In the matter of Strictly BMX Pty Ltd (in liq)
[2024] VSC 570
•13 September 2024 (ex tempore)
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2024 02364
IN THE MATTER OF STRICTLY BMX PTY LTD (IN LIQUIDATION) (ACN 625 156 489)
| STRICTLY BMX PTY LTD (IN LIQUIDATION) (ACN 625 156 489) | First Plaintiff |
| GRAHAME WARD AS LIQUIDATOR OF STRICTLY BMX PTY LTD (IN LIQUIDATION) (ACN 625 156 489) | Second Plaintiff |
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JUDGE: | Delany J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 13 September 2024 |
DATE OF RULING: | 13 September 2024 (ex tempore) |
CASE MAY BE CITED AS: | In the matter of Strictly BMX Pty Ltd (in liq) |
MEDIUM NEUTRAL CITATION: | [2024] VSC 570 |
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CORPORATIONS — Application by liquidator for appointment as receiver — S 90‑15 Insolvency Practice Schedule — S 37(1) Supreme Court Act 1986 (Vic) — Order that liquidator be relieved from liability arising from dealing with trust property prior to appointment as receiver — S 1318 Corporations Act 2001 (Cth) — S 67 Trustee Act 1958 (Vic) — Application for costs, expenses and remuneration of receivership to be paid from trust.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | SLF Lawyers |
HIS HONOUR:
Application
By originating process dated 14 May 2024 the plaintiffs, Strictly BMX Pty Ltd (in liquidation) (‘Strictly BMX’) and Grahame Ward as liquidator of Strictly BMX, sought the following orders:
1.Grahame Ward be appointed as receiver of the business and assets of the Williams Family Trust established by deed of settlement dated 22 March 2018.
2.An order pursuant to s 90-15 of Schedule 2 to the Corporations Act 2001 (Cth) that the Liquidator is justified and acting reasonably in the proceeding on the basis that:
a.the Company carried on business in its capacity as trustee of the Trust; and
b.all assets of the Company are properly characterised as property held by the Company in its capacity as trustee of the Trust.
3.An order pursuant to s 63 of the Trustee Act 1958 (Vic) that the Company shall have the power to act as trustee of the Trust and deal with, hold, apply and/or distribute the Trust Property.
4.An order pursuant to s 1318 of the Corporations Act 2001 (Cth) and/or section 67 of the Trustee Act 1958 (VIC), that the Liquidator be relieved from any liability arising from any dealing with the Trust Property between the date of his appointment and the date of this order.
5.An order pursuant to s 90-15 of Schedule 2 to the Corporations Act 2001 (Cth) that the Liquidator is justified and otherwise acting reasonably in proceeding on the basis that he can deal with, hold, apply and/or distribute the Trust Property in accordance with Parts 5.5 and 5.6 of the Corporations Act 2001 (Cth).
6.The costs, expenses and remuneration of the Receiver in acting as Liquidator of the Company and acting as Receiver of the Trust, including the costs of this application, be paid from the assets of the Trust and if they are insufficient, the assets of the Company.
7.Liberty be granted to the Second Plaintiff to apply to the Court for orders discharging and releasing the Receiver on 7 business days’ notice by sending an email to the chambers of the Honourable Justice Delany.
Evidence
In support of the application, the plaintiffs initially relied on the affidavit of Mr Ward sworn 11 March 2024 but not filed until 14 May 2024 (‘first affidavit’) and on the affidavit of Ms Weiner affirmed on 14 August 2024. Submissions dated 14 August 2024 and a proposed form of order were provided. The application was originally listed for hearing on 16 August 2024. It was adjourned until 13 September 2024 to enable further evidence and submissions to be filed in support of the application in particular to address the question of relief from liability on the part of Mr Ward pursuant to s 1318 of the Corporations Act 2001 (Cth) (‘Corporations Act’) and s 67 of the Trustee Act 1958 (Vic) (‘Trustee Act’). Following the adjournment the plaintiffs filed a second affidavit of Mr Ward sworn on 6 September 2024 (‘second affidavit’) together with further submissions dated 6 September 2024.
Strictly BMX was incorporated on 22 March 2018 (under the name Strictly Cycles Australia Pty Ltd, which was then changed on 3 May 2018). Mr Ward was appointed liquidator of Strictly BMX on 27 September 2023 pursuant to a special resolution of its members in accordance with s 491 of the Corporations Act.
The evidence establishes that from the date of its incorporation until 26 September 2023, being a date immediately before the date of Mr Ward’s appointment as liquidator, Strictly BMX acted solely in the capacity of trustee of the Williams Family Trust (ABN 56 306 1546 21) (‘Williams Family Trust’). Mr Ward reported that Strictly BMX acted in that capacity in his Initial Remuneration Notice dated 5 October 2023.
Mr Williams is the sole director, secretary and shareholder of Strictly BMX.
Mr Williams is the sole ‘Appointer’ and ‘Named Beneficiary’ of the Williams Family Trust, as is evidenced by the discretionary trust deed for the Williams Family Trust dated 22 March 2018 (‘Williams Family Trust Deed’), exhibited to the affidavit of Mr Ward.
In its capacity as trustee of the Williams Family Trust, Strictly BMX operated a bicycle retailer business pursuant to a leasehold interest at Factory 2, 7‑8 Len Thomas Place, Narre Warren, Victoria (‘Business’). The financial statements, management accounts, balance sheet, and profit and loss statements with respect to the Business were prepared and lodged in the name of the Williams Family Trust. A copy of the Williams Family Trust management accounts to September 2023 together with financial statements for the Williams Family Trust for the financial years ending 30 June 2021 and 30 June 2022 are exhibited to the Mr Ward’s first affidavit.
Williams Family Trust Deed
Pursuant to clauses 61 and 63 of the Williams Family Trust Deed, the trustee of the Williams Family Trust is provided with an express right of indemnity out of the trust fund. Those clauses are reproduced below:
61. A trustee is entitled to be indemnified from the investments and property of the trust fund for liabilities incurred by the trustee in connection with exercising or failing to exercise its powers as trustee of the trust, unless the liability arose from fraud, negligence or breach of trustees' duties on the part of the trustee. This indemnity shall be in addition to any indemnities to which the trustee is entitled at law.
63.The trustee will be indemnified out of the trust fund against all liabilities incurred in the execution of any rights or obligations in relation to the trust or all actions, proceedings, costs, claims and demands relating to any matter of the trust fund.
Pursuant to clause 78 of the Williams Family Trust Deed, should a corporate trustee enter into liquidation the trustee is automatically removed as trustee of the Williams Family Trust. The clause is reproduced below:
78. A trustee will be automatically removed if the trustee:
…
In the case of a corporate trustee, has a receiver or manager appointed or enters into official management, administration or liquidation; or
…
In the case of a corporate trustee, has a petition for its winding up presented to a court having appropriate jurisdiction, or passes a resolution of its members for its winding up, or enters into a scheme or arrangement under the Corporations Act 2001 (Cth).
Mr Ward has given uncontradicted evidence that to his knowledge, as at 11 March 2024, no new trustee has been appointed to the Williams Family Trust.
Notice to Mr Williams
Mr Williams is on notice of this application. Ms Weiner, the plaintiffs’ solicitor, gives evidence that he was informed of the application by email on 29 July 2024 and engaged in communications with the plaintiffs’ solicitors thereafter. In the course of those communications Mr Williams has been informed the purpose of the present application is to facilitate the sale of assets subject to the Williams Family Trust, that orders are not being sought for costs against him personally and that he will not be liable for any costs.
In an email dated 12 September 2024 Mr Williams said he did not object to the application provided the proposed orders would not directly or indirectly affect his family or his personal finances. I do not understand the orders sought by the application or the further orders that fall for consideration because of the long delay on the part of the plaintiffs in bringing this application could have such an impact.
Work performed by the liquidator
At 25 September 2023, being the date two days before Mr Ward’s appointment as liquidator, the Williams Family Trust balance sheet listed assets including inventory.
In his first affidavit Mr Ward gave evidence that on a preliminary basis, an appraisal of the inventory carried out on his behalf satisfied him that the collection and sale of the inventory would result in a net positive return. In his second affidavit Mr Ward gave evidence that he instructed Cardinal Asset Services to realise Strictly BMX’s inventory by auction. That auction took place between 24 October 2023 and December 2023 and resulted in a net payment to Strictly BMX of $7,465.17.
Mr Ward has given evidence that it is likely that the value of the inventory would have decreased further if he had delayed the auction, given the aging of the inventory and continued holding costs. I accept his evidence in that regard.
Shortly after Mr Ward’s appointment, Strictly BMX was approached by a customer interested in purchasing its intellectual property. Mr Ward did not receive any other offers or interest concerning the purchase of intellectual property in the Business and executed an agreement between Strictly BMX and that purchaser for $7,500 plus GST. The sale completed on 6 November 2023. I accept Mr Ward’s evidence that the sale was time sensitive as it pertained to customers and goodwill which, in Mr Ward’s experience, erodes rapidly following liquidation. That is demonstrated by the fact that the purchaser sought to lower the purchase price following due diligence, an approach which Mr Ward successfully resisted.
Although there are two registered security interest holders over the Williams Family Trust, one of those registrations has been discharged and the other does not attach to the inventory.
Mr Ward’s remuneration
In his capacity as liquidator Mr Ward and his staff have undertaken work estimated in the Statutory Report to Creditors dated 30 January 2024 to amount to $47,180.50 based on time accorded costing. As at the date of Mr Ward’s second affidavit, his office had outstanding remuneration of $71,934.50.
Relief sought
Given the terms of the Williams Family Trust Deed to which I have referred and noting that in the absence of the orders sought in the originating process, work carried out by Mr Ward as liquidator was likely performed without the power to realise trust assets to make good the company’s right of indemnity, Mr Ward seeks the relief sought in the originating process.
As stated in his first affidavit, Mr Ward seeks that relief to ensure that he has the power to properly deal with the assets of the trust and make appropriate payments and distributions.
Mr Ward also uses the application as an opportunity to seek orders permitting his approved remuneration and disbursements to be paid out of the assets of the trust.
Principles and consideration
Appointment as receiver
The plaintiffs seek an order that Mr Ward be appointed a receiver. Section 37(1) of the Trustee Act provides:
The Court may by order, whether interlocutory or final, grant an injunction or appoint a receiver if it is just and convenient to do so.
An application of this kind was the subject of the decision of Button J in Re Mali Nominees Pty Ltd (in liq).[1] In that decision, her Honour summarised the position that pertains when a corporate trustee ceases to be trustee by operation of the terms of the trust deed and no new trustee has been appointed:[2]
It is well established that, upon its removal as trustee, a corporate trustee serves as bare trustee until the appointment of a new trustee. Accordingly, when Mali and JL Prop ceased to be trustees of the RKF Trust and the JL Prop Trust, they held the assets of those trusts as bare trustees. As bare trustees, their powers were limited to preserving and protecting the trust assets. While Mali and JL Prop’s right of indemnity from the trust assets for debts incurred by them as trustee was unaffected by their removal from office and the appointment of Rkohu, Mr Michell as liquidator did not have the power to sell trust assets. Following an earlier conflict in the authority, it is now established that a former trustee in the position of Mali and JL Prop does not have the right to retain trust assets against the new trustee in order to realise its right of indemnity but is bound to convey the trust property to the new trustee.
[1]Re Mali Nominees Pty Ltd (in liq) [2022] VSC 28.
[2]Re Mali Nominees Pty Ltd (in liq) [2022] VSC 28 [32]-[33].
In Re Cremin, Brimson Pty Ltd (in liq),[3] Moshinsky J said:
… It is now settled that the liquidator of an insolvent (former) corporate trustee cannot sell the trust’s property without order of the Court, or by appointment of a receiver over the trust assets … The rationale for this position is that, on a proper understanding, the trust assets are not the ‘property of the company’, but are instead trust property in which the corporate trustee has a proprietary interest by way of lien or charge to secure its right of exoneration …
The courts are generally willing, upon an appropriate application, to make orders permitting the liquidator of a (former) corporate trustee to sell trust assets. In situations where the property of the trust will be exhausted following its sale and subsequent distribution to creditors, it may be appropriate merely to give the liquidator a power of sale … The more common course is, however, for the liquidator of the insolvent (former) corporate trustee to apply to be appointed a receiver for the purpose of selling the trust assets and distributing the proceeds among trust creditors …
[3]Re Cremin, Brimson Pty Ltd (in liq) [2019] FCA 1023 [49]-[50] (citations omitted) (‘Re Cremin’).
In Jones, in his capacity as liquidator of Killarnee Civil & Concrete Contractors Pty Ltd(in liq) v Matrix Partners Pty Ltd,[4] 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 property of the company but rather trust property in which the corporate trustee has an interest by way of a lien or charge to secure its right of exoneration.
[4]Jones, in his capacity as liquidator of Killarnee Civil & Concrete Contractors Pty Ltd(in liq) v Matrix Partners Pty Ltd [2018] 260 FCR 310.
In National Australia Bank v Redside Pty Ltd,[5] Osborne J said in relation to s 37(1) of the Trustee Act:[6]
The words ‘just or convenient’ mean ‘where it is practicable, and the interests of justice require it’. The Court’s power to appoint a receiver is construed broadly and must be exercised with a view to all the circumstances of the case. The power includes the power to appoint a receiver and manager.
[5]National Australia Bank v Redside Pty Ltd [2023] VSC 145.
[6]National Australia Bank v Redside Pty Ltd [2023] VSC 145 [44] (citations omitted).
As bare trustee, Strictly BMX has limited powers only to deal with the assets of the Trust. In Caterpillar Financial Australia Ltd v Ovens Nominees Pty Ltd,[7] Gordon J described the position that applies:[8]
The company is and will remain a bare trustee. It may still hold the assets of the Trust. Its duties, powers and rights are limited to protecting the Trust assets: see, by way of example, Commissioner of Taxation v Bruton Holdings Pty Limited (in liq) [2008] FCAFC 184 at [79]; Commissioner of Taxation v Bruton Holdings Pty Limited (in liq) [2010] FCA 978 at [52] and Herdegen v Federal Commissioner of Taxation (1988) 84 ALR 271 at 281. However, the bare trustee retains its right of indemnity or exoneration and its lien over the assets of the Trust.
[7]Caterpillar Financial Australia Ltd v Ovens Nominees Pty Ltd [2011] FCA 677.
[8]Caterpillar Financial Australia Ltd v Ovens Nominees Pty Ltd [2011] FCA 677 [26].
In Re Cremin, Moshinsky J held:[9]
The courts are generally willing, upon an appropriate application, to make orders permitting the liquidator of a (former) corporate trustee to sell trust assets. In situations where the property of the trust will be exhausted following its sale and subsequent distribution to creditors, it may be appropriate merely to give the liquidator a power of sale: see Jones & Matrix at [91]. The more common course is, however, for the liquidator of the insolvent (former) corporate trustee to apply to be appointed a receiver for the purpose of selling the trust assets and distributing the proceeds among trust creditors: Orders appointing a liquidator as a receiver for this purpose may be made nunc pro tunc to authorise sales of trust assets that have already occurred.
[9]Re Brimson Pty Ltd (in liq) [2019] FCA 1023 [50] (citations omitted).
I accept that it is just and convenient in the circumstances of this case to appoint Mr Ward as receiver over the property and assets of the Williams Family Trust. There is no ongoing dispute between relevant parties or expected loss that may arise by reason of such an appointment.
It is appropriate to dispense with the need to provide security.
As liquidator, Mr Ward has to report to the creditors of the Company. While no such order is sought in the application, I consider that it is appropriate to make an order that I dispense with the need for Mr Ward, acting in his role as receiver, to submit accounts under r 39.07 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (‘Rules’). To require him to submit accounts would result in unnecessary work and duplication.
Relief from liability
The reason the hearing was adjourned from 16 August 2024 was to enable the plaintiffs to address the question, including by the filing of evidence, of whether an order under s 1318 of the Corporations Act is required and should be made in this case in relation to past conduct by Mr Ward and whether the evidence filed at that time was sufficient to support the making of such an order.
The issue having been raised by the Court, the plaintiffs now seek an order pursuant to s 1318 of the Corporations Act and/or s 67 of the Trustee Act that Mr Ward be relieved from any liability arising from any dealing with the property of the Williams Family Trust between the date of his appointment and the date the order is made.
Section 1318 of the Corporations Act relevantly provides:
(1) If, in any civil proceeding against a person to whom this section applies for negligence, default, breach of trust or breach of duty in a capacity as such a person, it appears to the court before which the proceedings are taken that the person is or may be liable in respect of the negligence, default or breach but that the person has acted honestly and that, having regard to all the circumstances of the case, including those connected with the person’s appointment, the person ought fairly to be excused for the negligence, default or breach, the court may relieve the person either wholly or partly from liability on such terms as the court thinks fit.
(2)Where a person to whom this section applies has reason to apprehend that any claim will or might be made against the person in respect of any negligence, default, breach of trust or breach of duty in a capacity as such a person, the person may apply to the Court for relief, and the Court has the same power to relieve the person as it would have had under subsection (1) if it had been a court before which proceedings against the person for negligence, default, breach of trust or breach of duty had been brought.
…
(4) This section applies to a person who is:
(d)a receiver, receiver and manager, liquidator or other person appointed or directed by the Court to carry out any duty under this Act in relation to a corporation.
S 67 of the Trustee Act provides:
If it appears to the Court that a trustee, whether appointed by the Court or otherwise, is or may be personally liable for any breach of trust, whether the transaction alleged to be a breach of trust occurred before or after the commencement of this Act, but has acted honestly and reasonably, and ought fairly to be excused for the breach of trust and for omitting to obtain the directions of the Court in the matter in which he committed such breach, then the Court may relieve him either wholly or partly from personal liability for the same.
In Re Matthew Forbes Pty Ltd (in liq),[10] Riordan J held:[11]
The purpose of s 1318 is to excuse company officers from liability in situations where it would be unjust and oppressive not to do so, recognising that such officers are business persons who act in the environment involving risk in commercial decision-making.
[10]Re Matthew Forbes Pty Ltd (in liq) [2018] VSC 331.
[11]Re Matthew Forbes Pty Ltd (in liq) [2018] VSC 331 [24].
In Amirbeaggi re Simpkiss Pty Ltd (in liq),[12] Markovic J set out the requirements for making a declaration pursuant to s 1318 of the Corporations Act, in that case on an application by an administrator:[13]
[12]Amirbeaggi, in the matter of Simpkiss Pty Ltd (in liq) [2018] FCA 2121 (‘Amirbeaggi’).
[13]Amirbeaggi, in the matter of Simpkiss Pty Ltd (in liq) [2018] FCA 2121 [46]-[48].
The Court has power, pursuant to s 1318 of the Corporations Act, to excuse an administrator who inadvertently sells trust assets when he or she does not have the power to do so.
In order for Ms Amirbeaggi to obtain the relief she sought under s 1318(2) of the Corporations Act she had to establish that:
(1)she had reason to apprehend that a claim would, or might, be made against her;
(2) such a claim is in respect of any negligence, default, breach of trust or breach of duty in her capacity as administrator; and
(3)she acted honestly in relation thereto.
In Suncoast Reeves J noted that the nature of the apprehension that a claim might be made was that there ‘must be an objective basis for believing that the claim will or might be made against that person’.
Regarding s 67 of the Trustee Act, the plaintiffs submitted that the section empowers the Court to excuse a breach of trust by a trustee who has acted honestly and reasonably.
The plaintiffs submit Mr Ward’s conduct has been both honest and reasonable, with his objective being to advance the interests of the creditors and wind down the affairs of Strictly BMX in an orderly and timely manner.
Although Mr Ward began and concluded the process of selling trust assets without having been appointed receiver I accept that the circumstances in which he acted required at least prompt and probably urgent action so as to seek to obtain the best result for the creditors. While that is the case in relation to the sale of assets, Mr Ward did not act with an appropriate level of haste when it came to bringing the present application.
As earlier noted in these reasons, he reported that Strictly BMX acted in its capacity as trustee of the Williams Family Trust in his Initial Remuneration Notice dated 5 October 2023.
There is no suggestion that Mr Ward did not act honestly or that his objective has been other than to advance the interests of creditors. In those circumstances notwithstanding the delay having regard to the factors considered by Markovic J in Amirbeaggi re Simpkiss Pty Ltd (in liq), I consider that it is appropriate to excuse Mr Ward from liability under s 1318 of the Corporations Act and that it is also appropriate to do so under s 67 of the Trustee Act.
Remuneration
Mr Ward seeks an order that the costs of this application are to be paid from the assets of the Williams Family Trust and, if they are insufficient, the assets of Strictly BMX.
The principles to be applied when considering applications for remunerations, costs and expenses to be paid were outlined by Sloss J in Re Mandeville Group.[14] It is unnecessary to reproduce those observations as part of these reasons.
[14]Re Mandeville Group [2020] VSC 293 [109]-[110].
Having regard to her Honour’s observations, I consider it is appropriate to make the order sought by the plaintiffs regarding Mr Ward’s remuneration.
Disposition
Although no party has appeared to oppose the orders sought, and even though notice has been given, it is appropriate to include an order granting liberty to apply to any person or creditor with sufficient interest on three business days’ notice to the liquidator.
I direct the solicitors for the plaintiffs provide a revised draft form of order to give effect to these reasons by no later than 4:00pm on 19 September 2024.
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