Gregory Bruce Dudley and Jerome Hall Mohen as joint and several liquidators of NLR (WA) Pty Ltd (in Liquidation) v Bragg
[2024] WASC 501
•23 DECEMBER 2024
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: GREGORY BRUCE DUDLEY AND JEROME HALL MOHEN as joint and several liquidators of NLR (WA) PTY LTD (IN LIQUIDATION) -v- BRAGG [2024] WASC 501
CORAM: HILL J
HEARD: ON THE PAPERS
DELIVERED : 23 DECEMBER 2024
FILE NO/S: COR 196 of 2024
BETWEEN: GREGORY BRUCE DUDLEY AND JEROME HALL MOHEN as joint and several liquidators of NLR (WA) PTY LTD (IN LIQUIDATION)
First Plaintiff
NLR (WA) PTY LTD (IN LIQUIDATION)
Second Plaintiff
AND
RICKY BRAGG
Defendant
Catchwords:
Corporations - Winding up - Where company in liquidation was trustee of trust - Where, on appointment of liquidators, company was replaced as trustee by sole shareholder - Application for directions - Application for appointment of liquidator as receiver and manager of trust property to secure trustee's right of indemnity out of assets of trust - Turns on own facts
Legislation:
Corporations Act 2001 (Cth) s 477(2), sch 2 s 90-15
Rules of the Supreme Court 1971 (WA) O 51 r 1
Supreme Court (Corporations) Rules 2004 (WA) r 2.8
Supreme Court Act 1935 (WA) s 25(9)
Result:
Application granted
Category: B
Representation:
Counsel:
| First Plaintiff | : | No appearance |
| Second Plaintiff | : | No appearance |
| Defendant | : | No appearance |
Solicitors:
| First Plaintiff | : | Mills Oakley |
| Second Plaintiff | : | Mills Oakley |
| Defendant | : | No appearance |
Case(s) referred to in decision(s):
Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth [2019] HCA 20; (2019) 268 CLR 524
Caterpillar Financial Australia Ltd v Ovens Nominees Pty Ltd [2011] FCA 677
Cremin, in the matter of Brimson Pty ltd (in liq) [2019] FCA 1023
Jones v Matrix Partners Pty Ltd; Re Killarnee Civil & Concrete Contractors Pty Ltd (in liq) [2018] FCAFC 40; (2018) 260 FCR 310
Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd [2008] NSWSC 1344
Re Mali Nominees Pty Ltd (in liq) [2022] VSC 28
HILL J:
On 2 September 2024, the first plaintiffs were appointed as liquidators of the second plaintiff, NLR (WA) Pty Ltd (in liq) (Company).[1] Prior to their appointment, the Company was the trustee of the Fox Bragg Family Trust (Trust).[2]
[1] Affidavit of Jerome Hall Mohen filed 12 December 2024 [8], 'JM-02'.
[2] Affidavit of Jerome Hall Mohen filed 12 December 2024 [10], 'JM-04'.
Under the terms of the trust deed governing the Trust (Trust Deed), on the appointment of the first plaintiffs as liquidators, the Company was automatically removed as trustee of the Trust and the defendant, as the shareholder with the largest total shareholding of the Company, appointed as the default trustee in its place.[3]
[3] Affidavit of Jerome Hall Mohen filed 12 December 2024 [8] - [9], [24], 'JM-04' page 65.
On 12 December 2024, the plaintiffs filed an originating process seeking, among other things:
(a)orders that the liquidators be appointed without security as receivers and managers over the business and assets of the Trust; and
(b)directions that they would be justified and acting reasonably in proceeding on the basis that the Company carried on business solely in its capacity as trustee of the Trust.
The originating process was initially listed for hearing on 20 December 2024. On 19 December 2024, when no notice of appearance had been filed by the defendant, I acceded to a request by the plaintiffs' solicitors[4] to determine the matter on the papers and vacated the hearing. Orders were made on that date in accordance with the minute that was filed on 17 December 2024. These are my reasons for making these orders.
[4] Letter from Mills Oakley to the Associate to Hill J dated 17 December 2024.
Factual background
In support of the application, the plaintiffs relied on three affidavits:
(a)an affidavit of Jerome Hall Mohen, the second named first plaintiff, filed 12 December 2024; and
(b)two affidavits of Lucy Elizabeth Pye, a legal practitioner employed by Mills Oakley (the solicitors for the plaintiffs), filed 17 December 2024 and 19 December 2024.[5]
[5] The second affidavit of Mrs Pye filed 19 December 2024 reproduces Mrs Pye's first affidavit filed 17 December 2024, but with attachments 'LEP-01', 'LEP-02', and 'LEP-03'. These annexures were omitted from Mrs Pye's first affidavit.
The Company was incorporated on 27 November 2018.[6] The defendant is the sole director, secretary, and shareholder.[7] The Company, as trustee of the Trust, operated a steel fixing and rebar installation business which serviced residential, commercial, civil and mining clientele throughout the southwest region of Western Australia.[8]
[6] Affidavit of Jerome Hall Mohen filed 12 December 2024 [22].
[7] Affidavit of Jerome Hall Mohen filed 12 December 2024 [24].
[8] Affidavit of Jerome Hall Mohen filed 12 December 2024 [12], 'JM-05'.
On 2 September 2024, Mr Bragg resolved to wind up the Company and appoint the first plaintiffs as liquidators.[9]
[9] Affidavit of Jerome Hall Mohen filed 12 December 2024 [8], 'JM-02'.
Based on the investigations undertaken to date, Mr Mohen believes:[10]
(a)the Company was trustee of the Trust;
(b)the Company did not trade in its own right;
(c)the Company only acted in its capacity as trustee of the Trust and did not conduct any other business or hold any assets in any other capacity; and
(d)the Company did not own any real property, either in its own name or as trustee of the Trust, and has only limited assets in cash (totalling approximately $70,000), three motor vehicles, debtors (owing approximately $140,000), and, since 2 September 2024, an insurance refund (to the amount of approximately $16,000).
[10] Affidavit of Jerome Hall Mohen filed 12 December 2024 [10], [14] - [15], [42] - [43].
In the course of acting as liquidator of the Company, Mr Mohen has obtained a copy of the Trust Deed. The Trust was established on 27 November 2018.[11] Pursuant to cl 21.1, on an 'Event of Disqualification' (which includes an order for the winding up of the Company under provisions of the Corporations Act 2001 (Cth) (Act)), the Company was required to retire as trustee of the Trust and was disqualified from acting as trustee. Where all trustees have ceased to act before the vesting day of the Trust, pursuant to cl 21.2, the new trustee is the 'Default Successor', the definition of which includes the shareholder with the largest total shareholding in the Company.[12]
[11] Affidavit of Jerome Hall Mohen filed 12 December 2024 [25], 'JM-04'.
[12] Affidavit of Jerome Hall Mohen filed 12 December 2024 [32] - [35].
As a consequence, on the appointment of the first plaintiffs as liquidators on 2 September 2024, the Company automatically ceased to be trustee of the Trust and the defendant, as the sole shareholder of the Company, was appointed as the new trustee.[13]
[13] Affidavit of Jerome Hall Mohen filed 12 December 2024 [36].
Service of application
The Australian Securities and Investments Commission (ASIC) has been served with copies of the originating process and Mr Mohen's affidavit,[14] as required by r 2.8 of the Supreme Court (Corporations) Rules 2004 (WA). The plaintiffs have also served copies of these documents on the defendant[15] and Ms Hannah Margaret Davies[16] (being the second of two named beneficiaries of the Trust; the first named beneficiary being the defendant).[17]
[14] Affidavit of Lucy Elizabeth Pye filed 19 December 2024 [3] - [4], 'LEP-01'.
[15] Affidavit of Lucy Elizabeth Pye filed 19 December 2024 [6] - [8], 'LEP-02'.
[16] Affidavit of Lucy Elizabeth Pye filed 19 December 2024 [9] - [10], 'LEP-03'.
[17] Affidavit of Jerome Hall Mohen filed 12 December 2024, 'JM-04' page 76.
No-one has given notice to the plaintiffs' solicitors or the court that they wished to be heard on the application.[18]
[18] Affidavit of Lucy Elizabeth Pye filed 19 December 2024.
Should the first plaintiffs be appointed as receivers and managers of the Trust?
Where a company has been removed as trustee of a trust under the terms of the trust deed and a new trustee appointed, the company holds the trust assets as bare trustee and does not have the right to retain them as against the new trustee.[19] While the company's right of indemnity and accompanying equitable lien over the assets of the trust survives the appointment, the liquidator of the company does not have the power
to sell assets to satisfy its right of indemnity absent intervention by the court.[20] The court can either grant relief authorising the sale of trust property or appoint the liquidator as receiver over the trust assets.[21]
[19] Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd [2008] NSWSC 1344 [50] (Brereton J).
[20] See Jones v Matrix Partners Pty Ltd; Re Killarnee Civil & Concrete Contractors Pty Ltd (in liq)[2018] FCAFC 40; (2018) 260 FCR 310 [44], [85] ‑ [91] (Allsop CJ), [139], [142] (Siopis J), [198] (Farrell J); Caterpillar Financial Australia Ltd v Ovens Nominees Pty Ltd [2011] FCA 677 [22] ‑ [28] (Gordon J).
[21] Jones v Matrix Partners Pty Ltd; Re Killarnee Civil & Concrete Contractors Pty Ltd (in liq) [44] (Allsop CJ); [196] (Farrell J).
Courts are generally willing, upon an appropriate application, to make orders permitting the liquidator of a (former) corporate trustee to sell trust assets. This is because the trust assets are not property of the company but are trust property in which the company has an interest by way of lien or charge to secure its right of exoneration.[22] Any proceeds from the exercise of a corporate trustee's right of exoneration can only be applied to satisfy the liabilities of the trust.[23]
[22] Cremin, in the matter of Brimson Pty ltd (in liq) [2019] FCA 1023 [49] (Moshinsky J).
[23] Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth [2019] HCA 20; (2019) 268 CLR 524 [40] (Kiefel CJ, Keane & Edelman JJ), [106] (Gordon J).
The court has power, pursuant to s 25(9) of the Supreme Court Act 1935 (WA) and O 51 r 1 of the Rules of the Supreme Court 1971 (WA), to appoint a receiver where it appears to be just and convenient.
Once the sale of the trust's assets has occurred, the proceeds may be appropriated by way of exoneration as part of the conduct of the liquidation in accordance with the statutory priorities set out in pt 5.6, div 6 of the Act.[24] This includes the costs of the liquidation. Orders may be made nunc pro tunc to authorise any sale of assets that have already occurred.[25]
[24] Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth [55] ‑ [58] (Kiefel CJ, Keane & Edelman JJ), [95] ‑ [97] (Bell, Gageler & Nettle JJ), [171] (Gordon J).
[25] Jones v Matrix Partners Pty Ltd; Re Killarnee Civil & Concrete Contractors Pty Ltd (in liq) [91], [152], [198] (Farrell J).
Pursuant to s 90-15(1) of the Insolvency Practice Schedule (Corporations) (sch 2 to the Act) (IPS), the court may make 'such orders as it thinks fit in relation to the external administration of a company'. The power is broad and is at least as extensive as the powers formerly available under s 479(3) and s 511 of the Act. The principles which govern the exercise of this power can be summarised as follows:[26]
(a)the power to give advice is intended to facilitate the liquidator's performance of their functions and should be interpreted widely to give effect to that purpose;
(b)the court may give a direction where it is just and beneficial to the liquidation to do so;
(c)the function of the power is to give the liquidator advice as to the proper course of action to take in the liquidation;
(d)the court will not give a direction as to a matter of commercial or business judgment; there must be a legal issue of substance or procedure, including an issue of power, propriety or reasonableness; and
(e)the power will generally not be used to determine substantive rights and make binding orders, although the width of s 90‑15 allows the court to do so if the necessary parties are before the court.
[26] Re Mali Nominees Pty Ltd (in liq) [2022] VSC 28 [23] (Button J).
In this case, I accept that by reason of cl 21.1 of the Trust Deed, on the appointment of the first plaintiffs as liquidators, the Company immediately ceased to be trustee of the Trust and the defendant was appointed in its place. While the Company's right of indemnity from trust assets for debts incurred by it as trustee of the Trust was not affected by its removal, without an order of the court, the first plaintiffs do not have the power to sell trust assets to enforce the lien which protects its right of indemnity.
It is common for the liquidator of a former corporate trustee of a trustee to be appointed by the court as receiver to enable this to occur. This is both where the company is a bare trustee and also where a new trustee has been appointed.[27]
[27] Re Mali Nominees Pty Ltd (in liq) [33] (Button J) and the authorities cited therein.
I am satisfied that the Company only acted as trustee of the Trust and in no other capacity, and that all Trust assets held by the Company were held in its capacity as trustee of the Trust. Unless the orders sought by the plaintiffs are made, the first plaintiffs are unable to satisfy the liabilities of the Company as trustee of the Trust.
There are no obvious conflicts that would disentitle the first plaintiffs from being appointed as receivers and managers of the Trust. On this basis, I accept it is expedient for the first plaintiffs to have the power to sell the property of the Trust and for the first plaintiffs to be appointed as receivers and managers of the Trust without security. In my view, the appointment will facilitate the external administration of the Company and aid in the vindication of the Company's right of indemnity out of the assets of the Trust.
The orders that are proposed, which require service of the court's orders on the Company's creditors and allow for any aggrieved party to apply to this court to vacate or vary these orders, protect the creditors of the Company from any possible prejudice that might otherwise arise from this application.
In relation to the orders sought under s 90‑15 of the IPS, I accept Mr Mohen's evidence that the Company has acquired assets and incurred liabilities only as trustee of the Trust. For this reason, it is appropriate to make orders that the first plaintiffs will be acting properly and are justified in proceeding to conduct the affairs of the Trust on the basis that the business and assets of the Company comprised the assets of the Trust.
Finally, in relation to the costs of the application, the plaintiffs sought orders for the costs of the application be costs in the winding up of the second plaintiff and otherwise be paid from the Trust property. In my view, this is the appropriate costs order.
Conclusion
For these reasons, I was satisfied it was appropriate to make the orders annexed to these reasons as Annexure 'A'.
Annexure 'A'
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
KC
Associate to the Honourable Justice Hill
23 DECEMBER 2024
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