The rates for the Liquidators’ remuneration approved by creditors are those set out in the “Initial remuneration advice to creditors” provided to creditors with the report dated 3 April 2024.

13    Details of work undertaken by the Liquidators up to 2 April 2024, for which creditors have approved remuneration in the sum of $15,283, is set out in Mr Chou’s affidavit. Mr Chou has also summarised the further work undertaken in the period from 2 April 2024 until the bringing of this application, and the calculation of remuneration at approved rates for that work, in the sum of $16,424 (excluding GST). Mr Chou estimates additional remuneration in the sum of $20,000 (excluding GST) for the work to be undertaken in realising the Trust assets. The total amount of remuneration calculated and estimated by Mr Chou in his affidavit up to and including the sale of the trust assets is $51,707 (excluding GST).

14    In circumstances where the only creditors of the Company are Trust creditors and the only assets of the Company are the Trust assets, the Liquidators submit that they may be in a position to rely on the approval of the Company’s creditors and the Company’s lien over the Trust assets in order to recover their remuneration. In my view, that is correct in substance, but perhaps not in form. The preferable course is to avoid any doubt by making the orders sought in paragraphs 4 and 5 of the originating process to confirm the Liquidators’ entitlement to payment of remuneration in their capacity as receivers. The court’s power under s 57 to appoint receivers on such terms and conditions as the court thinks fit is wide enough to allow for orders in the form of paragraphs 4 and 5. While r 14.24 of the Federal Court Rules 2011 (Cth) allows for a receiver’s remuneration to be fixed, it does not require that it be fixed.

15    One question is whether it is appropriate that the remuneration referred to in paragraph 4 (but not the costs or expenses) be capped at the amount approved by creditors of the Company, being $60,303 (excluding GST). In Re Hughes, in addition to approving a specific sum for remuneration for work done previously (order 5), McKerracher J made general orders (orders 4 and 7) for the payment from the Trust assets of the remuneration of the Liquidators in acting as receivers of the Trust and liquidators of the Company (broadly consistent with paragraph 4 of the originating process). McKerracher J also made an order (order 11(c)) confirming the rates to be applied for remuneration (broadly consistent with paragraph 5 in the present case). Those orders permitted payment for remuneration at the approved hourly rates, without further order of the court fixing that remuneration in a particular sum, given that it appeared that further work by the receivers was necessary and given that his Honour granted liberty to apply for orders discharging the receivers (order 9) but did not make any order in relation to further applications for the approval of remuneration. In that case, there was no suggestion that the creditors of the trustee company had approved the liquidator’s remuneration.

16    Given the evidence of the work already undertaken, the proposed rates for future work, the creditors approval of equivalent remuneration for the Liquidators, and the costs and time that would be incurred as a result of any further application for the approval of remuneration, it is consistent with s 37M of the Federal Court of Australia Act that the orders in paragraphs 4 and 5 be made on the basis that they permit payment of the receiver’s remuneration without the need for any further order.

17    The Liquidators have given notice of this application to all creditors of the Company, all beneficiaries of the Trust, and to ASIC. No party has sought leave to appear at this hearing, nor has any party indicated to the Liquidators that they wish to be heard on the application. The potential need to bring this application was foreshadowed in the report to creditors of the Company dated 3 April 2024, and also in the report dated 18 June 2024. Accordingly, I will make orders in accordance with paragraphs 2, 3, 4, 5 and 6 of the originating application.

Associate:

Dated:    4 July 2024