In the matter of Mohan & Mariam Pty Ltd (In Liquidation) ATF The Karuppan Family Trust
[2023] VSC 723
•5 December 2023
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2023 05378
IN THE MATTER of MOHAN & MARIAM PTY LTD (IN LIQUIDATION) ATF THE KARUPPAN FAMILY TRUST (ACN 642 778 603)
| ROBYN-LEE ERSKINE AND ADRIAN ROBERT HUNTER (IN THEIR CAPACITY AS JOINT AND SEVERAL LIQUIDATORS FOR MOHAN & MARIAM PTY LTD (IN LIQUIDATION) ATF THE KARUPPAN FAMILY TRUST (ACN 642 778 603) | Plaintiffs |
| v | |
| MOHAN BABU KARUPPAN | First Defendant |
| MARIAN KARUPPAN | Second Defendant |
| ELISSA KARUPPAN | Third Defendant |
| ELIANA KARUPPAN | Fourth Defendant |
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JUDGE: | Delany J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 1 December 2023 |
DATE OF RULING: | 5 December 2023 |
CASE MAY BE CITED AS: | In the matter of Mohan & Mariam Pty Ltd (In Liquidation) ATF The Karuppan Family Trust |
MEDIUM NEUTRAL CITATION: | [2023] VSC 723 |
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CORPORATIONS – Liquidation of trustee company – Company operated in capacity as trustee – Application by liquidators for appointment as receivers – Just and convenient to appoint liquidators as receivers – Application allowed – Re Amerind Pty Ltd (receivers and managers apptd) (in liq) [2017] VSC 127; Stansfield DIY Wealth (2014) 103 ACSR 401, applied – Supreme Court Act 1986 (Vic) s 37.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr A Stops (solicitor appearing) | Walpole Menzies |
| For the Defendants | No appearance | None |
HIS HONOUR:
Overview
This proceeding is an application by the plaintiff liquidators (‘Liquidators’) relying on section 37 of the Supreme Court Act 1986 (Vic) (‘Supreme Court Act’).
The application was dealt with by me as the Commercial Court Duty Judge on 1 December 2023 following an application by the Liquidators for an urgent hearing. The urgency relied on concerns the accruing insurance and storage costs of the vehicles owned by the company.
On 18 October 2023, Gitsham JR ordered that Mohan & Mariam Pty Ltd (the ‘Company’) be wound up and that Adrian Hunter & Robyn Erskine jointly and severally be appointed Liquidators of the Company.
On 29 November 2023, the Liquidators consented to being appointed as receivers.
Notice to interested persons
The solicitor for the Liquidators filed an affidavit of service dated 1 December 2023 that establishes that copies of the originating process, the affidavit of Mr Hunter dated 15 November 23, the plaintiffs’ submissions dated 16 November 2023, a copy of the ASIC search and the consent to act as receivers dated 29 November 2023 were served on ASIC at 3:42pm on 30 November 2023.
The report to creditors dated 15 November 2023 informed the creditors that this application would be made.
Mohan Babu Karuppan, the first defendant, has been a director of the Company since 20 July 2020 and the sole director of the Company since 1 July 2022. Mohan Babu Karuppan is also the sole shareholder of the Company. From 20 July 2020 to 1 July 2022, Marian Karuppan, the second defendant, was a director of the Company.
The Trust conducted a transport business in South Australia using a fleet of trucks with contractor drivers.
The application was made on notice to the defendants who have been served with the originating process and the affidavit of Mr Hunter dated 15 November 2023.
Although it had been anticipated that the solicitor for the defendants might appear at the hearing on 1 December 2023, that did not occur.
The Trust
In support of the relief sought, the Liquidators submit that the Court should find that from its incorporation, at all times the Company traded as trustee for the Karuppan Family Trust (‘Trust’).
The Liquidators seek orders that they be appointed as receivers of the assets held by the Company in its capacity as trustee of the Trust.
The Trust is governed by the a deed dated 2020 (‘Trust Deed’). The primary beneficiaries of the Trust are:
(a) Mohan Babu Karuppan;
(b) Mariam Karuppan;
(c) Elissa Karuppan; and
(d) Eliana Karuppan.
The primary beneficiaries are the named defendants in the proceeding.
Clause 11.2 of the Trust Deed provides that:
The office of a Trustee shall immediately end:
…
(b) if the Trustee is a company has a receiver appointed, enters into official management, passes a resolution for its winding up, is wound up or enters into a scheme of arrangement.
Did the Company act as trustee?
In Re Amerind Pty Ltd (receivers and managers apptd) (in liq),[1] Robson J held that the determination of ‘whether a company trades in its own right or as trustee of a trust largely depends on factors which are specific to the circumstances at hand’ and that there is ‘no one determinative factor or set criteria’.[2] Robson J went on to identify the matters that have been taken into account by Courts in determining that question:[3]
[1](2017) 320 FLR 118; [2017] VSC 127 (‘Re Amerind’). Note the decision was overturned on appeal in Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth (2019) 268, 524 at [4] (Kiefel CJ, Keane and Edelman JJ), at [61] (Bell, Gageler and Nettle JJ) and [100] (Gordon J), but Robson J’s finding about the capacity in which the company acted was accepted.
[2]Ibid [46].
[3]Ibid (citations omitted).
(a)the existence of constituent trust documents which establish a trust, including any draft trust documents which cross-reference one another;
(b)whether accounts were maintained separately to the company’s operational expenditure accounts and/or the company’s own property;
(c)whether the company’s name in its capacity as trustee was noted on key employment documents, such as letters of employment and tax file declarations;
(d)whether invoices rendered by the company in question were issued by the company in its capacity as trustee of the trust;
(e)whether company meeting minutes disclosed the existence of a trust, or disclosed that the company was operating as a trust;
(f)whether expenses were accounted as receipts of the company as trustee; and
(g)whether records, contained in the general ledger of the company, recorded activity consistent with the operation of a trust, such as the issue of units.
When the application came on for hearing on 1 December 2023, apart from the Trust Deed, no documents of the sort listed by Robson J formed part of the evidence relied on by the Liquidators.
The substantive evidence relied on in support of the application at the time of the hearing comprised the affidavits of Mr Hunter dated 15 November 2023 and 30 November 2023, exhibiting a report to creditors dated 15 November 2023. The Liquidators also relied on written submissions dated 16 November 2023. On 4 December 2023, a further affidavit of Mr Hunter was filed.
The affidavit of Mr Hunter dated 15 November 2023 states that the Company did not trade in its own right. The affidavit does not identify the basis for that statement. While a similar statement is made in the report to creditors exhibited to Mr Hunter’s 30 November 2023 affidavit, the report to creditors does not set out the reasons which underpin that statement.
The report to creditors indicates that the Liquidators have not received a completed a Report on Company Activities and Property (‘ROCAP’) from the director.
Because I was not satisfied during the hearing that there was sufficient evidence that the Company acted as trustee of the Trust, I adjourned the hearing of the application to a date to be fixed and directed that the Liquidators file and serve any further evidence upon which they wish to rely in support of the application by 12 noon on Monday 4 December 2023.
The further evidence indicates that Mr Hunter relied upon the following to determine that the Company acted solely as trustee for the Trust:
(a) an ASIC and an ABN search for the Company indicate that the Company does not have its own ABN;
(b) pursuant to an ABN search, the Trust does have its own ABN;
(c) the only bank account of the Company is in the name of ‘Mohan & Mariam Pty Ltd as Trustees for Karuppan Family Trust’;
(d) the Company’s accounting software records the Balance Sheet and Profit and Loss Statement for the year ending 30 June 2023, which are expressed to be for the Company as the trustee of the Trust; and
(e) the Company’s Business Activity Statement for the period ending 30 June 2023 records that the activity of the Company was for ‘The Trustee for Karuppan Family Trust’.
On the basis of that further evidence I am satisfied that at all relevant times, the Company only acted as trustee of the Trust.
The assets
The assets which the Liquidators have been able identify are modest, making it important that the costs of the administration, including the costs associated with this application, are kept to a minimum.
Prior to the Liquidators’ appointment, the Company owned the following vehicles:
(a) 2018 MERCEDES BENZ PRIME MOVER (encumbered);
(b) 2018 MERCEDES BENZ PRIME MOVER (encumbered);
(c) 2017 MERCEDES BENZ FROM MOVER (encumbered);
(d) 2017 MERCEDES BENZ PRIME MOVER (encumbered);
(e) 2021 M.A.N PRIME MOVER (encumbered);
(f) 2014 FORD STATION WAGON (unencumbered);
(g) 2009 ISUZU FH FVM FVLJD01 1400 LONG 6x2 CURTAINSIDER (unencumbered); and
(h) 2005 HINO GH1J 500 4x2 CURTAINSIDER (unencumbered).
In Mr Hunter’s affidavit dated 15 November 2023, he states that he disclaimed the encumbered vehicles and the unencumbered vehicles remain in storage and are incurring insurance and storage costs.
At the time of the Liquidators’ appointment, the Company had $5,481.53 in its bank account. Mr Hunter formed the belief that the Company is owed money by its debtors but has been unable to identify the identity of the debtors and the amounts that are owed to the Company.
The Company owes $252,392.03 to its creditors as follows:
(a) VIVA Energy Australia Ltd, a priority creditor, in the amount of $8,242.41.
(b) Commonwealth Bank of Australia, an unsecured creditor, in the amount of $66,997.88;
(c) Prospa Advance Pty Ltd, an unsecured creditor, in the amount of $18,430.43;
(d) Return to Work SA, an unsecured creditor, in the amount of $79,441.05; and
(e) VIVA Energy Australia Ltd, also as an unsecured creditor, in the amount of $79,280.26.
The report to creditors shows that between their appointment on 18 October 2023 and 14 November 2023 the Liquidators claim to have incurred $20,265 in costs for work carried out. The estimated cost of future work is $25,000. Based on the value of the unencumbered assets, and taking into account the costs of this application, it seems unlikely there will be more than, at best, a very small return to the creditors.
Legal principles
Section 37 of the Supreme Court Act provides that the Court may appoint a receiver if it is just and convenient to do so.
By reason of the operation of the ipso facto clause in clause 11.2(b) of the Trust Deed, following the liquidation on 18 October 2023, the Company no longer has the power to realise the Trust’s assets or to rely upon its right of indemnification.
There is no evidence that a replacement trustee has been appointed and the defendants have previously given notice they consent to orders as contended for by the Liquidators.
As a result of the operation of clause 11.2(b), the Company is currently a bare trustee and holds the assets of the Trust for the beneficiaries of the Trust. As bare trustee, the Company has limited powers only to deal with the assets of the Trust.
In Stansfield DIY Wealth,[4] Brereton J provided that:[5]
[10] Where the trustee is removed and replaced, the outgoing trustee retains a right of indemnity from the trust assets, secured by an equitable charge over them, for its liabilities incurred by reason of acting as trustee: Re Exhall Coal Co Ltd (1866) 55 ER 970; Octavo Investments at CLR 370; ALR 138; Chief Commissioner of Stamp Duties (NSW) v Buckle (1998) 192 CLR 226; 151 ALR 1; [1998] HCA 4 at [48]; Belar Pty Ltd (in liq) v Mahaffey [2000] 1 Qd R 477; [1999] QCA 002 at [20]; Lemery Holdings at [21]; Apostolou at [49]; Caterpillar Financial Australia at [18]; Theobald at [23(e)]. However, the equitable lien securing the trustee’s right of indemnity and exoneration does not of itself give the former trustee a power of sale; rather, it is a security which is enforceable by the trustee only by judicial sale or appointment of a receiver with a power of sale: Hewett v Court (1983) 149 CLR 639 at 663; 46 ALR 87 at 104; 7 ACLR 909 at 924; Apostolou at [39]; Theobald at [23(g)]. If the company has ceased, or ceases, to be trustee of the trust, then the powers of sale given to the trustee under the trust deed (or otherwise given, for example by statute, to a trustee) are no longer available to it.
[4][2014] NSWSC 1484; (2014) 103 ACSR 401 (‘Stansfield’).
[5]Ibid [10].
In Jones (in his capacity as liquidator of Killarnee Civil and Concrete Contractors Pty Ltd (in liq) v Matrix Partners Pty Ltd,[6] the Full Federal Court held that the liquidator of an insolvent corporate trustee cannot sell the trust property without an order of the court or by appointment of a receiver over the trust assets. The trust assets are not the ‘property of the company’, but rather, trust property in which the corporate trustee has a proprietary interest by way of lien or charge to secure its right of exoneration.[7]
[6](2018) 260 FCR 310.
[7]Ibid [44] and [89] per Alsop CJ (with whom Farrell J agreed at [196]).
The Liquidators submitted that if the relief sought is not granted, then the Liquidators will be unable to sell the assets in order to pay the expenses of the Liquidators and the Company’s creditors, in accordance with section 556 of the Corporations Act.
Disposition
Following the filing of the further evidence on 4 December 2023, I am satisfied that it is appropriate to make orders substantially in the form sought by the Liquidators. I will make orders as follows:
1. Pursuant to section 37 of the Supreme Court Act, the plaintiffs be appointed as joint and several receivers (‘Receivers’) of the Relevant Assets as defined in paragraphs 11 and 12 of the Affidavit of Adrian Hunter sworn 15 November 2023.
2. The Receivers are given the following powers:
(a)the power to sell and convert to cash any of the Relevant Assets; and
(b)the powers pursuant to section 420 and 477 of the CorporationsAct 2001 (Cth) (‘Corporations Act’).
3. The requirement that the plaintiffs give security in their capacity as Receivers be dispensed with.
4. The Receivers are justified and acting reasonably in using the Relevant Assets to pay:
(a) the reasonable remuneration and expenses of the Plaintiffs in making this application.
(b) the reasonable remuneration of the plaintiffs in their roles as Receivers or as liquidators, whether for administering the Relevant Assets or for the general costs of the winding up of the Company.
5. The plaintiffs pay the balance from the sale or realisation of the Relevant Assets to the creditors of Mohan & Marian Pty Ltd (in Liquidation) pursuant to section 556 of the Corporations Act.
6.There be liberty to apply to ASIC and to any person or creditor who can demonstrate sufficient interest to modify or discharge paragraphs 1 to 5 above on not less than 48 hours’ written notice to the plaintiffs.
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