D Pty Ltd and Ors & Sadler and Ors
[2016] FamCAFC 187
•21 September 2016
FAMILY COURT OF AUSTRALIA
| D PTY LTD AND ORS & SADLER AND ORS | [2016] FamCAFC 187 |
| FAMILY LAW – APPEAL – PROPERTY – APPOINTMENT OF RECEIVERS – Where receivers were appointed pursuant to s 80(1)(k) of the Family Law Act 1975 (Cth) to the property and income of three trusts to realise the parties’ interests in the trusts for the purpose of property settlement – Whether the primary judge misapprehended the effect of the appointment – Where the trusts owned units in other trusts – Where the trustee company of the trusts was a guarantor of a mortgage – Where the redemption process could have been triggered without appointing receivers – Where the appointment of receivers was a breach of the mortgage – Whether one of the appointed receivers lacks independence – Appeal allowed – Re-exercise of discretion – Application for appointment of receivers dismissed. FAMILY LAW – APPEAL – LEAVE TO APPEAL – Whether the order appointing receivers is an interlocutory order and leave to appeal is required – Application of Medlow & Medlow (2016) FLC 93-692 – Leave to appeal granted. |
| Family Law Act 1975 (Cth) ss 79, 80(1)(k), 94AA |
Family Law Regulations 1984 (Cth) reg 15A
Family Law Rules 2004 (Cth) r 17.02
| Advance Housing Pty Ltd (in liq) v Newcastle Classic Developments Pty Ltd (1994) 14 ACSR 230 Dimov v Dimov (1971) 17 FLR 462 Gronow v Gronow (1979) 144 CLR 513 Hall v Nominal Defendant (1966) 117 CLR 423 House v The King (1936) 55 CLR 499 Jones v Jones (1968) 10 FLR 493 Medlow & Medlow (2016) FLC 93-692 |
R v Ross-Jones & Anor, Ex Parte Beaumont (1979) 141 CLR 504
Re Club Superstores Australia Pty Ltd (in liq) (1993) 10 ACSR 730
ReNational Safety Council of Australia (1990) 15 ACLR 355
Sir Raymond Walton, Kerr on the Law and Practice as to Receivers and Administrators (Sweet & Maxwell, 17th ed, 1989)
Andrew R Keay, McPherson: The Law of Company Liquidation (LBC Information Services, 4th ed, 1999)
| 1ST APPELLANT: | D Pty Ltd as Trustee of the D Unit Trust |
| 2ND APPELLANT: | C Pty Ltd |
| 3RD APPELLANT: | E Pty Ltd as Trustee of the E Unit Trust |
| 4TH APPELLANT: | F Pty Ltd |
| 5TH APPELLANT: | G Pty Ltd as Trustee for G Investments Unit Trust |
| 1ST RESPONDENT: | Ms Sadler |
| 2ND RESPONDENT: | Mr Sadler |
| 3RD RESPONDENT: | B Pty Ltd |
| 4TH RESPONDENT: | Mr Miller |
| 5TH RESPONDENT: | Mr AA as Trustee of the Bankrupt Estate of Mr Sadler |
| 6TH RESPONDENTS: | Mr Fuller and Mr Martini as Receivers & Managers Appointed |
| FILE NUMBER: | NCC | 1976 | of | 2012 |
| APPEAL NUMBER: | EA | 124 | of | 2016 |
| DATE DELIVERED: | 21 September 2016 |
| PLACE DELIVERED: | Sydney |
| PLACE HEARD: | Sydney |
| JUDGMENT OF: | Ryan, Aldridge & Hannam JJ |
| HEARING DATE: | 29 August 2016 |
| LOWER COURT JURISDICTION: | Family Court of Australia |
| LOWER COURT JUDGMENT DATE: | 21 July 2016 |
| LOWER COURT MNC: | [2016] FamCA 604 |
REPRESENTATION
| COUNSEL FOR THE APPELLANTS: | Mr M Pesman SC |
| SOLICITOR FOR THE APPELLANTS: | Beazley Boorman Lawyers |
| COUNSEL FOR THE 1ST RESPONDENT: | Mr J Siggins |
| SOLICITOR FOR THE 1ST RESPONDENT: | XX Lawyers |
| COUNSEL FOR THE 2ND RESPONDENT: | Ms M Kennedy |
| SOLICITOR FOR THE 2ND RESPONDENT: | Arnold Lawyers |
| COUNSEL FOR THE 3RD RESPONDENT: | Mr J Siggins |
| SOLICITOR FOR THE 3RD RESPONDENT: | XX Lawyers |
| COUNSEL FOR THE 4TH RESPONDENT: | Mr B Bradley |
| SOLICITOR FOR THE 4TH RESPONDENT: | Shotters Lawyers |
| SOLICITOR FOR THE 5TH RESPONDENT: | Hicksons Lawyers |
| COUNSEL FOR THE 6TH RESPONDENTS: | Mr S Golledge |
| SOLICITOR FOR THE 6TH RESPONDENTS: | Matthews Folbigg Pty Ltd |
Orders
The record of the proceedings be amended so that the name of the second appellant be C Pty Limited.
Leave to appeal is granted to the appellants.
The appeal be allowed and Orders 1 to 10 made by Cleary J on 21 July 2016 be set aside.
The Application in a Case filed on 18 May 2016 be dismissed insofar as it sought the appointment of receivers.
Direct that any party seeking a costs order file and serve any submissions as to costs within 28 days. Any respondents to an application for a costs order are to file and serve any submissions in reply within a further 28 days.
Note: The form of the order is subject to the entry of the order in the Court’s records.
IT IS NOTED that publication of this judgment by this Court under the pseudonym D Pty Ltd and Ors & Sadler and Ors has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).
| THE FULL COURT OF THE FAMILY COURT OF AUSTRALIA AT SYDNEY |
Appeal Number: EA 124 of 2016
File Number: NCC 1976 of 2012
| D Pty Ltd as Trustee of D Unit Trust 1st Appellant and C Pty Ltd 2nd Appellant and E Pty Ltd as Trustee of E Unit Trust 3rd Appellant and F Pty Ltd 4th Appellant and G Pty Ltd as Trustee for G Investments Unit Trust |
5th Appellant
and
| Ms Sadler and Mr Sadler and B Pty Ltd and Mr Miller and Mr AA as Trustee of the Bankrupt Estate of Mr Sadler |
5th Respondent
and
Mr Fuller and Mr Martini as Receivers & Managers Appointed
6th Respondents
REASONS FOR JUDGMENT
Introduction
On 21 July 2016 Cleary J made a suite of orders under the Family Law Act 1975 (Cth) (“the Act”), which among other things appointed receivers to the property and income of the Sadler Family Trust, H Trust and the I Superannuation Fund. The orders were made on the application of Ms Sadler (“the wife”) in property proceedings under s 79 of the Act between her and Mr Sadler (“the husband”). The wife sought the appointment of receivers in order to have the receivers realise the interests those trusts had in a number of single venture property developments. The receivers proposed to do this by engaging the provisions within the various unit trust deeds which enable holders of units within the trusts to redeem their units and receive the cash value of them from the trustee.
C Pty Limited, D Pty Limited as Trustee of the D Unit Trust (“D Pty Ltd”), E Pty Limited as Trustee of the E Unit Trust, F Pty Limited and G Pty Limited as Trustee for G Investments Unit Trust (collectively, “the appellants”), all of whom are either involved in the same developments or are the vehicles for the developments, appeal against those orders. The second appellant is incorrectly described in these proceedings and an order will be made correcting the record to show its correct name.
The third respondent to the proceedings is B Pty Limited (“B Pty Ltd”). Until the husband’s bankruptcy on 18 February 2015, the wife and the husband were the two shareholders and directors of the company. Since the bankruptcy, the wife has continued as the sole director. B Pty Ltd is the trustee of the Sadler Family Trust, H Trust and the I Superannuation Fund, the three trusts to which the receivers were appointed.
The first intervener at first instance and the fourth respondent in the appeal is Mr Miller, who is the major creditor of the husband’s bankrupt estate.
The second intervener and fifth respondent is Mr AA, the trustee of the husband’s bankrupt estate.
Mr Fuller and Mr Martini (“the receivers”) are the sixth respondents in the appeal.
Ownership Structure
Sadler Family Trust
The Sadler Family Trust is a discretionary trust. The husband is the appointor of the trust but on 20 July 2016 the primary judge restrained him from exercising any power to remove or appoint the trustees.
This trust holds a number of shares in property development companies and units in the trusts of which those companies are the trustees. We shall refer only to the investments that are relevant to the present appeal.
The Sadler Family Trust owns:
·120 ordinary shares in G Investments Pty Limited (this is 20 per cent of the shares);
·two units in the G Investments Unit Trust. The Trustee of the G Investments Unit Trusts is G Pty Limited. That trust owns a property which has been valued at $13 500 000 for the purpose of these proceedings;
·370 642 units in the D Unit Trust. D Pty Limited is the Trustee of the D Unit Trust and is one of the appellants. It owns, or has interests in, three commercial properties;
·all of the 10 units in the EE Unit Trust which in turn owns 25 initial units and 150 000 preference units in the E Unit Trust (one fourteenth of the total units). E Pty Limited is the Trustee which owns the eponymous property. It is also an appellant;
·10 shares in F Pty Limited jointly with FF Discretionary Trust and the Y Family Trust. Each of the latter two trusts owns a further 10 shares in the company; and
·10 units in the H Trust.
H Trust
The H Trust is a unit trust. This trust owns two vacant blocks of land. The Sadler Family Trust, Mr CC and Mr JJ each own 10 units in the Trust.
I Superannuation Fund
The I Superannuation Fund is a self-managed superannuation fund of which the wife and the husband are the only members.
This trust has interests in real estate and shares.
It also owns:
·370 632 units in the D Unit Trust;
·349 000 units in G Investments Unit Trust. The number of units issued is 1 745 000, according to the Shareholders Agreement; and
·116 005 units in the DD Unit Trust, which is 33.3 per cent of the units. The balance of the units are owned by the Y Superannuation Fund and the HH Family Superannuation Trust.
Leave to appeal
The appellants raised the issue as to whether leave to appeal is required.
The appointment of a receiver is clearly interlocutory as it does not finally determine the rights of a party: Hall v Nominal Defendant (1966) 117 CLR 423 at 443. This is because “a liquidator may be removed at any time, he may with permission resign, or an extra or additional liquidator may be appointed. Further, his powers may be varied from time to time by the Court”: Re National Safety Council of Australia (1990) 15 ACLR 355 at 537. Accordingly, leave is required (s 94AA of the Act and reg 15A of the Family Law Regulations 1984 (Cth)).
The general test is that an applicant for leave should establish that there is sufficient doubt about the decision so as to justify its reconsideration and that substantial injustice would flow if the order was not set aside (Medlow & Medlow (2016) FLC 93-692 at 81,086).
As we will explain, this test is met and there will be a grant of leave.
The appeal
The Further Amended Notice of Appeal raised five grounds, the last of which is the subject of an application to adduce further evidence. Three of the grounds can be dealt with briefly.
Ground 1 – That her Honour erred in fact and in law in appointing Receivers to ABN […] being the Australian Business Number for [B] Pty Limited not the Australian Business Number for the [H] Trust whose ABN is […]
There was an error in the orders of 21 July 2016 in that the incorrect ABN was inserted. This, however, has since been rectified by orders made by Cleary J on 17 August 2016 pursuant to r 17.02 of the Family Law Rules 2004 (Cth) (“the Rules”).
Ground 3 – That her Honour erred in law in making order 3 being an order beyond the powers of the Court
Ground 4 - That her Honour erred in law in making order 4 being an order beyond the powers of the Court
It is convenient to deal with these grounds together.
Orders 3 and 4 provide:
(3)That in exercising any of their duties under these Orders the Receivers have all of the powers ordinarily available to them pursuant to s 420 of the Corporations Act 2001, and have the right to seek further powers from the Court in the course of exercising the duties of the receivership.
(4)That in exercising any of their duties under these Orders the Receivers be authorised to do anything that the Director [B] Pty Ltd may do.
The appellants submit that Order 3 was an impermissible exercise of the Court’s jurisdiction under the Corporations Act 2001 (Cth) (“the Corporations Act”) because the receivers were not appointed to corporations but rather the property and income of trusts.
The power to appoint receivers clearly arises from s 80(1)(k) of the Act (Jones v Jones (1968) 10 FLR 493 and Dimov v Dimov (1971) 17 FLR 462). The power is to make “any other order” necessary to do justice. This enables the court to make “whatever orders it regards as appropriate” (R v Ross-Jones & Anor, Ex Parte Beaumont (1979) 141 CLR 504 at 509 per Gibbs J).
As is common with many statutes that permit courts to appoint receivers, s 80(1)(k) of the Act does not make provision for the powers that may be exercised by the receivers. The Rules are similarly silent. Thus, orders which appoint the receivers must also clothe the receivers with the powers to be exercised by them. A common and shorthand way of providing for this is by giving the receivers some or all of the powers referred to in s 420 of the Corporations Act, as if they had been appointed under that section. In doing so, the Court is exercising power conferred pursuant to s 80(1)(k) of the Act and not the Corporations Act.
Order 3 is not ideally worded, in that the receivers would not ordinarily have the powers under s 420 of the Corporations Act. They would only have those powers if the order appointing the receivers specifically conferred them. However, this is clearly what the order intended. Preferably, and more correctly, the order should have been made omitting the words “ordinarily available to them” and the words “as if they had been appointed under that Act” inserted after the words “Corporations Act 2001”. If the orders survive the appeal, they will be amended by us in that fashion to make the position clear.
The appellants submit the wife’s application seeking the appointment of the receivers was in breach of orders made by the Supreme Court of New South Wales in proceedings between Mr Miller, the husband and B Pty Ltd.
In 2013 a Supreme Court judge made an order against B Pty Ltd, restraining it from dealing with its assets other than in the ordinary course of business. That order was extended by further orders. In 2014 an appeal against those orders was dismissed. This led to the following final order, made in the Supreme Court later that year:
…
a.As against [B] Pty Limited, that it not permit any dealing with its shares, nor any disposal of assets or rights, other than in the ordinary course of its ordinary business.
…
3.An exception to (a) and (b) is to permit the realisation of assets for the sole purpose of satisfying the payment pursuant to order one made by Windeyer AJ [in 2012] and interest to the date of payment.
Senior counsel for the appellants accepted that the redemption of the units held by the trusts of which B Pty Ltd is the trustee would not be a breach of these orders, but submitted that the appointment of receivers to do so on its behalf would breach the order.
We do not accept that this is so. This is because “[t]he appointment of a receiver does not in any way affect the right to the property over which he is appointed. The court takes possession by its receiver, and his possession is that of all parties to the action according to their titles” (Sir Raymond Walton, Kerr on the Law and Practice as to Receivers and Administrators (Sweet & Maxwell, 17th ed, 1989) p.131). Thus neither the application for the appointment of the receivers nor their appointment involved B Pty Ltd disposing of its assets or rights.
Mr Miller himself accepted that this was the position. However, for more abundant caution, he proposed an order that would make it clear that the receivers themselves were bound by the Supreme Court orders. There was no opposition to that course and if the appeal does not succeed that order will be made.
Ground 2 – That her Honour erred in the exercise of the Court’s discretion in making order 2 in circumstances where there was a real risk that such an order may result in a breach of the mortgage/s in respect of property/properties jointly owned by the Appellants on the one hand and legally held by entities of the husband and the wife on the other hand
The submissions contained in the Summary of Argument under this ground ranged more widely than the ground itself. It was submitted that her Honour’s discretion miscarried in the following ways:
· The purpose of the appointment of the receivers was not limited to triggering the redemption provisions in the various trust deeds and converting the units to cash but could extend to the “winding up of the trusts or sale of the underlying properties. This would be grossly unfair to the other holders of the units in those trusts”.
· The wife, as director of [B Pty Ltd], could herself trigger any redemption process.
· There was no basis for the primary judge finding that “it would be beneficial to all unit holders potentially to have the relevant matrimonial assets excised”.
· There was no finding that the redemption process could be completed by 21 November 2016.
· The primary judge failed to take account of all of the assets of the [Sadler] Family Trust or the view of the husband.
· The primary judge dismissed the fact that the appointment of receivers was an event of default under the appellants’ mortgages which entitled the mortgagees to call in the loan and take action against the securities which supported the advances.
It needs to be said at the outset that the bases on which a discretionary decision may be challenged on appeal are constrained (House v The King (1936) 55 CLR 499) and that such an appellant faces a high bar (Gronow v Gronow (1979) 144 CLR 513).
In his oral submissions senior counsel for the appellants (who neither appeared at the first instance hearing nor prepared the summary of argument) concentrated on the second and the last points. It is convenient to deal with the first and third to fifth points first.
Were the powers given to the receivers too broad?
The appellants submit that the extensive powers given to the receivers were unnecessary given the primary judge’s findings at [20] and [21] that the appointment was for the limited purpose of triggering the redemption provisions.
One of the proposed receivers gave evidence saying that it was his intention to redeem the units by triggering the redemption provisions in the various unit trust deeds but that if the “redemption process is unsuccessful in any given case I would be entitled to invoke the provisions of the Corporations Law and/or the Conveyancing Act in order to realise the interests of the [Sadler] entities”.
The purpose of the appointment was to convert the units into cash. Whilst the primary intention was that it be achieved through the redemption provisions, we see nothing at all unfair in a unit holder in a unit trust taking whatever steps are legally available to them to redeem their units and to convert that interest into cash.
The court may alter the powers of receivers at any time. Thus, it would have been entirely proper for her Honour to have given more limited powers to the receivers at first and later conferred wider powers, if that became necessary. However, we do not see any error in the order that was made. After all, the receivers were in no better position than B Pty Ltd to pursue any appropriate remedy against the appellants.
Would the redemption process be completed in time for the trial?
It is clear that the primary judge hoped the redemption process would be completed in time for the final hearing in November 2016. That appears possible, at the least, although as will be explained later the process of redemption, which may in turn require valuation, could well take longer. The fact that it may take longer, however, is not a convincing reason for not making the orders.
Was it beneficial to all involved to have the matrimonial property excised?
The primary judge recorded that the application was opposed by the husband, who was described by her Honour as appearing to have a community of interest, in a legal and an accounting sense, with the appellants (at [12]).
At least before us, it was accepted that there had to be an untangling of interests so as to enable the property proceedings to be determined. Whether all parties would see that as beneficial may be a moot point, but the determination of that question can hardly be said to be material to the outcome of the application.
Was it necessary to consider all of the assets of the Sadler Family Trust and the view of the husband?
The relevance of the other interests of the Sadler Family Trust is not at all obvious to us. The receivers were appointed to trigger the redemption provisions in some of the unit trusts owned by it. That issue remained, regardless of what other assets it held.
The primary judge recorded and thus took into account the opposition of the husband to the application. Of course, as a bankrupt his interest was limited to the interests in the I Superannuation Fund.
The short answer to all these submissions is that each of those matters was expressly taken into account by the primary judge and the grounds for appellate intervention have not been made out.
Did the primary judge misapprehend the effect of the appointment of the receivers?
We turn then to the main challenge to the decision to appoint receivers, which is the appellants’ contention that the primary judge misapprehended both the potential effect of the appointment of the receivers on the appellants and the role of the receivers in facilitating the redemption of the units held by the three Sadler trusts. The appellants contend that this misapprehension then led to an error in the exercise of the discretion to appoint the receivers. Further, they submitted this misapprehension led to her Honour appointing the receivers because it was “proper”, whereas s 80(1)(k) of the Act could only be enlivened by a finding that the appointment was “necessary” being the term used in the provision.
In order to understand the submission it is necessary to traverse, in some detail, the securities given by the parties and the redemption process. It is appropriate to record that we were given considerably more assistance on this aspect of the matter than was offered to the primary judge.
The following refers only to the documents relating to an advance (“the advance”) from SJ Asset Management Limited (“SJ Ltd”) to D Pty Ltd in its own right and as trustee for the D Unit Trust. The evidence did not deal with any other borrowings by any of the appellants or the terms of any other advances. The terms of the advance, of the mortgage over the property of D Pty Ltd, and of the guarantee are to be found in a number of different documents.
The first is the Mortgage Memorandum of Provisions, of which clause 1.1 provides:
You also give the promises set out in any other related agreement to which you are a party.
The words “related agreement” are defined as including “any security or other document” entered into with SJ Ltd which relates to the money advanced. This includes the Mortgage Memorandum of Provisions itself, as well as the other documents to which we shall refer. Thus, the promises made in each of those documents are made as part of the agreement to advance the funds.
Clause 5.6 of the Memorandum said:
If you are a corporation, you must not do (or allow anyone else to do) any of the following without the written consent of the mortgagee:
…
· allow a receiver or similar entity to be appointed to any of your property, or the property of any subsidiary or corporation grouped with you for accounting purposes.
Clause 4 of the Memorandum identifies a number of events of default and the consequences for the mortgagor if one occurs. These consequences include requiring immediate repayment of the advance and other sums owing and entitling the mortgagee to take possession of the secured property. It also needs to be understood that one of the events of default is “if you or a relevant party do not comply with an obligation under a related agreement” (Clause 4.1(a)). A related party is a person who is a party to a related agreement (Clause 12.1).
It follows, therefore, that if a receiver is appointed to assets of D Pty Ltd, this would be in breach of Clause 5.6 of the Memorandum and thus an event of default.
The advance is secured by a mortgage granted by D Pty Ltd. The mortgage is cross-collateral to the mortgages over a number of properties of D Pty Ltd and persons associated with D Pty Ltd (owned directly or indirectly by the HH family) in addition to the property the subject of the advance. This is apparent from the Acknowledgements of Cross-Collateral Security. It is an express provision of the mortgage that “default under any one loan shall constitute an event of breach or default under each loan”.
The appointment of a receiver to the property of D Pty Ltd is therefore an event of default under each mortgage given by the guarantors.
The advance is also secured by guarantees given by Mr HH, MN Pty Limited and B Pty Ltd. It is of some interest that the guarantee documents, along with all other relevant documents, were signed on 13 May 2015, some months after the husband’s bankruptcy. They were executed by the wife on behalf of B Pty Ltd.
The terms of the Guarantee include those contained in the General Security Agreement. It contains a provision which provides that the principal and interest remaining unpaid shall become immediately payable and the security enforceable:
4.6If a receiver or a receiver and manager of the Grantor’s or any Guarantor Company’s undertaking or assets or any part thereof or any part of the income thereof is appointed or the Grantor or any Guarantor Company calls a meeting of its creditors pursuant to the Corporations Act;
It is clear then that the appointment of a receiver to the property or undertaking of D Pty Ltd is an immediate event of default of the agreement with SJ Ltd and also an event of default in the mortgages given to SJ Ltd by the guarantors and the owners of the cross-collateralised properties. However, it will be recalled that the receivers were not appointed to any asset or undertaking of D Pty but the property and income of a unit holder in the D Unit trust.
The appointment of receivers to the property and income of those trusts was an appointment over the assets and undertaking of B Pty Ltd, which is the trustee of the Sadler Family Trust, H Trust and the I Superannuation Fund. As B Pty Ltd is a guarantor of the advance, clause 4.6 of the General Security Agreement is enlivened, as receivers were appointed to its assets. As B Pty Ltd is a related party to a related agreement, this then is also a breach of clause 5.6 of the Mortgage Memorandum of Provisions. Thus, for these two reasons, the appointment of the receivers is also an event of default in each of the cross-collateralised mortgages. The possible consequences are widespread and significant.
The primary judge said:
33.The Third Intervenor says that the financial position and interests of some or all of the parties would be adversely affected by receivers being appointed. The Court was taken to documents relating to finance that in particular, said this:
If you are a corporation, you must not allow a receiver or similar entity to be appointed to any of your property unless the mortgagee agrees in writing.
34.It is an unsurprising inclusion in a finance document, with many parties involved in a commercial operation. There is no basis to assume that receivers would not act diligently, would not seek the approval of a mortgagee. They are officers of the Court, to whom they report. They have not been appointed in respect of all property of the various entities, but for particular entities for a defined purpose. In his affidavit, Mr [Y] asserts that should the Court appoint a receiver, each mortgage would be in default, that there would be default interest, and the mortgagee could take possession.
35.In my view, this statement is not an inevitable outcome, but something of an overstatement. The receiver is not seeking to receive all of the assets of [B Pty Ltd]. The receivers are able to seek directions from the Court in the event of uncertainty. There is no evidence before me of what position the mortgagee would actually take, rather than the theoretical possibilities that arise from sensible provisions in the mortgage document.
Her Honour was mistaken in expressing the view that any default occasioned by the appointment of the receivers could be overcome by the receivers seeking the approval of the mortgagee to their appointment. Such approval would be too late to avoid the appointment being an act of default but, of course, would be relevant to what, if any, action the mortgagee would take.
In the present circumstances, it is not inevitable that SJ Ltd would rely on the event of default and take action under their loan and security agreements. The appointment of the receivers was for the limited purpose of extracting some of the interested parties from the ownership structure of the unit trusts for the purpose of finalising their matrimonial affairs. That purpose is, on its face, unlikely to cause any change in the affairs of the appellants that would put their financiers’ interests at risk.
Of course, much would depend on the soundness of the securities and the appellants’ ability to repay their loans. Of this, however, there was no evidence. Similarly, the wife did not call evidence to the effect that the appointment of receivers would not be acted upon by SJ Ltd.
It is not entirely clear from the above passage whether her Honour regarded the appointment of the receivers as an immediate event of default, but on balance we consider that her Honour did so. This is because her Honour referred to Mr Y’s evidence to that effect and said that it was not inevitable that SJ Ltd would act on this event of default (at [35]). It is clear, however, that the primary judge was not made aware of the potential scope and magnitude of the action that could be taken by SJ Ltd over the property of interests of the other assets of D Pty Ltd and the other providers of security in the manner just identified. Consequently, the possible effects of the appointment of the receivers were not fully appreciated by her Honour.
The conclusion then is that the appointment of the receivers was an act of default immediately entitling SJ Ltd to take whatever action it saw fit under the various agreements it held. The evidence did not permit any assessment to be made as to the likelihood of SJ Ltd taking such action and her Honour’s conclusion that the receivers could be relied on to in effect, persuade the lenders not to act on the default was not available.
We turn now to the redemption provisions contained within the D Unit Trust Deed. The primary judge did not have the benefit of this document.
The Deed provides that the redemption value of a unit in the trust is derived by dividing the value of the trust by the number of units in existence. The value of the Trust is extensively defined as meaning:
“Value of Trust Funds” means such sum as is from time to time adopted or determined by the Trustee in accordance with the following provisions:-
(a)If, for any purpose, the Trustee is required to determine the value of the Trust Funds the Trustee may, with the written consent of the Unit Holders, adopt as the value of the Trust Funds such sum as may be agreed by all Unit Holders;
(b)In obtaining such consent the Trustee shall, forthwith on determining that it is necessary for any purpose to obtain the value of the Trust Fund, convene a meeting of the Unit Holders to consider their agreement as to the value thereof, however, if the Unit Holders do not agree as to the Value of the Trust Funds within 28 days of such meeting then the Trustee shall obtain such relevant professional advice as is reasonable to ascertain the Value of the Trust Fund at any particular time. In respect of an application for Units or a request for redemption of Units the time shall be the date the application or request is received by the Trustee;
(c)In determining the Value of the Trust Funds the Trustee shall cause to be prepared a proper balance of the assets and liabilities of the trust incorporating therein for the value of assets of the trust the value as advised to the Trustee as aforesaid; and
(d)In the event that the Unit Holders provide written consents to the Trustee agreeing to the Value of the Trust Funds the Trustee shall be entitled to adopt such agreed value for the purpose for which I was obtained but for no other purpose.
In short, if all of the unit holders are unable to agree on the value of the trust, the trustee must determine the value obtaining such professional advice as is reasonable.
Once the value of the units has been established, the mechanism for redemption is as provided by Clause 6:
(a) The Trustee:-
(i)may, at any time after the date which is the first anniversary of the date of this Deed on not less than one (1) months written notice to a Unit Holder; and
(ii)will, if so requested by a Unit Holder in respect of the Units held by him on any date after the date which is the first anniversary of the date of this Deed within one (1) month from the date of such request;
redeem the whole or any number of the Units held by the Unit Holder and such redemption shall be effected by payment to the Unit Holder of a sum in respect of each Unit to be redeemed equal to the Redemption Value. A request for redemption shall be in writing in whatever form may be required by the Trustee signed by the Unit Holder and accompanied by the Unit Certificate to which the request relates.
Thus, the steps to be taken by B Pty Ltd, or the receivers on its behalf, to engage the redemption of the units is the sending of a written notice and the attendance at a meeting or meetings of shareholders to agree on a value. Thereafter, if not agreed, the value is a matter for the Trustee. The actual redemption follows in a simple manner.
Her Honour said:
37.…The wife readily concedes that she could take this course herself, in theory, but says that there may well be practical difficulties. In my view, it would be beneficial to all unit holders potentially to have the relevant matrimonial interests excised.
38.The Third Intervenor would then have no need to participate in the final hearing. It is at least arguable, on the evidence before me, that Mr [Y] would not be readily available to assist the wife to trigger the redemption provisions. Likewise, the receivers are likely to be much more effective as independent agents in this role. It will certainly represent a benefit to all parties to have the matter in a position of being ready to be heard with meaningful joint balance sheet by November 2016.
The appellants correctly submit that B Pty Ltd could have easily triggered the redemption process and that the receivers were unnecessary. Whilst it may be readily accepted that the receivers, because of their professional qualifications and experience, will be more comfortable than the wife in assessing an appropriate value of the trusts and dealing with the other unit holders, it is not necessary for them to do that as receivers. They could equally assist the wife and B Pty Ltd as advisors or as agents. The Trustee is bound to act in accordance with its fiduciary obligations in facilitating the valuation and redemption. Indeed, at the hearing of the appeal, D Pty Ltd made an open offer which included a proposed undertaking by the directors of the Trustee to act swiftly in dealing with any redemption application and that they “will appoint a valuer in consultation with the solicitors with the solicitors or accountants for the wife”.
Counsel for the wife described the “practical difficulties” that would flow from the wife having to trigger the redemption herself as “getting the right information … to be able to nominate values of the various entities” and that her endeavours to do so “have been met with a brick wall”. The primary judge certainly acknowledged the difficulties that the wife had over a four year period in attempting to have the husband provide proper disclosure and cooperation as to the identification and value of the parties’ property and financial interests.
Nonetheless we do not see the “practical difficulties” that could arise if receivers were not appointed are resolved by their appointment. The position of the wife can be pursued as effectively and as expeditiously by triggering the redemption provisions herself, with the assistance of such professionals as she sees fit.
The appellants submitted that the appointment of the receivers will simply be an additional financial burden on the trusts. They accept that, if the unit holders in the D Trust cannot agree on its value then the cost of the valuation will fall on the D Trust itself and ultimately be borne by all of the unit holders. That cost, however, will be borne by them whether or not B Pty Ltd itself or receivers trigger the redemption process. The issue of the cost of the receivers is therefore primarily a concern for the husband and his trustee in bankruptcy, neither of whom appealed. The trustee did not oppose the appointment. There is no substance in this submission.
We accept the submission that the primary judge misapprehended the role of and the significance of receivers being appointed. As her Honour also misapprehended the nature of the risk to the third parties of the appointment of the receivers it follows that the exercise of discretion in taking these two factors into consideration miscarried.
We consider that the potential risk of SJ Ltd acting upon the events of default arising from any appointment of receivers, when weighed against the limited role of the receivers in engaging the redemption provisions, is such that on a re-exercise of the discretion, the application for the appointment of the receivers to the property and income of the Sadler Family Trust should be dismissed.
The H Trust owns no units in any trust and there is no justification for the appointment of receivers to it.
This then leaves consideration of the I Superannuation Trust. The evidence did not reveal the terms of either the borrowings by the trustees of units it held or the terms of any relevant unit trust deeds. However, its trustee is B Pty Ltd and the appointment of receivers to its assets, including those held on behalf of the I Superannuation Trust, is a breach of the D Pty Ltd advance. Thus the application for the appointment of receivers to it should also be dismissed.
Finally, we turn to the appellants’ submission that the primary judge erroneously considered whether the appointment of the receivers was “proper” as opposed to “necessary”.
Section 80(1)(k) provides:
(1) The court, in exercising its powers under this Part, may do any or all of the following:
…
(k) make any other order (whether or not of the same nature as those mentioned in the preceding paragraphs of this section), which it thinks it is necessary to make to do justice;
…
The primary judge said:
27.The Family Court has the power to appoint a receiver of property of a corporation, provided of course that it is for a proper purpose. Section 80(1)(k) is the power within the Family Law Act 1975 (Cth) (“Family Law Act”) for making any order necessary to do justice, providing jurisdiction is available, and I have already said that the receivership appears to me to be for a proper purpose. The receiver has the power to do all things necessary or convenient to be done for, or in connection with, or incidental to the attainment of the objectives for which the appointment – the receiver was appointed (see s 420(1) of the Corporations Act).
Her Honour was clearly aware of the need for the order sought to be found to be necessary to do justice because she expressly said so.
The reference to the purpose being proper is a reference to her Honour’s earlier express finding to that effect (at [21]). The only sensible reading of the balance of her Honour’s reasons is that they constitute her Honour’s consideration as to why the appointment was necessary.
This aspect of the ground of appeal is not established.
Ground 6 – [Mr Martini] and his partner at [J Consulting], [Mr Fuller] should not be appointed as receivers in any event
As the appeal will be allowed and the appointment of the receivers will be set aside, this ground is no longer directly relevant. Nevertheless, we consider it appropriate to deal with it.
By an Application in an Appeal filed with leave at the hearing of the appeal, the appellants seek leave to adduce evidence on the appeal. There was no objection to the application and the evidence will be received. Much of that evidence was simply to place the various trust deeds before the court.
The balance of the evidence, which provides the foundation for this ground, was that one of the receivers has business interests with the wife’s solicitor. Mr Martini is one of two directors of a company called RG Investments Pty Ltd. The other director is the wife’s solicitor Mr XX. It was not suggested that Mr Martini had any interest in the ownership of that company, directly or otherwise.
The evidence discloses that Mr Martini and Mr XX also each own half of the shares in RR Pty Ltd and one third each in SS Pty Ltd and TT Pty Ltd.
It is common ground that these interests were not disclosed prior to the receivers’ appointment.
The basis of the challenge to the appointment of Mr Martini is his business relationship with Mr XX.
It is submitted that “[t]he mere failure to disclose such a matter given the contents of the affidavit of Mr [XX] should be sufficient to raise doubt as to the independence of the Receivers”. Mr XX swore the usual affidavit as to the fitness of the receivers to act. In oral submissions it was submitted that the real difficulty arose from the failure of either Mr Martini or Mr XX to disclose the relationship between them.
Whilst not directly relevant, s 418 of the Corporations Act provides some indication of the potential lack of independence which would disqualify a person from acting as receiver of property of a corporation. It states:
Persons not to act as receivers
(1) A person is not qualified to be appointed, and must not act, as receiver of property of a corporation if the person:
(a) is a secured party in relation to any property (including PPSA retention of title property) of the corporation; or
(b)is an auditor or a director, secretary, senior manager or employee of the corporation; or
(c) is a director, secretary, senior manager or employee of a body corporate that is a secured party in relation to any property (including PPSA retention of title property) of the corporation; or
(d) is not a registered liquidator; or
(e) is a director, secretary, senior manager or employee of a body corporate related to the corporation; or
(f) unless ASIC directs in writing that this paragraph does not apply in relation to the person in relation to the corporation--has at any time within the last 12 months been a director, secretary, senior manager, employee or promoter of the corporation or of a related body corporate.
(3) Paragraph (1)(d) does not apply in relation to a body corporate authorised by or under a law of the Commonwealth, of a State or of a Territory to act as receiver of property of the corporation concerned.
Section 532(2) of the Corporations Act provides that a person, without the leave of the court, may seek to be appointed as a liquidator of a company if:
(a) if the person, or a body corporate in which the person has a substantial holding, is indebted in an amount exceeding $5,000 to the company or a body corporate related to the company; or
(b) if the person is, otherwise than in his or her capacity as liquidator, a creditor of the company or of a related body corporate in an amount exceeding $5,000; or
(c) if:
(i) the person is an officer or employee of the company (otherwise than by reason of being a liquidator of the company or of a related body corporate); or
(ii) the person is an officer or employee of any body corporate that is a secured party in relation to property of the company; or
(iii) the person is an auditor of the company; or
(iv) the person is a partner or employee of an auditor of the company; or
(v) the person is a partner, employer or employee of an officer of the company; or
(vi) the person is a partner or employee of an employee of an officer of the company.
A similar provision applies to administrators (s 448C) of the Corporations Act. Administrators must also provide a declaration of relevant interests (s 436DA) of that Act. That phrase is defined by s 9 of that Act to have the meaning given by s 60 which states:
Declaration of relevant relationships
Administrator
(1) In this Act, a declaration of relevant relationships, in relation to an administrator of a company under administration, means a written declaration:
(a) stating whether any of the following:
(i) the administrator;
(ii) if the administrator’s firm (if any) is a partnership--a partner in that partnership;
(iii)if the administrator’s firm (if any) is a body corporate--that body corporate or an associate of that body corporate;
has, or has had within the preceding 24 months, a relationship with:
(iv) the company; or
(v) an associate of the company; or
(vi) a former liquidator, or former provisional liquidator, of the company; or
(vii) a person who is entitled to enforce a security interest in the whole, or substantially the whole, of the company’s property (including any PPSA retention of title property); and
(b) if so, stating the administrator’s reasons for believing that none of the relevant relationships result in the administrator having a conflict of interest or duty.
The focus of each of these sections is on the relationship between the proposed appointee and the corporation to which he or she is to be appointed. There is no suggestion that Mr Martini has any relationship with the three trusts or B Pty Ltd. Nothing in these provisions supports the contention that he suffers from a lack of independence.
Nonetheless, “the guiding principle in the appointment by the court of a liquidator is that he or she must be independent and must be seen to be independent”: Andrew R Keay, McPherson: The Law of Company Liquidation (LBC Information Services, 4th ed, 1999) p.281; ReNational Safety Council of Australia (supra) at 360. A court appointed receiver is in exactly the same position.
However, for an appointment to be refused or a liquidator removed there must be “some realistic prospect of embarrassment or a serious possibility of conflict” (Re Club Superstores Australia Pty Ltd (in liq) (1993) 10 ACSR 730 at 735 per Thomas J).
In dealing with the prior involvement of a liquidator who had some earlier involvement with the company in liquidation, Santow J said in Advance Housing Pty Ltd (in liq) v Newcastle Classic Developments Pty Ltd (1994) 14 ACSR 230 at 234:
In my judgment, the correct balance is struck by permitting a liquidator to act as such even if there be a prior involvement with the company in liquidation, provided that involvement is not likely to impede or inhibit the liquidator from acting impartially in the interests of all creditors or be such as would give rise to a reasonable apprehension on the part of a creditor that the liquidator might be so impeded or inhibited.
Here, the identified involvement is not with any of the companies or trusts associated with the parties but rather with companies owned by the receiver and the wife’s solicitor. It is not at all clear why that association would cause the receiver to have a conflict of interest in dealing with the interests of the trusts the subject of the appointment and the wife and husband on the one hand and the appellants on the other. We do not see that there is a serious possibility of conflict or that there is a reasonable apprehension that the receivers would be impeded or inhibited from acting impartially.
We fully accept that the relationship between Mr Martini and Mr XX should have been disclosed and that the failure to do so adds to the concern as to potential lack of independence. However, we also take into account the limited role of the receivers as discussed earlier. Given that limited role we remain of the view that there is no sufficient risk of embarrassment or possibility of conflict to remove Mr Martini.
It is to be recalled that Mr Martini is one of two receivers and no complaint is made about the other appointee.
It follows that this ground also fails.
Conclusion and Costs
It follows that the appellants will be granted leave to appeal and the appeal will be allowed. The orders of the primary judge will be set aside and the application for the appointment of receivers is to be dismissed.
We will deal with the issue of costs by way of written submissions and directions will be made to that effect.
I certify that the preceding one hundred and three (103) paragraphs are a true copy of the reasons for judgment of the Honourable Full Court (Ryan, Aldridge & Hannam JJ) delivered on 21 September 2016.
Associate:
Date: 21 September 2016
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