Ian Charles Francis and Michael Patrick Joseph Ryan as Trustees of the West Australian Shed Commercial Pty Ltd Creditors Trust Deed and West Australian Shed Co Pty Ltd Creditors Trust Deed - [2003] WASC 39

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: IAN CHARLES FRANCIS and MICHAEL PATRICK JOSEPH RYAN as Trustees of THE WEST AUSTRALIAN SHED COMMERCIAL PTY LTD CREDITORS TRUST DEED and WEST AUSTRALIAN SHED CO PTY LTD CREDITORS TRUST DEED [2003] WASC 39

CORAM: PULLIN J

HEARD: 5 & 6 FEBRUARY 2003

DELIVERED : 6 FEBRUARY 2003

FILE NO/S: CIV 1095 of 2003

MATTER :The Trustees Act 1962
and
WEST AUSTRALIAN SHED COMMERCIAL PTY LTD CREDITORS TRUST DEED
and
WEST AUSTRALIAN SHED CO PTY LTD TRUST DEED

BETWEEN: IAN CHARLES FRANCIS and MICHAEL PATRICK JOSEPH RYAN as Trustees of THE WEST AUSTRALIAN SHED COMMERCIAL PTY LTD CREDITORS TRUST DEED and WEST AUSTRALIAN SHED CO PTY LTD CREDITORS TRUST DEED
Plaintiff

Catchwords:

Trusts - Order conferring powers on trustee - Turns on own facts

Legislation:

Trustees Act 1962, s 89(1)

Result:

Application granted

Category: B

Representation:

Counsel:

Plaintiff: Mr J E Scovell

Solicitors:

Plaintiff: Phillips Fox

Case(s) referred to in judgment(s):

Re Downshire Settled Estates; Marquess of Downshire v Royal Bank of Scotland [1953] Ch 218

Case(s) also cited:

Nil

PULLIN J: This is an application by the trustees of the creditors trust deed relating to West Australian Shed Commercial Pty Ltd and West Australian Shed Company Pty Ltd. The application is made under s 89(1) of the Trustees Act 1962. The section is not the same as s 81 of the New South Wales Trustees Act 1925, which is restricted to authorising changes in relation to management or administration of property vested in trustees. See also s 57(1) of the Trustees Act 1925 (UK), which is similar to the provision in New South Wales; and see Re Downshire Settled Estates; Marquess of Downshire v Royal Bank of Scotland[1953] Ch 218.
One part of s 89 of the Trustees Act 1962 (WA) concerns itself with transactions relating to property vested in the trustee, and to that extent it is similar to the New South Wales provision and the United Kingdom provision to which I have referred. That part of the section cannot assist, because the transaction proposed here is to introduce new property in substitution for existing rights of the beneficiaries.
The other part of s 89(1) of the Trustees Act 1962 (WA) does not confine itself to existing property. This emerges when the section is read as follows:
"Where in the opinion of the Court any … transaction … would be in the best interests of the persons, or the majority of the persons, beneficially interested under the trust, [and that the] transaction … cannot be effected by reason of the absence of any power for that purpose vested in the trustee by the trust instrument … the Court may by order confer upon the trustee, either generally or in any particular instance, the necessary power for the purpose, on such terms, and subject to such … conditions … as the Court may think fit …"
On 6 April 2001, the trustees were appointed joint and several voluntary administrators of West Australian Shed Company Pty Ltd and West Australian Shed Commercial Pty Ltd. At a meeting of creditors on 10 May 2001, it was resolved that both companies should execute a deed of company arrangement. The deed of company arrangement in each case provided for the payment of dividends, and also provided for the administrators and each company to enter into a separate trust deed.
It was a condition of the deed of company arrangement that the creditors would maintain a right as beneficiary under the trust deed to a share of certain moneys to be paid under the terms of the trust deed.
On or about 28 May 2001, the trust deed was executed. The applicants in this case were appointed joint and several trustees of the trust. It was a term of the trust deed that the trust arrangement was not to come into effect until the deed of company arrangement in relation to the two companies had been terminated. On 5 March 2002, the deeds of company arrangement were terminated.
Under the terms of the trust deed, the companies were to pay to the trustees, 50 per cent of the net profit generated by the companies in the financial years ended 30 June 2003 and 30 June 2004. One of the trustees, Mr Ian Francis, is a chartered accountant with Taylor Woodings. He is a registered liquidator, and he has in an affidavit deposed to the preparation of a circular to creditors stating that two recent profit forecast scenarios for the year ended 30 June 2003 provided by the directors of the two companies are $168,200 and $108,700.
The trustees expressed the opinion that the estimates are probably realistic taking into account certain factors, including the drought in the rural sector, a downturn in sales, a subdued mining sector, adverse publicity, and changes to planning codes. The trustees in the circular state that even if the higher profit estimate in the profit forecast scenario is reached for the years ended 30 June 2003 and 2004, and taking into account the time value of money, the dividend net of costs to the creditors would not be higher than the offer of $135,000.
The reference to the offer of $135,000 is reference to an offer which the directors of the two companies are prepared to make, which will involve the payment of that sum so that the beneficiaries will receive that sum in lieu of their entitlement to a share of the profits for the next two years.
The circular to creditors concludes with a recommendation from the trustees that the creditors approve the proposed variation to the trust deed. The proposed variation is to delete the provision in the trust deed requiring the companies to pay to the trustees, 50 per cent of the net profit generated by the companies in the financial years ended 30 June 2003 and 30 June 2004, and replace it with the clause which reads in part:
"The Companies will pay, and the Directors shall use their best endeavours to procure payment, to the Trustees the sum of $135,000 … within 30 days of the date of execution of this Trust, as varied."
The variation also provides that upon payment of the final dividend, the trust deed shall terminate. Some consequential amendments are also proposed. The beneficiaries of the trust who are the creditors of the two companies were asked to vote upon the proposal to vary the trust deed, and have been provided with the circular which, I am satisfied, contains a full explanation and a full commercial justification for the proposed variation.
There are a total of 186 beneficiaries. 140 have voted for the proposed variations. They represent in excess of 90 per cent of the number and value of the creditors of the two companies. 15 have voted against the proposed variations. They represent 9.1 per cent of the value of the creditors of the two companies. 31 beneficiaries did not respond. Each of the 31 beneficiaries who did not respond have been followed up where an address is known. Despite these efforts, no voting slip or substantive response has been received from them. I am satisfied that all reasonable steps to obtain voting slips or a response from these beneficiaries have been taken. Those who voted against the proposed variation have been sent a letter by the solicitors for the trustees, which letter requested that any beneficiary intending to oppose this application should advise the solicitors for the trustees.
The beneficiaries were also advised that the application was to be heard on 5 February 2003. I adjourned the application on 5 February 2003 to consider the papers, and I received further submissions from the trustees' solicitors. No beneficiary has sought to appear to oppose the application.
I am of the opinion that the transaction would be in the best interests of the beneficiaries interested under the trust. This is because I am satisfied that the present reasonable estimate is that the beneficiaries will receive less than $135,000 under the present arrangement, taking into account the market conditions, the costs which will have to be incurred if the present arrangement continues, and the time cost of not receiving money immediately.
I am also satisfied that the transaction cannot be effected by reason of the absence of powers vested in the trustee by the trust instrument. In view of the fact that more than 90 per cent by number and value of creditors support the variation, I am prepared to make the orders as asked, subject to the filing of an affidavit confirming that the sum of $135,000 has been paid into the trust account of the trustees and that the trustees have irrevocable instructions to pay that sum to the trustees on behalf of the beneficiaries within seven days of the execution of the deed of variation recording the variation, which deed must be executed within seven days.