Cuthbert and Cuthbert and Ors
[2015] FamCA 567
•21 July 2015
FAMILY COURT OF AUSTRALIA
| CUTHBERT & CUTHBERT AND ORS | [2015] FamCA 567 |
| FAMILY LAW – Application by liquidator — seeking directions under s 511 of the Corporations Act 2001 (Cth) — seeking approval to compromise debts under s 477(2A) of the Corporations Act — seeking approval to enter into agreements that extend beyond three months in duration under s 477(2B) of the Corporations Act — seeking advice of the Court under s 63 of the Trustee Act 1925 (NSW) |
| Corporations Act 2001 (Cth) ss 511, 477(2A), 477(2B) Trustee Act 1925 (NSW) s 63 |
| B Pty Ltd v D Pty Ltd … | ||
| APPLICANT: | Ms Cuthbert | |
| RESPONDENT: | Mr Cuthbert |
| SECOND NAMED RESPONDENT: THIRD NAMED RESPONDENT: | Mr Curtin B Pty Ltd (in liquidation) |
| FOURTH NAMED RESPONDENT: | Deputy Commissioner of Taxation |
| FILE NUMBER: | CAC | 200 | of | 2010 |
| DATE DELIVERED: | 21 July 2015 |
| PLACE DELIVERED: | Melbourne |
| PLACE HEARD: | Melbourne |
| JUDGMENT OF: | Bennett J |
| HEARING DATE: | 22 May 2015 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr Robinson |
| SOLICITOR FOR THE APPLICANT: | Robinson Gill |
| COUNSEL FOR THE RESPONDENT: | Mr Finch |
| SOLICITOR FOR THE RESPONDENT: | Creaghe Lisle Solicitors |
| COUNSEL FOR THE SECOND AND THIRD NAMED RESPONDENTS: | Mr Dawson |
| SOLICITOR FOR THE SECOND AND THIRD NAMED RESPONDENTS: | TressCox Lawyers |
| COUNSEL FOR THE FOURTH NAMED RESPONDENT: | Ms Bui |
| SOLICITOR FOR THE FOURTH NAMED RESPONDENT: | Australian Taxation Office |
Orders
IT IS ORDERED THAT:
Directions as to settlement with Ms Cuthbert and the ATO
Pursuant to Corporations Act 2001 (Cth), s 511, the Court directs that the Second Respondent in his capacity as liquidator or the Third Respondent is justified in entering into and performing, and in procuring that the Third Respondent enter into and perform, a deed of settlement with Ms Cuthbert substantially in the same form as Confidential Exhibit A (‘the Ms Cuthbert Deed of Settlement’).
Pursuant to Corporations Act 2001 (Cth), s 477(2A), the Second Respondent in his capacity as liquidator or the Third Respondent has the approval of the Court to compromise all debts owing to the Third Respondent that are referred to in the Ms Cuthbert Deed of Settlement, upon the terms contained in that Deed.
Pursuant to Corporations Act 2001 (Cth), s 477(2B), the Second Respondent in his capacity as liquidator or the Third Respondent for and on behalf of the Third Respondent, has the approval of the Court to enter into the Ms Cuthbert Deed of Settlement, notwithstanding that obligations of a party to the agreement may according to the terms of the agreement be discharged by performance more than three months after the agreement is entered into.
Pursuant to section 63 of the Trustee Act 1925 (NSW), a direction that the Second Respondent in his capacity as trustee of the Trust is justified in entering into the Ms Deed of Settlement.
Direction as to the settlement with Mr Cuthbert and the ATO
Pursuant to Corporations Act 2001 (Cth), s 511, the Court directs that the Second Respondent in his capacity as liquidator or the Third Respondent is justified in entering into and performing, and in procuring that the Third Respondent enter into and perform a deed of settlement with Mr Cuthbert substantially in the same form as Confidential Exhibit B (‘the Mr Cuthbert Deed of Settlement’);
Pursuant to Corporations Act 2001(Cth), s 477(2A), the Second Respondent in his capacity as liquidator or the Third Respondent has the approval of the Court to compromise all debts owing to the Third Respondent that are referred to in the Mr Cuthbert Deed of Settlement, upon the terms contained in that Deed.
Pursuant to Corporations Act 2001(Cth), s 477(2B), the Second Respondent in his capacity as liquidator or the Third Respondent for and on behalf of the Third Respondent, has the approval of the Court to enter into the Mr Cuthbert Deed of Settlement, notwithstanding that obligations of a party to the agreement may according to the terms of the agreement be discharged by performance more than three months after the agreement is entered into.
Pursuant to section 63 of the Trustee Act 1925 (NSW), a direction that the Second Respondent in his capacity as trustee of the Trust is justified in entering into the Mr Cuthbert Deed of Settlement.
Directions as to the settlement with Mr Cotter
Pursuant to Corporations Act 2001 (Cth), s511, the Court directs that the Second Respondent in his capacity as liquidator or the Third Respondent is justified in entering into and performing, and in procuring that the Third Respondent enter into and perform a deed of settlement with Mr Cotter substantially in the same form as Confidential Exhibit C (‘the Mr Cotter Deed of Settlement’).
Pursuant to Corporations Act 2001 (Cth), s 477(2A), the Second Respondent in his capacity as liquidator or the Third Respondent has the approval of the Court to compromise all debts owing to the Third Respondent that are referred to in the Mr Cotter Deed of Settlement, upon the terms contained in that Deed.
Pursuant to Corporations Act 2001 (Cth), s 477(2B), the Second Respondent in his capacity as liquidator or the Third Respondent for and on behalf of the Third Respondent, has the approval of the Court to enter into the Mr Cotter Deed of Settlement, notwithstanding that obligations of a party to the agreement may according to the terms of the agreement be discharged by performance more than three months after the agreement is entered into.
Pursuant to section 63 of the Trustee Act 1925 (NSW), a direction that the Second Respondent in his capacity as trustee of the Trust is justified in entering into the Mr Cotter Deed of Settlement.
Administration and winding up of the Trust
Pursuant to section 63 of the Trustee Act 1925 (NSW), a direction that the Second Respondent in his capacity as trustee of the Trust is justified in treating real property situated at E Street is property as Trust property.
Pursuant to section 63 of the Trustee Act 1925 (NSW), a direction that the Second Respondent in his capacity as trustee of the Trust is justified in treating liabilities incurred by D Pty Ltd in the period 14 October 2011 to 13 April 2012, while it purported to serve as trustee of the Trust as true liabilities of the Trust.
Pursuant to section 63 of the Trustee Act 1925 (NSW), a direction that the Second Respondent in his capacity as trustee of the Trust is justified in winding up the Trust.
Pursuant to section 63 of the Trustee Act 1925 (NSW), a direction that the Second Respondent in his capacity as trustee of the Trust is justified in administering the winding up of the Trust as follows:
(a)Firstly, in payment of the costs and expenses of the Second Respondent in his capacity as liquidator of the Third Respondent and trustee of the Trust;
(b)Secondly, in payment of unsecured creditors excluding the Australian Taxation Office (ATO);
(c)Thirdly, in performing the obligations under the Ms Cuthbert Deed of Settlement, the Mr Cuthbert Deed of Settlement and the Mr Cotter Deed of Settlement; and
(d)Fourthly, in payment to the ATO.
General
Liberty to the Second Respondent to apply to the Court on 2 days’ notice.
An order that these orders be made in proceeding NSD 680/2014 (formerly in the Federal Court of Australia).
An order that Exhibits A, B & C be and remain confidential, and that they be placed on the Court file in an envelope marked ‘confidential’: not to be opened except by order of the Judicial Officer.
All extant applications be dismissed and this matter be removed from the docket of The Honourable Justice Bennett.
IT IS DIRECTED:
That the minute of orders be marked Exhibit “A” and remain on the Court file.
A copy of this Order be annexed to the Order made on 25 May 2015 in file No. (P)MLC4357/2015 in the name of B Pty Ltd (In Liquidation) and Curtin, Cuthbert, Cuthbert and Cotter and this file travel with that file.
AND IT IS NOTED that the file referred to as proceeding NSD 680/2014 (formerly in the Federal Court of Australia) was transferred to the Family Court of Australia on 13 April 2015 and is known as the file No. (P)MLC4357/2015 in the name of B Pty Ltd (In Liquidation) and Curtin, Cuthbert, Cuthbert and Cotter.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Cuthbert & Cuthbert and Ors has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| FAMILY COURT OF AUSTRALIA AT MELBOURNE |
FILE NUMBER: CAC 200 of 2010
| Ms Cuthbert |
Applicant
And
| Mr Cuthbert |
Respondent
And
Mr Curtin
Second Named Respondent
And
B Pty Ltd (in liquidation)
Third Named Respondent
And
Deputy Commissioner of Taxation
Fourth Named Respondent
REASONS FOR JUDGMENT
Introduction
This matter came before me on 22 May 2015 and I was informed that the parties were close to finalising settlements. I stood the principal matter down so that discussions could continue outside the courtroom.
I then heard an ex parte application by the second named respondent, Mr Curtin, for directions to be given to him in his capacity as liquidator of the third named respondent, B Pty Ltd (in liquidation) (“the Company”) and judicial advice to be provided to him in his capacity as trustee of the Cuthbert Family Trust (“the Trust”). The application is made under ss 511, 477(2A) and 477(2B) of the Corporations Act 2001 (Cth), s 63 of the Trustee Act 1925 (NSW) and the inherent jurisdiction of the Family Court of Australia and arises from the settlement of the legal proceedings involving the various stakeholders in the Company and the Trust.
I made the orders sought, which are set out at the commencement of these reasons. I did not provide reasons on that day and do so now.
Background
The parties in this matter have been involved in multifarious litigation for a substantial period of time. I do not propose to set out the history of the matter in detail but will provide what background information is necessary to give context to these reasons.
The husband and wife met in 1988 and they moved in together in 1991. They were married in 1993, separated in January 2004 and divorced in May 2010. The wife commenced parenting and property proceedings in this Court in July 2010. The parenting matters were resolved by consent on 27 September 2010. The property matters have been ongoing ever since.
The company and the trust
The Company was registered on 13 April 1992. On 3 July 1993, the husband and wife were appointed directors of the Company. The wife remained a director of the Company until Mr Curtin’s appointment as liquidator in 2011.
On 8 March 1995, the Trust was constituted by a deed of discretionary trust between the Company’s accountant, Mr Cotter, as settlor and the Company as trustee. From 8 March 1995 to 14 July 2011, the Company served as trustee. The Company did not otherwise conduct business or own any assets on its own account.
The husband was the appointor under the Trust. The husband and the wife were the principal beneficiaries of the Trust. The business of the Trust was to import and sell electrical switchgear, which business it conducted under the business name “C Pty Ltd”.
From 1995 when the Trust was formed, the accountant, Mr Cotter, prepared the annual financial statements and income tax returns for the Trust, the husband and the wife. On instructions from either or both of the husband and the wife, Mr Cotter prepared income tax returns which included deductions for fictitious expenses in the sum of $6,490,331. The effect of claiming the fictitious expenses was to avoid the Company’s true income tax obligations. The Company incurred substantial penalties, interest charges and fines totalling $1,192,797.83. With the available surplus funds, the husband and wife acquired substantial assets and made significant superannuation contributions in their own names.
Mr Curtin was appointed the liquidator of the Company pursuant to
s 491 of the Corporations Act 2001 (Cth) on 25 July 2011.
On 1 September 2011, I ordered that Mr Curtin, as the liquidator of B Pty Ltd, be joined as a party to the proceedings as the second named respondent and D Pty Ltd (CAN…) (“D Pty Ltd”) be joined as a party to the proceedings as the third named respondent. On 15 June 2012, I made and order by consent that B Pty Ltd (in liquidation) be substituted for D Pty Ltd as the third named respondent.
In October 2011, the husband purported to exercise his power of appointment and appointed D Pty Ltd as trustee of the Trust, in substitution for the Company. In December 2011, Mr Curtin commenced proceedings in the Supreme Court of New South Wales seeking to have that appointment set aside. On 13 April 2012, by order of Stevenson J,[1] the appointment was declared invalid on the basis that it constituted a fraud on the power of appointment and Mr Curtin was appointed trustee of the Trust. Between October 2011 and April 2012, D Pty Ltd incurred and paid liabilities totalling approximately $180,000. D Pty Ltd is now deregistered. Mr Curtin seeks to treat these liabilities as if they were true liabilities properly incurred as trustee of the Trust.
[1] B Pty Ltd v D Pty Ltd ….
In or about October 2011, the Australian Tax Office (“ATO”) conducted an investigation into the taxation affairs of the Company, the Trust, the husband and the wife. The ATO determined that tax deductions claimed by the Trust relating to two alleged creditors were not deductible for income tax purposes and were claimed for the purposes of evading tax. The ATO also determined that the accountant had engaged in “blameworthy acts and omissions” in preparation of the tax returns and financial statements. The ATO lodged a proof of debt in the winding up of the Company in the sum of $3,422,289.71 based on its assessment of the true tax liability of the Company including penalties and general interest charges for the period 1998 to 2012.
On 8 July 2014, Mr Curtin and the Company commenced Federal Court proceedings against the husband and the wife to recover the Trust’s property and for compensation for breach of fiduciary duties. The Company also sued Mr Cotter for breach of duty of care and for accessorial liability. The proceedings were resolved at mediation and Mr Curtin sought directions in respect of entering into a series of three interdependent deeds of settlement.
By order of Gleeson J made on 29 April 2015, the Federal Court Proceedings were cross-vested to the Family Court of Australia.
The Federal Court proceedings and the Family Court proceedings were the subject of a number of mediations. Deeds of settlement were negotiated and were ultimately finalised on 22 May 2015.
The ATO, as the largest and only remaining creditor of the Company, was appraised of the progress of both the Federal Court and Family Court proceedings and is a party to and consented to the proposed settlements.
Thus all that remained for me to determine was the application by the liquidator, Mr Curtin, filed on 22 May 2015.
The Present Application by the Liquidator
Mr Curtin sought directions and judicial advice in respect of the following:
a)the settlement of legal proceedings commenced against the Company’s former directors (the husband and the wife) and its accountant (Mr Cotter);
b)the payment in full of a small number of miscellaneous creditors;
c)the acceptance of liability for debts incurred during the period of time when neither the Company nor Mr Curtin was trustee of the Trust;
d)the use of Trust funds to pay non-Trust liabilities being the personal tax debts of Mr and Mrs Cuthbert;
e)the administration and winding up of the Trust.
It was submitted for Mr Curtin that the need for a number of related directions arose from the proposed settlements and from irregularities which occurred prior to Mr Curtin’s appointment. Accordingly, Mr Curtin sought directions and advice:
a)to regularise the dealings of D Pty Ltd during the period it purported to serve as trustee of the Trust.
b)in respect of paying certain sundry creditors of the Company. It was submitted that Mr Curtin had paid six unsecured creditors whose debts totalled a sum of approximately $25,000, that he did so with the consent of the ATO and with the objective of minimising confusion, inconvenience and further cost. Mr Curtin paid those creditors a first and final dividend of 100 cents on the dollar.
c)in respect of paying non-Trust liabilities from Trust funds. A term of the Deeds of Settlement with each of the husband and the wife is that the remaining Trust funds be used for payment of non-Trust liabilities, namely, their personal tax debts. In this respect it was submitted for Mr Curtin that the sole remaining creditor, the ATO, had agreed to the payments and it is the only entity adversely affected by the proposed payments. Furthermore, the husband and the wife are the principal beneficiaries of the Trust.
Legal Principles
Mr Curtin’s application was made under ss 511, 477(2A) and 477(2B) of the Corporations Act 2001 (Cth) and s 63 of the Trustee Act 1925 (NSW).
Liquidator’s directions
The relevant part of s 511 of the Corporations Act 2001 (Cth) states as follows:
(1)The liquidator, or any contributory or creditor, may apply to the Court:
(a)to determine any question arising in the winding up of a company; or
(b)to exercise all or any of the powers that the Court might exercise if the company were being wound up by the Court.
…
(2)The Court, if satisfied that the determination of the question or the exercise of power will be just and beneficial, may accede wholly or partially to any such application on such terms and conditions as it thinks fit or may make such other order on the application as it thinks just.
The effect of a Court direction made pursuant to s 511 is to provide protection to a liquidator from personal liability. In proposing to enter into Deeds of Settlement, Mr Curtin in his capacity as liquidator of the Company seeks the protection of Court directions that he is justified in doing so. It should be noted, however, that while any actions taken by Mr Curtin in accordance with the Court’s directions are protected, his decisions and actions taken in pursuance of those directions will remain open to legal challenge by parties adversely affected despite the existence of the direction.[2]
[2] See Re Equity Funds of Australia (in liquidation) (1977) CLC 40-303.
Pritchard J of the Supreme Court of Western Australia has recently provided a helpful summary of the principles applicable to s 511 in Re Great Southern Managers Australia Ltd (in liq) [2014] WASC 312 (citations omitted), as follows:
[60] A direction may be sought under s 511 in respect of any question arising in the course of a winding up, and the section should be interpreted widely to facilitate the liquidator’s functions. However, a direction will not be given merely because the liquidator has a feeling of apprehension or unease about the business decision and wants reassurance — it is not the Court’s role to make what are regarded as commercial decisions for liquidators. Consequently, there must be some issue which calls for the exercise of legal judgment so as to warrant its direction — whether that be a legal issue of substance or procedure, or an issue of power, propriety or reasonableness. However, those categories are not exhaustive and other special circumstances may exist which warrant the giving of a direction.
[61] A further instance where directions may be given is in the context of a proposed compromise of litigation involving the liquidator. Even in such a case, the court will be reluctant to give directions if only commercial considerations are involved, but special circumstances may warrant directions being given. Those special circumstances may include where the liquidator is operating in an acrimonious environment in the liquidation, and the liquidator’s proposed decision risks being subjected to criticism by a particular creditor or creditors as being unreasonable or made in bad faith, or where there is a degree of personal risk of litigation attached to the liquidator that could negatively affect the winding up process. It will suffice if such an attack is in prospect. In other words, a s 511 direction may be given to protect the liquidator in circumstances where the compromise could otherwise negatively affect the winding up process. From that perspective, it can be said that the direction would be just and beneficial to advancing the liquidation process as a whole.
Black J of the Supreme Court of New South Wales discussed s 511 in the earlier decision of In the Matter of 7 Steel Distribution Pty Limited (in liquidation) (receivers and managers appointed) (2013) 31 ACLC 13-021.[3] There, his Honour stated:
[20] The Court may give such a direction where it will be “of advantage in the liquidation”, Dean-Willcocks v Soluble Solution Hydroponics Pty Ltd (1997) 42 NSWLR 209 at 212; (1997) 24 ACSR 79; Handberg (in his capacity as Liquidator for S&D International Pty Ltd (in liq) v MIG Property Services Pty Ltd [2010] VSC 336; (2010) 79 ACSR 373 at [7]. It will be common for proceedings seeking directions under s 511 to be brought with notice to parties affected by the direction, although there is no invariable rule that such an application cannot be brought on an ex parte basis: Handberg (in his capacity as Liquidator for S&D International Pty Ltd (in liq) v MIG Property Services Pty Ltd above at [7]. The … Court will not generally give such a direction where the matter relates to the making or implementation of a business or commercial decision or where no legal issue is raised and there is no attack on the propriety of (sic) reasonableness of the Liquidators’ decision, but point out, correctly, that the Court may do so where such an attack is in prospect.
[3] Citing Re Purchas as Liquidator of Astarra Asset Management Pty Ltd (in liq) [2011] NSWSC 91.
Judd J of the Supreme Court of Victoria expanded upon the last point in Re Gunns Plantations Limited (in liquidation) (receivers & managers appointed) (No 4) (2014) 32 ACLC 14-046 at [15], where his Honour stated that “… a court will only interfere with the exercise of commercial judgment if it is unreasonable, involves an error of law or principle, or is the result of some inappropriate conduct by the liquidators.”
I must be satisfied that the action to be taken, here being the liquidator entering into Deeds of Settlement with the husband, the wife and the accountant, is “just and beneficial”. Young J of the Supreme Court of New South Wales discussed the meaning of “just and beneficial” in Dean-Willcocks v Soluble Solution Hydroponics Pty Ltd (1997) 15 ACLC 833 at 835–6, as follows:
… it seems to me that [the words “just and beneficial”] plainly mean that the court has a discretion as to whether making an order under the section will be of advantage in the liquidation. There are many questions where the only order that the court should make is that the liquidator or the claimant proceed in the ordinary courts in the ordinary way for the determination of a dispute. However, there are many other situations where the court can summarily solve the difficulty that has arisen in the liquidation by an order under the section in a cheap and efficient manner. Where this can be done it is “just and beneficial” to exercise the power.
In short, in determining whether an exercise of power will be just and beneficial, the question is whether it will be of advantage in the liquidation.[4]
[4] Re Bryant (in their capacities as joint and several liquidators of Gunns Plantations Ltd (in liq) (recs and mgrs apptd) [2014] VSC 239 at [64], citing Dean-Willcocks v Soluble Solution Hydroponics Pty Ltd (1997) 42 NSWLR 209 at 212; Re Wilmott Forests Ltd (No 2) [2012] VSC 125 at [55].
I am satisfied that Mr Curtin entering into the Deeds of Settlement, as proposed, will advantage the liquidation. It will facilitate the conclusion of the liquidation with the interests of all relevant persons being taken into account. Accordingly, Mr Curtin is justified in entering into and performing, and in procuring that the third named respondent, being B Pty Ltd (in liquidation), enter into and perform, Deeds of Settlement with each of the husband, the wife and Mr Cotter.
Compromising debts exceeding $100,000
Section 477(2A) of the Corporations Act 2001 (Cth) states:
(2A) Except with the approval of the Court, of the committee of inspection or of a resolution of the creditors, a liquidator of a company must not compromise a debt to the company if the amount claimed by the company is more than:
(a) if an amount greater than $20,000 is prescribed — the prescribed amount; or
(b) otherwise — $20,000.
The prescribed amount is $100,000, as per the Corporations Regulations 2001 (Cth) reg 5.4.02.
Counsel for Mr Curtin submitted that each of the three Deeds of Settlement contain general releases which may have the effect of compromising debts of the Company.
As Barrett J stated in HIH Insurance Ltd and Related Matters [2004] NSWSC 5 at [15], the Court’s assessment of an application under s 477(2A) (or, indeed, s 477(2B)) must be made keeping in mind the purposes for which liquidators’ powers exist. Those purposes, as his Honour identified them, are as follows:
One overriding purpose is to serve “the interests of those concerned in the winding up — here the creditors” (Re Spedley Securities Ltd (1992) 9 ACSR 83 per Giles J); the other is to do whatever needs to be done “for the proper realisation of the assets of the company” or to assist its winding up (Re G A Listing & Maintenance Pty Ltd (1994) 15 ACSR 308 per Young J). The court does not concern itself with the commercial desirability of the transaction.
The Court will not automatically approve an application for approval under
s 477(2A) (or, for that matter, s 477(2B)), but will pay due deference to the commercial judgment of the liquidator.[5] Nonetheless, as Giles J of the Supreme Court of New South Wales said in Re Spedley Securities (in liq); Re Spedley Holdings (in liq); Re Aldershot (in liq) (1992) 10 ACLC 1,742,[6] this does not mean that the Court “rubber stamps” whatever the liquidator puts forward, but
the Court is necessarily confined in attempting to second guess the liquidator in the exercise of his powers, and generally will not interfere unless there can be seen to be some lack of good faith, some error in law or principle, or real and substantial grounds for doubting the prudence of the liquidator’s conduct.
[5] Citing Re Chase Corporation (Australia) Equities Pty Ltd (1990) 8 ACLC 1 at 118.
[6] Re Spedley Securities (in liq); Re Spedley Holdings (in liq); Re Aldershot (in liq) (1992) 10 ACLC 1,742 at 1,745, citing Re Mineral Securities Australia Ltd (1973) 2 NSWLR 207 at 231–2. This statement has been more recently affirmed in, inter alia, Stewart, Re Newtronics Pty Ltd [2007] FCA 1375 at [26] (Gordon J); Re One.Tel Ltd and Others (2014) 99 ACSR 247 at [28] (Brereton J).
I am satisfied that Mr Curtin has had due regard to the interests of creditors and that compromising the debts is a proper course open to him in all respects. Accordingly, Mr Curtin has the approval of the Court, pursuant to s 477(2A) of the Corporations Act 2001 (Cth), to compromise all debts owing to the third named respondent which are referred to in the three Deeds of Settlement.
Entering into agreements which extend beyond three months
Section 477(2B) of the Corporations Act 2001 (Cth) states:
(2B) Except with the approval of the Court, of the committee of inspection or of a resolution of the creditors, a liquidator of a company must not enter into an agreement on the company’s behalf (for example, but without limitation, a lease or a an agreement under which a security interest arises or is created) if:
(a)without limiting paragraph (b), the term of the agreement may end; or
(b)obligations of a party to the agreement may, according to the terms of the agreement, be discharged by performance;
more than 3 months after the agreement is entered into, even if the term may end, or the obligations may be discharged, within those 3 months.
It was submitted for Mr Curtin that each of the Settlement Deeds contains obligations on Mr Curtin that may extend beyond three months.
The principles to be applied to applications for approval under s 477(2B) were summarised by Brereton J of the Supreme Court of New South Wales in Re One.Tel Ltd and Others (2014) 99 ACSR 247 at [26],[7] as follows:
The role of the court is to grant or deny approval to the liquidator’s proposal, not to reconsider every issue considered by the liquidator, nor to develop some alternative proposal which might seem preferable. In reviewing the liquidator’s proposal, the court pays due regard to his or her commercial judgment and knowledge of all of the circumstances of the liquidation, but satisfies itself that there is no error of law or ground for suspecting bad faith or impropriety, and evaluates whether the proposal is consistent with the expeditious and beneficial administration of the winding up. Importantly, the court’s approval is not an endorsement of the proposed agreement, but merely permission for the liquidator to exercise his or her own commercial judgment in the matter. Thus the approval confers, or completes, the liquidator’s power to enter into the transaction, but does not amount to the court approving the transaction itself.
[7] Citing Stewart, Re Newtronics Pty Ltd [2007] FCA 1375 at [26] (Gordon J); Re Bell Group Ltd (in liq) [2009] WASC 235 at [57] – [58] (Hasluck J).
Section 477(2B) is concerned with agreements that might protract the liquidation and
[i]ts rationale is that that the interests and wishes of those affected, particularly creditors, should be highly influential in determining whether the liquidator should assume a contractual obligation that could interfere with the expeditious completion of the winding up: Re G A Listing & Maintenance Pty Ltd (1994) 15 ACSR 308; CIC Insurance; HIH Insurance at [15]. Thus in considering giving approval under s 477(2B), the main consideration is the impact of the agreement on the duration of the liquidation, and whether that is, in all the circumstances, reasonable in the interests of the administration: Re Opel Networks Pty Ltd [2013] NSWSC 1245.[8]
[8] Re One.Tel Ltd and Others (2014) 99 ACSR 247 at [30] (Brereton J).
I approve Mr Curtin’s exercise of power.
Advice to trustee
The relevant part of s 63 of the Trustee Act 1925 (NSW) states:
(1) A trustee may apply to the Court for an opinion advice or direction on any question respecting the management or administration of the trust property, or respecting the interpretation of the trust instrument.
(2) If the trustee acts in accordance with the opinion advice or direction, the trustee shall be deemed, so far as regards the trustee’s own responsibility, to have discharged the trustee’s duty as trustee in the subject matter of the application, provided that the trustee has not been guilty of any fraud or wilful concealment or misrepresentation in obtaining the opinion advice or direction.
…
(4) Unless the rules of court otherwise provide, or the Court otherwise directs, it shall not be necessary to serve notice of the application on any person, or to adduce evidence by affidavit or otherwise in support of the application.
…
The High Court provided a detailed analysis of s 63 in Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66. In a joint judgment by Gummow A-CJ, Kirby, Hayne and Heydon JJ, their Honours set out the principles relevant to an application for judicial advice under s 63. The principles relevant to the present application are:
a)It is not appropriate to read s 63 in such a way as to impose limitations on its operation where such limitations are not found in the express words of the section.[9]
b)There is only one jurisdictional bar to s 63 relief: the applicant must point to the existence of a question respecting the management or administration of the trust property or a question respecting the interpretation of the trust instrument.[10]
c)Section 63 procedure has a “summary” character.[11]
d)Section 63 operates as “an exception to the Court’s ordinary function of deciding disputes between competing litigants”, affording a facility for giving “private advice”. The advice is private because its function is to give personal protection to the trustee.[12]
[9] Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66 at [55].
[10] Ibid [58].
[11] Ibid [61].
[12] Ibid [64], citing Re Application of Macedonian Orthodox Community Church St Petka Inc [No 2] (2005) 63 NSWLR 441 at 445 [23] (Palmer J), approved in Macedonian Orthodox Community Church St Petka Inc v Diocesan Bishop of Macedonian Orthodox Church of Australia and New Zealand (2006) 66 NSWLR 112 at 122 [40] (Beazley and Giles JJA).
I have listened to, had the benefit of and accept the submissions of Mr Dawson, of counsel, who appears for the liquidator and the Company. In respect of the questions raised as to the E Street property being treated as Trust property, the liabilities of D Pty Ltd being treated as Trust liabilities and administering the winding up of the Trust, I am satisfied that the liquidator is justified in proceeding as he proposes and will order accordingly.
I certify that the preceding forty-two (42) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Bennett delivered on 21 July 2015.
Legal Associate: Candice Parr
Date: 21 July 2015
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