In the matter of W & C Broadhurst Pty Ltd

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST

S ECI 2022 01131

IN THE MATTER of W & C BROADHURST PTY LTD (ACN 612 158 479)

SARAH BROADHURST (IN HER CAPACITY AS EXECUTRIX OF THE WILL AND ESTATE OF THE LATE WARREN BROADHURST)	Plaintiff
v
AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION	First Defendant
- and -
CHERYL BROADHURST	Second Defendant

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JUDGE:	DELANY J
WHERE HELD:	Melbourne
DATE OF HEARING:	16 September and 4 November 2022; Joint written submissions 18 November 2022
DATE OF JUDGMENT:	30 November 2022
CASE MAY BE CITED AS:	In the matter of W & C Broadhurst Pty Ltd
MEDIUM NEUTRAL CITATION:	[2022] VSC 737

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CORPORATIONS – Application for reinstatement – Company deregistered before proceeds of life insurance policy became payable to SMSF of which it was trustee – Proceeds vested in the Commonwealth – Reinstatement order made – Whether appropriate to make an order to transfer life insurance policy to the executrix – Corporations Act 2001 (Cth), ss 601(AD)(1A), 601AH(1), 601AH(2) and 601AH(3) – Re Austral Bronze Co Pty Ltd (No 2) (2020) 149 ACSR 221, applied – Re Bele & Co Pty Ltd [2017] NSWSC 1824, referred to.

FAMILY LAW – Construction of final Order of Federal Circuit Court of Australia - Life insurance policy held by company as trustee of SMSF – Whether proceeds of policy constitute a ‘splittable payment’ - Whether proceeds constitute a ‘superannuation interest’ – Declarations as to entitlement to policy proceeds as between the executrix of the estate of the husband and the former wife – Family Law Act 1975 (Cth), Part VIIIB, ss 90XA, 90XB, 90XD, 90XE, 90XS and 90XT – Superannuation Industry (Supervision) Act 1993 (Cth) ss 62 and 119.

CORPORATIONS – Whether appointment of liquidator would cause the company to become a “disqualified person” contrary to the Superannuation Industry (Supervision) Act 1993 (Cth) – Receiver appointed to the company and to the SMSF – Order for payment of policy proceeds to the receiver – Superannuation Industry (Supervision) Act 1993 (Cth) ss 120, 126J and 126K – Supreme Court Act 1986 (Vic), s 37(1) – Supreme Court (General Civil Procedure) Rules 2015 (Vic), r 39.02(1) – Corporations Act 2001 (Cth), s 601AH(3) – Jennifer Helen Papadam v Smidam Pty Limited [2022] NSWSC 629; Deputy Commissioner of Taxation v The Mai Family Pty Ltd (in liq) (2019) 136 ACSR 638; Re Stansfield DIY Wealth Pty Ltd (In Liq) (2014) 291 FLR 17, applied – Sanderson, in the matter of Taylorsix Pty Ltd (in liq) [2021] FCA 1132, referred to.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr D Mence with Mr N Modrzewski	Aberdeen Lawyers
For the First Defendant	No appearance	None
For the Second Defendant	Mr L Hogan	None

TABLE OF CONTENTS

Overview.............................................................................................................................................. 1

The Federal Circuit Court of Australia Orders......................................................................... 4
W&C Broadhurst Pty Ltd............................................................................................................. 6
The Life Insurance Policy............................................................................................................. 6
Should the Company be Reinstated?......................................................................................... 7

Entitlement to the policy proceeds: Legislation and the Fund Rules...................................... 8

Family Law Act............................................................................................................................. 8
Superannuation Industry (Supervision) Act 1993 (Cth)........................................................ 10
Rules of the Broadhurst Super Fund........................................................................................ 12

Should an order be made pursuant to Section 601AH(3)(d) for the payment of the policy proceeds?........................................................................................................................................................ 14

Who is entitled to the policy proceeds?....................................................................................... 16

Sarah’s submissions.................................................................................................................... 16
Cheryl’s submissions.................................................................................................................. 18

Consideration.................................................................................................................................... 20

The Superannuation Interest Issue.............................................................................................. 20

The Final Orders.............................................................................................................................. 21

The effect of the Nomination..................................................................................................... 25
Entitlement to the Policy Proceeds........................................................................................... 26

Should a liquidator be appointed to the company?.................................................................. 26

Should the company be wound up?......................................................................................... 30

Orders................................................................................................................................................. 32

HIS HONOUR:

Overview

Warren Broadhurst (deceased) and Cheryl Broadhurst were married. Some years later they were divorced. Shortly prior to the dissolution of their marriage, the Federal Circuit Court of Australia (‘Federal Circuit Court’) made final property orders by consent (‘final Orders’). Following the death of Warren, issues have arisen concerning who is entitled to the proceeds of a life insurance policy with MLC Insurance (‘the policy’) on the life of Warren, owned by W & C Broadhurst Pty Ltd (‘the company’) as trustee for the Broadhurst Super Fund (‘Fund’). The company is deregistered and the proceeds of the policy have vested in the Commonwealth. The contest about who is entitled to the proceeds of the policy is between the plaintiff, Sarah Broadhurst, as the executrix of Warren’s estate and his former wife, the second defendant, Cheryl.

With no disrespect intended, I will refer to Warren, Cheryl and Sarah by their given names.

Sarah applied for orders including:

(a) An order under 601AH(2) of the Corporations Act 2001 (Cth) (‘Corporations Act’) that the Australian Securities and Investments Commission (‘ASIC’) reinstate the registration of the company as trustee for the Fund;

(b) An order under s 461 of the Corporations Act that Mathew Gollant of CJC Advisory, a registered liquidator in the State of Victoria, be appointed liquidator and the company be wound up;

(c) An order that ASIC pay to Sarah the sum of $434,109.38, under 601AH(3)(d) of the Corporations Act, from the property of the company that was vested in the Commonwealth by reason of s 601(AD)(1A) of the Corporations Act; and

(d) The reasonable costs, expenses and remuneration of Mr Gollant to be paid in priority out of the assets of the Fund and, in the event of default, to be paid by Sarah out of the assets of the Estate of the late Warren Broadhurst.

When the matter was first listed, Cheryl was not legally represented. The hearing was adjourned with a view to Cheryl obtaining representation. I wish to express my gratitude to the Victorian Bar pro bono scheme and to Mr Hogan of counsel who thereafter acted pro bono on behalf of Cheryl.

The first defendant, ASIC, took no active part in the proceeding. ASIC does not oppose the relief sought in the application.

The issues for determination include:

(a)whether an order should be made reinstating the company;
(b)whether a liquidator should be appointed to wind up the company; and
(c)whether an order should be made requiring the payment to Sarah or, in the alternative, equally to Sarah and Cheryl, of the sum of $434,109.38 being the proceeds of the policy.

Although the facts are straightforward, the application raises a number of legally complex issues.

Determining who is entitled to the proceeds of the policy requires a consideration of the interaction between the provisions of Part VIIIB of the Family Law Act 1975 (Cth) (the ‘Family Law Act’) and the Superannuation Industry (Supervision) Act 1993 (Cth) (the ‘SIS Act’). It also requires the consideration of the final Orders and a consideration of the trust deed of the Fund of which the company is the trustee. The application for the appointment of a liquidator to get in the proceeds of the policy and to wind up the company is complicated by provisions of the SIS Act that restrict the ability of a company that is being wound up to deal with superannuation assets.

So far as the substantive issues are concerned, I have determined:

(a) to order the reinstatement of the company;

(b) to order that, upon the reinstatement of the company, Mr Gollant is appointed as receiver of the company and of the Fund pursuant to section 37(1) of the Supreme Court Act 1986 (Vic) and r 39.02(1) of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (‘the Rules’) including for the purposes of getting in the policy proceeds;

(c) to order that ASIC pay the policy proceeds in the sum of $434,109.38 to Mr Gollant in his capacity as receiver;

(d) within seven days of receipt of the policy proceeds, Mr Gollant is to pay the policy proceeds into Court;

(e) upon the policy proceeds having been paid into Court, Mr Gollant is appointed as liquidator of the company and of the Fund;

(f) I declare that Mr Gollant is entitled to be paid his reasonable costs, expenses and remuneration for acting as receiver and as liquidator out of the assets of the company and of the Fund, including if necessary from the policy proceeds;

(g) I declare:

(i)that the policy proceeds constitute a ‘splittable payment’ falling within paragraph 15 of the final Orders;
(ii)that upon the winding up of the company and the Fund, subject to the payment first of the reasonable costs, expenses and remuneration of Mr Gollant, each of Sarah, in her capacity as executrix of the estate of Warren, and Cheryl, in her own capacity, are entitled to 50% of the net policy proceeds; and
(iii)upon the winding up of the company and the Fund, and after payment of Mr Gollant’s reasonable costs, expenses and remuneration, the money remaining in Court is to be paid out of Court equally to Sarah and Cheryl.

The Federal Circuit Court of Australia Orders

On 12 May 2020, the Federal Circuit Court made the final Orders concerning the property of Warren and Cheryl.

On 9 July 2020, a divorce order was made by the Federal Circuit Court on the application of Warren, which terminated the marriage between Warren and Cheryl from 10 August 2020.

Because the final Orders are central to the dispute it is necessary to set out the relevant parts:

Broadhurst Super Fund

14.That within seven (7) days of the date of these Orders the parties as directors of the W and C Broadhurst Pty Ltd in its capacity as the Trustee for the Broadhurst Super Fund will do all such acts and things necessary to:
a.Engage DMS Accounting to prepare the final tax return for the fund;
b.To instruct DMS Accounting to pay existing tax liabilities for the Broadhurst Super Fund…
c.To pay any outstanding accounting fees owing to DMS Accounting for the preparation of the previous tax returns for the Broadhurst Super Fund …
d.To pay any outstanding fees to financial advisor Matt Spencer for his management of the Superannuation Fund …
e.To pay DMS Accounting any fees relating to the preparation of the outstanding tax return for the Broadhurst Super Fund …
f.To pay any tax liability arising from the preparation of the Broadhurst Super Fund tax returns …
g.To sell the property in America situated at 10090 Dwight Avenue St Louis, Missouri owned by the fund and to deposit the net sale proceeds of the property into…;
h.That the parties will do all such things and sign all necessary documents to ensure that the Broadhurst Super Fund is a compliant superannuation fund as at the date of these Orders.

15.That upon the payment of all of the tax liabilities and accounting fees referred to in para 6 hereof (sic), the remaining funds held to the account of the Broadhurst Super Fund, at the point of winding up, shall be divided as follows:
a.That pursuant to s 90XT(1)(b) of the Family Law Act 1975 (Cth) whenever a splittable payment becomes payable to the Wife in respect of her interest in the Broadhurst Super Fund, the Husband is entitled to be paid the amount calculated in accordance with Pt 6 of the Family Law (Superannuation) Regulations 2001 such that 50 per cent of the Wife’s entitlement be rolled over into a compliant superannuation fund nominated by the Husband.
b.That pursuant to s 90XT(1)(b) of the Family Law Act 1975 (Cth) whenever a splittable payment becomes payable in respect of the Husband’s interest in the Broadhurst Super Fund, that the Wife be entitled to be paid the amount calculated in accordance with Pt 6 of the Family Law (Superannuation) Regulations 2001 such that 50 per cent of the Husband’s entitlement in the fund shall be rolled over to a compliant superannuation fund nominated by the Wife.
c.That after the operation of 15(a) and 15(b) hereof
i.that the balance of the Wife’s entitlements under the Broadhurst Super Fund shall be rolled over into a compliant superannuation fund as nominated by the Wife; and
ii.That the balance of the Husband’s superannuation entitlements in the Broadhurst Super Fund shall be rolled over into a compliant superannuation fund nominated by the Husband.

d.That upon the completion of the superannuation splitting orders contained herein and the rollover of the balance of the parties’ entitlements in the fund pursuant to these Orders, the parties in their capacity as Trustees of the fund shall do all acts and things necessary to wind up the Broadhurst Super Fund.[1]
[1]Affidavit of Sarah Broadhurst sworn 25 March 2022, 133-134.
…

17.This Order binds each of the parties in their capacity as directors of W & C Broadhurst Pty Ltd the trustee of the Broadhurst Super Fund.
18.That unless otherwise specified in these orders and except for the purpose of enforcing the payment of money due under these or any subsequent orders:
a.Each party shall be solely entitled to the exclusion of the other to all property including choses-in-action in the possession of such party as at this date.
b.Money standing to the credit of the parties in any bank accounts remains the property of the account holder.
c.Each party hereby forgoes any claim they may have to any superannuation benefits belonging to or earned by the other.
d.All insurance policies to become the sole property of the owner named therein.
e.Each party shall be solely liable for and indemnify the other against any liability encumbering any item of property to which that party is entitled pursuant to these orders.
f.Any joint tenancy of the parties in any real or personal estate is hereby expressly severed, with a copy of these Orders to serve as consent from both parties to the severance.[2]
[2]Ibid.

W&C Broadhurst Pty Ltd

The company to which the final Orders refer is a company of which Warren and Cheryl were the directors. The company was the trustee of the Fund, a self-managed superannuation fund.

The company was deregistered on 23 September 2019, before the final Orders were made.

Upon its deregistration, all property of the company, including property held on trust immediately before deregistration, vested in the Commonwealth pursuant to s 601AD(1A) of the Corporations Act.

Because the company was deregistered before the final Orders were made, at the time the orders were made, all of the property of the Fund of which the company was trustee was already vested in the Commonwealth.

These facts do not appear to have been known to Warren and Cheryl at the time of the final Orders or, if known, were not taken into account in the drafting of those Orders.

The Life Insurance Policy

In August 2016, the company took out the policy over the life of Warren.

On 17 January 2019, Warren signed a binding death benefit nomination (the ‘nomination’) directing the company to pay the proceeds of the policy to his legal representative to be distributed in accordance with his will.

Warren died on 12 August 2020, two days after the divorce order came into effect, leaving a will dated 20 March 2020 naming Sarah as the executrix.

After Warren died, MLC Insurance was unable to pay the policy proceeds to the company because it had been deregistered. Instead, on around 3 August 2021, MLC Insurance paid the proceeds, $434,109.38 to ASIC as ‘unclaimed money’ to be held on trust for the Commonwealth.

Should the Company be Reinstated?

Section 601AH(2) of the Corporations Act provides that the Court may make an order that ASIC reinstate the registration of a company on an application by a person aggrieved by the deregistration,[3] if the Court is satisfied that it is just that the company’s registration be reinstated.
[3]Corporations Act 2001 (Cth), s 601AH(2)(a)(i).

As held by Gillard J in Pilarinos v Australian Securities and Investment Commission,[4] the phrase ‘person aggrieved’ in s 601AH(2) is to be given a wide rather than a restrictive interpretation.[5]
[4][2006] VSC 301; (2006) 24 ACLC 775.
[5]Ibid, [46] quoting The Attorney-General of the Gambia v N’Jie (1961) AC 617.

Warren was previously one of the two directors of the company. Prior to the issue of these proceedings, Sarah, in her capacity as executrix of the estate of Warren, sought the consent of Cheryl, the other director, to the reinstatement of the company. At the time, Cheryl did not communicate her consent. Had she done so, it would have been open to ASIC to reinstate the company pursuant to s 601AH(1) without the need for the involvement of the Court.

Because Cheryl did not communicate her consent, it was necessary for Sarah to bring the application for reinstatement pursuant to s 601AH(2)(a)(i).

I accept that Sarah is a ‘person aggrieved’ as a result of the deregistration of the company. The company only ever acted in its capacity as trustee of the Fund. Sarah is a ‘person aggrieved’ because, without reinstatement, ASIC will not release the policy proceeds of which the company, in its capacity as trustee of the Fund, was the owner. I accept that, unless the company is reinstated, the beneficiaries under Warren’s will, who are his and Cheryl’s children, will suffer serious prejudice.

In the circumstances, I am satisfied for the purposes of s 601AH(2)(b) that it is just that the company’s registration be reinstated.

Entitlement to the policy proceeds: Legislation and the Fund Rules
Family Law Act

The following provisions of Part VIIIB of the Family Law Act are relevant.

Section 90XA:

The object of this Part is to allow certain payments (splittable payments) in respect of a superannuation interest to be allocated between:
(a) the parties to a marriage; or
(b) the parties to a de facto relationship;
either by agreement or by court order.

Section 90XB(1), headed ‘This Part overrides other laws, trust deeds etc.’ relevantly provides:

(1) Subject to subsection (3), this Part has effect despite anything to the contrary in any of the following instruments (whether made before or after the commencement of this Part):
(a)       any other law of the Commonwealth;
(b)       any law of a State or Territory;
(c)       anything in a trust deed or other instrument.

Section 90XD, contains the definitions of:

reversionary beneficiary means a person who becomes entitled to a benefit in respect of a superannuation interest of a spouse, after the spouse dies.
splittable payment has the meaning given by section 90XE.
splitting order means an order mentioned in subsection 90XT(1).
superannuation interest means an interest that a person has as a member of an eligible superannuation plan, but does not include a reversionary interest.

Section 90XE, titled ‘Splittable payments’ includes the following:

(1)Each of the following payments in respect of a superannuation interest of a spouse is a splittable payment:
…
(c)a payment to the legal personal representative of the spouse, after the death of the spouse;
(d)a payment to a reversionary beneficiary, after the death of the spouse;
(e)a payment to the legal personal representative of a reversionary beneficiary covered by paragraph (d), after the death of the reversionary beneficiary.

Section 90XS, titled ‘Order under section 79 or 90SM may include orders in relation to superannuation interests’. Section 90XS includes the following:

(1)In proceedings under section 79 or 90SM with respect to the property of spouses, the court may, in accordance with this Division, also make orders in relation to superannuation interests of the spouses.
(2)A court cannot make an order under section 79 or 90SM in relation to a superannuation interest except in accordance with this Part.

Section 90XT(1) is titled ‘Splitting order’:

(1)A court, in accordance with section 90XS, may make the following orders in relation to a superannuation interest (other than an unsplittable interest):
(a)if the interest is not a percentage‑only interest—an order to the effect that, whenever a splittable payment becomes payable in respect of the interest:
(i)the non‑member spouse is entitled to be paid the amount (if any) calculated in accordance with the regulations; and
(ii)there is a corresponding reduction in the entitlement of the person to whom the splittable payment would have been made but for the order;

(b)an order to the effect that, whenever a splittable payment becomes payable in respect of the interest:
(i)the non‑member spouse is entitled to be paid a specified percentage of the splittable payment; and
(ii)there is a corresponding reduction in the entitlement of the person to whom the splittable payment would have been made but for the order;

(c)if the interest is a percentage‑only interest—an order to the effect that, whenever a splittable payment becomes payable in respect of the interest:
(i)the non‑member spouse is entitled to be paid the amount (if any) calculated in accordance with the regulations by reference to the percentage specified in the order;
(ii)there is a corresponding reduction in the entitlement of the person to whom the splittable payment would have been made but for the order;

(d)such other orders as the court thinks necessary for the enforcement of an order under paragraph (a), (b) or (c).

Superannuation Industry (Supervision) Act 1993 (Cth)

The following provisions of the SIS Act are relevant.

Section 62, titled ‘Sole purpose test’:

(1)Each trustee of a regulated superannuation fund must ensure that the fund is maintained solely:
(a) for one or more of the following purposes (the core purposes):
(i)…
…
(iv)the provision of benefits in respect of each member of the fund on or after the member’s death, if:
(A)the death occurred before the member’s retirement from any business, trade, profession, vocation, calling, occupation or employment in which the member was engaged; and
(B)the benefits are provided to the member’s legal personal representative, to any or all of the member’s dependants, or to both;

(v)the provision of benefits in respect of each member of the fund on or after the member’s death, if:
(A)the death occurred before the member attained the age prescribed for the purposes of subparagraph (ii); and
(B)the benefits are provided to the member’s legal personal representative, to any or all of the member’s dependants, or to both; or

(b)for one or more of the core purposes and for one or more of the following purposes (the ancillary purposes):
…
(iii)the provision of benefits in respect of each member of the fund on or after the member’s death, if:
(A)the death occurred after the member’s retirement from any business, trade, profession, vocation, calling, occupation or employment in which the member was engaged (whether the member’s retirement occurred before, or occurred after, the member joined the fund); and
(B)the benefits are provided to the member’s legal personal representative, to any or all of the member’s dependants, or to both;

(iv)the provision of benefits in respect of each member of the fund on or after the member’s death, if:
(A)the death occurred after the member attained the age prescribed for the purposes of subparagraph (a)(ii); and
(B)the benefits are provided to the member’s legal personal representative, to any or all of the member’s dependants, or to both;

(v)the provision of such other benefits as the Regulator approves in writing.

Section 119 titled ‘Object of Part’ is in the following terms:

The object of this Part is to set out rules about the eligibility of trustees, custodians and investment managers of superannuation entities.

Section 120(2):

(2)For the purposes of this Part, a body corporate is a disqualified person if:
…
(b)a receiver, or a receiver and manager, has been appointed in respect of property beneficially owned by the body; or

(c) an administrator has been appointed in respect of the body; or
(ca)a restructuring practitioner (within the meaning of the Corporations Act 2001) has been appointed in respect of the body; or
(d)a provisional liquidator has been appointed in respect of the body; or

(e) the body has begun to be wound up.

Section 126J(1)(b):

(1)A disqualified person, or the Regulator, may apply to the Federal Court of Australia for:
…
(b) otherwise—an order that the person is not a disqualified person.

Section 126K(4) provides:

(4) A person commits an offence if:
(a)the person is a disqualified person; and
(b)the person knows he or she is a disqualified person; and
(c)the person is or acts as a responsible officer of a body corporate that is a trustee, investment manager or custodian of a superannuation entity; and
(d)for a person who is an individual and who is a disqualified person only because he or she was disqualified under section 126H--the person is disqualified from being or acting as that responsible officer.

Penalty: Imprisonment for 2 years.

Rules of the Broadhurst Super Fund

The governing rules of the Fund (‘Fund Rules’) include those reproduced below.

Rule 5.2:

Any Superannuation Interest created by the Trustee for the Member may include a Member Lump Sum Superannuation Interest, a Member Income Stream Superannuation Interest, a Reserve or any other Superannuation Interest or Member’s account allowed under the Superannuation Laws.

Rule 8.2:

Provided the Superannuation Laws allow, the Trustee may acquire and invest in any Asset or Cash wherever situate in or outside Australia including, but not limited to the following:
a)Stocks and shares and other equity and debt-equity interests of any entity (including a company), …
…
j)A life insurance or friendly society bond, policy or other investment including but not limited to an endowment, whole of life or other investment or risk policy issued by any life insurance company wherever situate;
…
p)Any investment that meets the sole purpose Test and sections 66, 67, 84, 85 and 109 of the Superannuation Industry Supervision Act 1993;

provided that the acquisition, investment and holding of the Asset is in accordance with the Fund's or Superannuation Interest's Investment Strategy whichever is relevant and in addition, the acquisition, investment and holding of the Asset does not breach the Superannuation Laws, including the Sole Purpose Test or the In-House Assets test.

Rule 9, titled ‘Establishing a Reserve Account for the Fund’:

9.1 The Trustee may establish one or more Reserve Accounts for the Fund which may include amongst others an Investment Reserve, Anti-detriment Reserve, a Contributions Reserve, a Pensions Reserve, an Income Stream Reserve provided the Superannuation Laws allow. Any Reserve Account may be for the benefit of current, past and future Members, their dependants, Legal Estate or the Trustee.
…
9.5 Subject to the Superannuation Laws, Regulator’s Guidelines and the Fund retaining its Complying SMSF status, any trust distributions, insurance policy proceeds, other distributions, windfall gains, winnings or gifts that the Trustee does not declare as Earnings or Authorised Contributions of any Account or Member Lump Sum Superannuation Interest may be allocated to a Reserve Account. The Trustee has sole discretion as to which Reserve Account these amounts are to be added to.
9.6 No Member, Dependant of a Member, deceased Member, the Member’s Legal Personal Representative or a deceased Member’s Legal Estate has any right or entitlement to a Reserve Account unless so authorised under the Rules of the Fund.

Rule 12, titled ‘ Creating an Insurance Strategy and Insurances in the Fund’:

12.1 The Trustee of the Fund may create an Insurance Strategy for the Fund, a Member of the Fund or any Superannuation Interest in the Fund and must create an Insurance Strategy if the Superannuation Laws require. The Insurance Strategy shall form part of the Fund's Investment Strategy.
12.2 The Trustee of the Fund may enter into any Contract of Life Insurance both within and outside Australia issued by any life insurance company, friendly society or other entity that provides insurance to Trustees or Members of a SMSF provided that the Superannuation Laws allow. Any premiums paid by the Trustee of the Fund may be deducted from Earnings of the Fund but may alternatively be deducted from one or all Member Superannuation Interests or Reserve Accounts. Where the Trustee is prohibited under the Superannuation Laws from acquiring a specific type or style of Contract of Life Insurance the Trustee must not acquire this policy.
…
12.4 No Member, Dependant of a Member, Legal Personal Representative of a Member or any other person has any interest in any Contract of Life Insurance or Self Insurance Reserve Account held by the Trustee even where it may be held in the name or for the benefit of the Member unless required by the Superannuation Laws or the Regulator.
12.5 Subject to the Superannuation Laws at the time, the Trustee may distribute, transfer or otherwise deal with any proceeds or distribution payable from or pursuant to a Contract of Life Insurance in accordance with any Insurance Strategy.
12.6 No Member, Dependant of a Member, Legal Personal Representative of a Member or any other person has any interest in the proceeds or distribution from a Contract of Life Insurance or Self Insurance Reserve Account.

Should an order be made pursuant to Section 601AH(3)(d) for the payment of the policy proceeds?

Sarah seeks an order for the payment to her of the policy proceeds pursuant to s 601AH(3)(d) of the Corporations Act. She also seeks an order for the appointment of a liquidator and for the winding up of the company.

Section 601AH(3) provides that:

(3) If:
…
(b)the Court makes an order under subsection (2) [reinstating the company];

the Court may:
…

(d) make any other order it considers appropriate.

As is plain from its terms, s 601AH(3)(d) confers broad power on the Court to make any other order in connection with the reinstatement of registration of the company that the Court considers appropriate.[6]
[6]See Bell Group Ltd v Australian Securities and Investment Commission [2018] FCA 884; (2018) 358 ALR 624, [110], [129] and [136] (McKerracher J).

In Re Bele & Co Pty Ltd,[7] relevant to an order for the payment of the policy proceeds, Black J said:

9…Section 601AH(3)(d) of the Corporations Act seems to me to be sufficiently wide to authorise an order for payment by ASIC to a person whom the Court had determined was properly entitled to the relevant funds. As a matter of discretion, however, it seems to me that the Court would not make such an order without allowing the Company or its liquidator the opportunity to be heard, in a manner that will minimise the costs in this application so far as possible.
10It seems to me that, in these circumstances, the Court can be satisfied that the Company should be reinstated, on the basis that a liquidator is appointed to it … Second, it seems to me that the Court can order that ASIC pay to Bele the amount claimed pursuant to s 601AH(3)(d) of the Corporations Act, on the basis that, on the evidence as it stands, the Company has no claim to those funds, which are properly the funds of Bele, and ASIC takes the funds subject to the rights of Bele in those funds.[8]

[7][2017] NSWSC 1824 (‘Re Bele’).

[8]Ibid, [9]-[10] (emphasis in original)

The orders sought by Sarah adhere to the approach approved of by Black J in Re Bele. However, in this case there is a contest between Sarah and Cheryl concerning who is entitled to the policy proceeds. Sarah also seeks the winding up of the company.

In Re Austral Bronze Co Pty Ltd (No 2),[9] Rees J identified four circumstances in which her Honour considered ancillary orders would likely not be made pursuant to s 601AH(3)(d). Those circumstances include where to make such orders would require the Court to determine contentious matters.[10] The issues on this application are contentious as between Sarah and Cheryl.
[9][2020] NSWSC 1633; (2020) 149 ACSR 221.
[10]Ibid, [80]-[82].

There is a further complication. The company only ever acted as trustee of the Fund. It holds no assets in its own right. The policy proceeds sought to be accessed upon reinstatement of the company are not property beneficially owned by the company.

Although the final Orders refer to real property in the United States of America as an asset of the Fund, there is no evidence about whether that property is still held or was sold and, if so, what became of the net proceeds of sale. No asset of the Fund, apart from the property in the United States and the policy proceeds, has been identified. If the policy proceeds represent the sole asset of the Fund, then the policy proceeds represent the only source of funds to meet the liquidator’s reasonable costs expenses and remuneration. However, the liquidator could only access those funds by calling on the trustee’s right of indemnity out of the trust assets.

The existence of the dispute between Sarah and Cheryl, along with the complications arising from the company only ever having acted as trustee of the Fund and the need to deal in an appropriate manner with the costs, expenses and remuneration of the liquidator, mean that it is not appropriate to make an order pursuant to s 601AH(3)(d) for the payment to one or both of Sarah and Cheryl of the policy proceeds.

Who is entitled to the policy proceeds?
Sarah’s submissions

Sarah submitted that the final Orders and in particular Order 15 does not require the company to pay any portion of the policy proceeds to Cheryl. It was submitted that the policy proceeds do not constitute a ‘superannuation interest’ and are not therefore a ‘splittable payment’ within the meaning of s 90XD the Family Law Act.

The Orders as a whole were said not to evince an intention to capture the potential future proceeds of insurance policies. Such an outcome was contended to be consistent with Order 18 which states that ’all insurance policies [are] to become the sole property of the owner named therein’.

Sarah placed reliance on the nomination signed by Warren. It was submitted that the company as trustee of the Fund is bound by the nomination to pay any benefits following the death of the member, Warren, to the nominated person(s).[11]
[11]Re Narumon Pty Ltd [2018] QSC 185; [2019] 2 Qd R 247, [69] (Bowskill J).

Attention was directed to s 90XD of the Family Law Act, which defines a superannuation interest as ’an interest that a person has as a member of an eligible superannuation plan’. In turn, the Fund Rules define the ‘superannuation interest’ of members as:

any interest in a Superannuation Fund, created under the Superannuation Laws and the Rules of the Fund, including but not limited to a Member Lump Sum Superannuation Interest, a Member Income Stream Superannuation Interest and a Reserve Account.

It was submitted that s 62 of the SIS Act, which sets out the sole purpose test, contemplates that, upon the death of a member, benefits are to be paid to the member’s executrix or dependants. The sole purpose test in s 62 does not contemplate that the trustee can roll over or pay the proceeds of a life insurance policy to another member. After the final Orders divided the property of Warren and Cheryl, Cheryl was no longer to be treated as a dependant.

It was submitted that rr 12.4 and 12.6 of the Fund Rules expressly preclude any member from having an interest in the proceeds of any life insurance policy. Although r 5.2 allows the company to create a ‘superannuation interest’ for a member and the company has the ability to add in the proceeds of an insurance policy before distributing the money under an ‘insurance strategy’, one would not expect life insurance to be treated in that way. The effect of rr 12.4 and 12.6 is that no member of the Fund (or members’ dependent or legal representative) has any interest in the proceeds of the policy. Rule 9 provides for a Reserve Account where the proceeds of a life insurance policy are to be held and provides that what is held in the Reserve Account does not form part of the Fund. The proceeds of the policy do not form part of the superannuation benefits of the Fund. Since the proceeds of the policy are not part of the Fund, they are not caught by the final Orders and they are not a ’splittable payment’ within the meaning of s 90T(1)(b) of the Family Law Act.

It was submitted that the legislation, and also Order 15 are directed to a ’superannuation interest’, being a superannuation interest that creates a right to a superannuation benefit and that the proceeds of the policy are not a ’superannuation interest’.

Sarah submitted that neither the company nor the Fund could treat the policy proceeds as superannuation and that they are expressly precluded from doing so pursuant to the Fund Rules. Further, logically, the proceeds of the policy could not constitute superannuation if they only become payable upon the death of the member. Since the proceeds of the policy is not a ‘superannuation interest’ it is not a ’splittable payment’ within the meaning of s 90XD the Family Law Act, which applies only to ’payments in respect of a superannuation interest of a spouse’.

Cheryl’s submissions

Cheryl submitted that the final Orders contemplated steps being taken to wind up the Fund. The Orders require that prior to the winding up any and all ’splittable payments’ that become payable in respect of either Warren or Cheryl are to be split 50/50 between them, including a ’splittable payment’ that is funded by insurance proceeds held within the Fund.

It was submitted that while paragraph 14 of the Orders requires certain actions to be taken in respect of the Fund within seven days, the Orders do not require that the Fund is wound up within seven days.

Order 15 provides for payment splitting to occur in respect of the ’remaining funds held to the account of the Broadhurst Super Fund, at the point of winding up’ of the Fund; that is, in the future. Paragraphs 15(a) and (b) provide that all ’splittable payments’ that become payable prior to the Fund being wound up are to be paid 50% each to Warren and Cheryl. Pursuant to the terms of the Orders various vicissitudes could have affected precisely what ‘splittable payments’ became payable in the period between the date of the final Orders and the point of the winding up but that all such payments are captured consistent with paragraph 15 of the Orders.

It was submitted that paragraph 18 of the Orders does not require a different construction. Subparagraph 18(c) does not affect the requirement to split splittable payments up to the point of the Fund winding up. Nor does subparagraph (d) affect the nature of an insurance policy, here the policy, as an asset falling within the assets of the Fund owned by the company, a non-party to the proceeding.

In response to submissions concerning the policy proceeds not constituting a superannuation interest and not forming part of the Fund, Cheryl submitted that by reason of s 90XB of the Family Law Act the provisions of Part VIIIB override any other law of the Commonwealth and anything in a trust deed or other instrument. That part and associated regulations contemplate death benefits constituting ‘splittable payments’ as provided for in s 90XE(1)(c). The legislation, including s 90XT(1)(b), contemplates death benefits being payable in the future relative to the date of a splitting order or agreement.

It was submitted that the payment of superannuation benefits on the death of a member, including by way of application of an insured benefit, is a core purpose of a regulated super fund, as provided for in s 62(1)(a)(iv) and (v) of the SIS Act.

It was submitted that the Fund Rules expressly authorise the company in its capacity as trustee of the Fund to treat life insurance proceeds as benefits payable to or in respect of members. Rule 19.3(f) permits the trustee to add to the Member Lump Sum Superannuation Interest (defined in the Fund Rules) any amounts allocated by the trustee from insurance policy proceeds under r 12.5. Rule 20.3(e) provides that amounts may be allocated to the Member Income Stream (defined in the Fund Rules) from insurance policy proceeds. Rule 25.4(f) permits the trustee to pay superannuation or other benefits, including where a member dies, to a member’s executor or dependents. The Fund Rules cater for insurance proceeds to be dealt with by the company as trustee as part of the ordinary mechanics and operation of the Fund, via the Reserve Account as provided in r 9.5.

It was submitted that, on their proper construction, rr 12.4 and 12.6, considered with the remainder of r 12 and other Fund Rules, clarify that any insurance taken out by the company and the proceeds of such insurance forms part of the Fund. That was submitted to be the case noting that r 12.2 allows premium payments to be drawn from Fund earnings. In written submissions filed on her behalf, Cheryl drew attention to the heading to r 12 ‘Creating an Insurance Strategy and Insurances in the Fund’ in support of the proposition that such insurance benefits are an intrinsic part of and are not to be treated separately to the Fund itself.[12]
[12]Cheryl Broadhurst, ‘Second Defendant’s Submissions’, Submissions In the Matter of W&C Broadhurst Pty Ltd, S ECI 2022 01131, 28 October 2022, [32] (emphasis in original) (‘Second Defendant’s Submissions’).

Consideration
The Superannuation Interest Issue

The primary argument advanced by Sarah is that the policy proceeds do not constitute a ‘superannuation interest’ and, therefore, questions as to whether or not they constitute a ‘splittable payment’ to which Order 15 of the final Orders refer do not arise.

The starting point for consideration of the competing submissions is the text of the statutory provisions.

The definition of ‘superannuation interest’ in s 90XD of the Family Law Act excludes a revisionary interest. It does not exclude a splittable interest.

Section 90XE(1) lists specific categories of payments ‘in respect of a superannuation interest of a spouse’ that meet the definition of a ’splittable payment’. The list in s 90XE(1) includes in subsection (c), ’a payment to the legal personal representative of the spouse after the death of the spouse’. The category of payment in issue is expressly referred to as one of the categories of payment constituting a ‘splittable payment’.

Section 90XT provides that a court, in accordance with s 90XS, which permits the court to make orders in relation to superannuation interests of the spouses, may make a ’splitting order’ in respect of such an interest.

Rule 12.4 expressly recognises that superannuation laws can override the operation of the Fund Rules themselves. What constitutes a ‘superannuation law’ is defined in the Fund Rules and includes the Family Law Act. Part VIIIB of the Family Law Act is entitled and is concerned with ‘superannuation interests’.

In any case, the wording and therefore the operation of r 12.4 is more subtle than recognised in the submissions advanced on behalf of Sarah. That rule provides that no member or legal personal representative of a member has any interest in any contract of life insurance held by the trustee ‘even where it may be held in the name or for the benefit of the Member unless required by the Superannuation Laws or the Regulator’.[13]
[13]Affidavit of Sarah Broadhurst sworn 25 March 2022, 32.

I do not consider that the fact that proceeds of the policy are to be dealt with under the Fund Rules as part of the Reserve Account removes or distinguishes the proceeds of a life insurance policy from what constitutes a ‘superannuation interest’ of the deceased. I agree with the submission on behalf of Cheryl that, rather than constituting a separately administered asset, life insurance held by the company in its capacity as trustee is an intrinsic benefit available within the Fund for administration in accordance with the Fund Rules for use to pay or allocate to superannuation benefits.

The submission that the policy proceeds do not constitute a superannuation interest must be rejected.

The Final Orders

Counsel agreed that when construing the final Orders, the meaning of the orders should be derived from the language used, read fairly and that the task is an objective one.[14]
[14]White v Biscan [2021] VSC 799, [19] (O’Meara J). See also Laming v Jennings [2018] VSCA 335, [123] (Kyrou, McLeish and Niall JJA).

Approaching the Orders with those principles in mind, as the heading to Order 14 indicates, Orders 14 – 17 concern the Fund of which the company is trustee. The company is not itself a party to the Federal Circuit Court proceeding. However, as the directors of the company, Warren and Cheryl agreed to act as specified in the final Orders concerning the company and the Fund of which it is trustee.

Order 15 of the final Orders expressly refers to and seeks to invoke s 90XT(1)(b) of the Family Law Act. That section contemplates an order to the effect that ’whenever a splittable payment becomes payable…in respect of [the] interest’ the non-member spouse is entitled to be paid a specified percentage of the splittable payment and there is a corresponding reduction in the entitlement of the person to whom the splittable payment would have been made but for the Order.

Order 15 deals with assets of the Fund, including splittable assets as defined in s 90XT(1)(b). It deals with the ‘remaining funds held to the account of the Broadhurst Super Fund, at the point of winding up’. That is, after the payment of tax and expenses referred to in Order 14, including after the sale of the property in the United States identified at order 14(g).

Sub paragraphs 15(a) and (b) are concerned with ‘whenever a splittable payment becomes payable’. They provide, in substance, that Warren or Cheryl’s entitlement to such a payment, should one become payable in respect of that person’s interest, is to be split 50/50 between them.

It is important to note that Order 15 contemplates events and entitlements that might accrue in the future in favour of either Warren or Cheryl. That is, between the date of the final Orders, 12 May 2020, and ‘the point of winding up’. If a ‘splittable payment’ becomes payable in respect of either the interest of Warren or Cheryl in that intervening period, then that payment is to be split 50/50 at the point of winding up.

That the final Orders are prospective in operation is consistent with Part VIIIB of the Family Law Act, and in particular s 90XE(1)(c), which defines a death benefit as a ‘splittable payment’. Section 90XE(1)(c) expressly contemplates that a spouse might die and the proceeds of the life insurance policy related to that spouse might then be split. Orders 15(a) and (b) expressly reference s 90XT(1)(b) of the Family Law Act and apply to any ‘splittable payment’ that becomes payable to Cheryl (15(a)) or Warren (15(b)) ‘in respect of’ that person’s interest in the Fund.

The proceeds of the policy constitute a ‘splittable payment’ that, between the date of the Order and the winding up of the company, has become payable in respect of the husband (Warren’s) interest in the Fund.

It was submitted by Sarah that the approach to construction contended for by Cheryl gave too much work to do to the words ‘in respect of’ the wife’s interest or the husband’s interest forming part of orders 15 (a) and (b). I do not agree.

The expression ‘in respect of’ is not to be read narrowly. By way of example, in Fitness First Australia Pty Ltd v Fenshaw Pty Ltd,[15] Leeming JA, with whom McColl and Payne JJA agreed, considered the meaning of ’in respect of’ where mentioned in different parts of a lease:
[15][2016] NSWCA 207; (2016) 92 NSWLR 128 (‘Fitness First’)

39.The words “in respect of” are words which require a connection or relationship between the two matters to which they refer. However, the nature of the requisite connection or relationship is, as a matter of ordinary English language, highly dependent upon context. That was made clear in the intervention recorded during submissions in Commissioner of Taxation of the Commonwealth of Australia v Scully [2000] HCA 6; 201 CLR 148 at 154:
“The phrase ‘in respect of’ is intended to convey some connection or relation between the two subject matters. [GUMMOW J. Decisions about phrases such as this must be considered in context.]”

40.Exchanges between bar and bench during argument are of no precedential authority, but the exchange reflected existing authority, including Workers’ Compensation Board (Q) v Technical Products Pty Ltd [1988] HCA 49; (1988) 165 CLR 642 at 653-654:
“Undoubtedly the words ‘in respect of’ have a wide meaning, although it is going somewhat too far to say, as did Mann CJ in Trustees Executors & Agency Co Ltd v Reilly, that ‘they have the widest possible meaning of any expression intended to convey some connection or relation between the two subject-matters to which the words refer’. The phrase gathers meaning from the context in which it appears and it is the context which will determine the matters to which it extends.”

41.The majority of the High Court approved that passage in Scully at [39]. More recently, the words “in respect of” were one of the examples provided by French CJ in R v Khazaal (2012) 246 CLR 601; [2012] HCA 26 at [31] of a “relational term”. His Honour then observed that:
“[31] … The task of construing such terms does not involve the resolution of ambiguity. They are ambulatory words and may be designed to cover a variety of subjects and a variety of relationships between those subjects. The nature and breadth of the relationships they cover will depend upon their statutory context and purpose.”

As these passages make clear, what is meant by ‘in respect of’ is heavily dependent upon context. Here, the context includes the legislation. Section 90XT(1)(a) of the Family Law Act states that a court may make an order in relation to a superannuation interest ‘whenever a splittable payment becomes payable in respect of the interest’. That the policy proceeds are ‘in respect of the interest’ is highlighted by the fact that the only reason for the payment of the policy proceeds following Warren’s death is that the trustee of the Fund, the company, is the owner of the policy in respect of Warren in his capacity as a member of the Fund. To read the words ’in respect of’ in Order 15 of the final Orders too narrowly would not be to give the orders a fair meaning. It would be contrary to the legislation, it would be contrary to the authorities considered in Fitness First, and it would be to disregard the connection between Warren as a member of the Fund and the company as the owner of the policy and trustee of the Fund.

Emphasis was placed by Sarah upon the Reserve Account provided for in the Fund Rules which it was submitted meant that payment received from the proceeds of a life insurance policy did not form part of the Fund and also could not accurately be described as a ‘splittable payment’ that has become ‘payable in respect of the husband’s interest in the Broadhurst super fund’. I do not agree.

The definition of splittable payments in s 90XE expressly includes such a payment. Section 90XB(1) provides that Part VIIIB, in which s 90XE is found, overrides any other law. That includes the SIS Act. It follows, that to the extent of any inconsistency with the sole purpose test in s 62 of the SIS Act, Part VIIIB prevails.

Section 90XB(1)(c) also expressly provides that Part VIIIB overrides anything in a trust deed. Even if the requirement concerning the Reserve Account meant the proceeds otherwise stood outside the Fund or the interest of the member in the Fund, the effect of the legislation combined with the wording of Orders 15(a) and (b) means the payment is a ‘splittable payment’ to which Order 15 applies. Having regard to the broad meaning to be attributed to the expression ‘in respect of’ and noting the clear intention of the Orders in paragraphs 14-17 to deal with matters relating to the Fund and all of its assets, including any life insurance to which it might become entitled, I do not consider that the provision of the Fund Rules for a Reserve Account overrides either the legislation or the final Orders.

Nothing in Order 18 changes that outcome. Order 18 begins in the chapeau with the words ‘unless otherwise specified in these orders’. It follows that Order 18 of the final Orders only operates where not otherwise specified in the Orders. It cannot override the express provisions of another paragraph of the Orders, such as Order 15.

Order 18(c) provides that each party foregoes any claim they may have to superannuation benefits belonging to or earned by the other. However, that does not apply to a ‘splittable payment that becomes payable in respect of’ the other party’s interest in the superannuation fund, a topic expressly dealt with in Order 15(a) and (b).

Order 18(d) provides that, unless otherwise specified in the Orders, all insurance policies become the sole property of the owner named therein. Order 18(d) has no application to the policy. Order 18(d) is directed to insurance policies owned personally by Warren or Cheryl. The insurance policy in question is solely owned by the company in its capacity as trustee of the Fund.

A ’splittable payment’, as s 90XA which identifies the object of Part VIIIB states, is a payment ‘in respect of a superannuation interest’. Just as the submission on behalf of Sarah that what is in issue here is not a superannuation interest must be rejected, so too must the submission that the policy proceeds are not ‘in respect of’ such an interest be rejected.

The effect of the Nomination

Sarah submitted that, as executrix of the will and estate of Warren, by reason of the nomination, the company is obliged to pay the money, the proceeds of the policy, to her.

I do not accept that submission. The nomination cannot be, and is not, effective to override the operation of Part VIIIB of the Family Law Act or the final Orders. To the extent it is relevant, the nomination directs Sarah as to what she is to do as executrix of Warren’s will with policy proceeds to be paid to his estate.

Entitlement to the Policy Proceeds

In circumstances where the proceeds of the policy are a ’splittable payment’ and where Order 15 of the final Orders provides that all such payments are to be split 50/50, the proceeds of the policy in the sum of $434,109.38 are properly regarded as the property of Warren and his former wife, Cheryl as to 50% each.

It is appropriate to make a declaration that in accordance with the final Orders, Sarah is entitled to 50% of the proceeds of the policy and Cheryl is entitled to 50% of the proceeds.

Should a liquidator be appointed to the company?

On the original return of the application it appeared the only real issue was the question of who is entitled to the proceeds of the policy. The appointment of a liquidator to the company was seen as the appropriate mechanism to get in the policy proceeds, currently vested in the Commonwealth.

The Court was informed that Cheryl did not oppose the appointment of a liquidator as a concept. However, submissions filed by Mr Hogan on behalf of Cheryl in advance of the adjourned hearing drew attention to complications with the proposal to appoint a liquidator due to the provisions of the SIS Act. It was submitted, that upon the appointment of a liquidator, or the making of an order for a winding up, that the company would become a ‘disqualified person’.[16] Section 126K of the SIS Act provides that a person commits an offence if the person is a disqualified person and ‘is or acts as trustee… of a superannuation entity’.[17]
[16]Second Defendant’s Submissions, [70].
[17]Ibid.

Section 120(2)(e) of the SIS Act provides that, if the body corporate has commenced to be wound up, the corporate trustee becomes a disqualified person. Rule 2.5(d) of the Fund Rules provides that the trustee is to be removed if it is prohibited from being a trustee under superannuation laws.

Section 120(2)(e) of the SIS Act has the consequence that, upon a liquidator being appointed to a corporate trustee, the trustee becomes a disqualified person for the purposes of the SIS Act. That is, unless a successful application is made by the disqualified person to the Federal Court of Australia (only) pursuant to s 126J(1)(b) of the SIS Act.

In Jennifer Helen Papadam v Smidam Pty Limited,[18] a receiver was appointed by the Court to the assets and undertaking of a corporate trustee of a self-managed superannuation fund and to the fund itself. The appointment was primarily to implement a ‘rectification plan’ drafted by an auditor (itself arising from an order made in separate proceedings) to bring the fund into a complying state. Due to the directors of the corporate trustee being unable to work with each other, the receiver sought appointment as liquidator of the corporate trustee. The application was made with the consent of the directors of the corporate trustee and the members of the fund. Williams J refused the application for reasons that included that, upon being appointed, the liquidator would not be in a position to wind up the fund. If the liquidator took steps to do so, the liquidator would potentially be acting in contravention of the SIS Act and would potentially be liable as an accessory to an SIS Act offence.[19]
[18][2022] NSWSC 629 (Williams J).
[19]Ibid, [51]-[57].

On some occasions Courts have dealt with the issues raised by s 120(2)(c) and 126K of the SIS Act issue in a practical manner by appointing a receiver to the relevant fund.

In Deputy Commissioner of Taxation v The Mai Family Pty Ltd (in liq),[20] Besanko J made orders appointing the liquidator as receiver and manager of the trust. The orders included specific powers concerning the fund.
[20][2019] FCA 865; (2019) 136 ACSR 638, [13]-[16] (Besanko J) (‘Mai’).

In Re Stansfield DIY Wealth Pty Ltd (In Liq),[21] the liquidator applied for directions to the effect that the company in liquidation be permitted to sell or otherwise deal with the property of a regulated self-managed superannuation fund of which it was the trustee, in the course of winding up the company, for the purpose of satisfying creditors of the super fund for which the company was liable and for the purpose of meeting the liquidator’s remuneration and expenses. In Re Stansfield, Brereton J gave directions permitting the liquidator to cause the company to resign as trustee, stating that the liquidator would be justified in seeking appointment as receiver of the property of the superannuation fund for the purposes of enforcing the corporate trustees’ right of indemnity.
[21][2014] NSWSC 1484; (2014) 291 FLR 17, [35]-[39], [43] (Brereton J) (‘Re Stansfield’).

The orders in Mai and Re Stansfield were made appointing the liquidator as receiver of the superannuation fund in circumstances where there had earlier been an appointment of the same person as liquidator. In this case, no such order has yet been made, inviting the consideration of alternative approaches to the issues raised by s 120(2) of the SIS Act.

At the conclusion of the adjourned hearing I considered that the appointment of Mr Gollant, the nominated liquidator, as a receiver, consistent with the approach adopted in Mai and Re Stansfield, was appropriate. On further consideration, I became concerned that to do so might be inconsistent with s 120(2)(b) of the SIS Act, which describes a corporation to whom a receiver and manager has been appointed as a disqualified person. That is, in the same way that s 120(2)(e) provides that if ‘the body has begun to be wound up, the corporation is a ‘disqualified person’.

The prohibition in s 126K is upon a person ‘acting’ as a trustee. The critical action required of the corporate trustee in this case upon reinstatement is to obtain the policy proceeds from the Commonwealth and to then pay them to Sarah and Cheryl in accordance with Order 15 of the final Orders.

My concern with orders for the appointment of a receiver, even with the safeguards and mechanisms built into the orders made in Re Stansfield, and with an order requiring the policy proceeds to be paid into Court as I consider appropriate, including to safeguard the remuneration of the receiver, was that such orders might not be sufficient to avoid exposure on the part of the receiver to penalty under s 120K of the SIS Act. That is, without the need for dispensation orders from the Federal Court pursuant to s 126J(1)(b) of the SIS Act.

Those concerns were allayed upon the receipt of joint submissions helpfully provided by counsel acting on behalf of Sarah and Cheryl.

I accept, as is common ground between those parties, that the appointment of Mr Gollant as receiver is not an appointment for s 120(2)(b) purposes, ‘in respect of property beneficially owned by the body [corporate]’ (ie the company), but rather, is an appointment in respect of property beneficially owned by trust beneficiaries in respect of which the company, while legal owner, only has a limited beneficial interest (through its right of indemnity).

As noted in the joint submission, s 120(2)(b) has application where ‘a receiver, or a receiver and manager, has been appointed in respect of property beneficially owned by the body’. Part 15 of the SIS Act sets standards and rules applying to eligibility of trustees, custodians and investment managers of superannuation entities (s 119). A superannuation entity (s 10) includes a regulated superannuation fund (such as the Fund).[22]
[22]Sarah Broadhurst and Cheryl Broadhurst, ‘Joint Submission on Behalf of Plaintiff and Second Defendant: Section 120(2)(b) SIS Act’, Submission In the Matter of W&C Broadhurst Pty Ltd, S ECI 2022 01131, 18 November 2022, [4].

The ‘body’ referred to in s 120(2)(b) is the corporate entity itself; here, the company. The sub-section does not refer to the term superannuation entity (or superannuation fund) used throughout the SIS Act, including elsewhere in Part 15 (here, the Fund; recognising that as a trust it is not a separate legal entity).[23]
[23]Ibid, [7].

I accept as stated in the joint submission that a receiver appointed to Fund property is not appointed ‘in respect of property beneficially owned by the body [company]’. Such property is beneficially owned by the Fund beneficiaries, not the company (though the company may have, by reason of a right of indemnity, a beneficial interest in those assets).[24]
[24]Carter Holt Harvey Woodproducts Australia Pty Ltd v The Commonwealth (2019) 268 CLR 524; [2019] HCA 20 (Bell, Gageler and Nettle JJ at [80]-[85]). Noting that in Jones v Matrix Partners Pty Ltd; Re Killarnee Civil 3.

It was accepted in the joint submission that s 120(2)(b) may apply if a body corporate that was a trustee of a superannuation fund also undertook other activities and owned property in a personal capacity, and a receiver is appointed to those assets or undertaking. However, that is not this case.

In light of the matters set out in the joint submission, I accept that s 120(2)(b) would not be engaged by appointment of Mr Gollant as receiver and manager of the Fund assets.

Just as in the earlier cases of Re Stansfield, Mai, and Sanderson, in the matter of Taylorsix Pty Ltd (in liq),[25] orders for the appointment of Mr Gollant as receiver are appropriate. No requirement to seek dispensation pursuant to s 126J(1)(b) of the SIS Act arises.
[25][2021] FCA 1123 (Cheeseman J).

I will make an order pursuant to s 601AH(3) for the payment by ASIC of the policy proceeds, together with any other assets of the company or the trust vested pursuant to s 601AD(1A) or (2) of the Corporations Act, to Mr Gollant in his capacity as receiver. Such an order pursuant to s 601AH(3) is appropriate to ensure clarity about what is required of ASIC. The making of such an order is not one that deals with the controversy between Sarah and Cheryl. That controversy is dealt with by the declarations and orders that I otherwise propose to make.

Should the company be wound up?

Sarah seeks an order that the company, upon being reinstated, be immediately wound up on the just and equitable ground in s 461(K) the Corporations Act. Cheryl does not oppose a winding up order but, in essence, urges caution due to the SIS Act issues mentioned above.

I accept on the basis of the authorities referred to by Sarah that it is not uncommon for the Court to reinstate companies only to have them wound up.

In St Hilliers Contracting Pty Ltd,[26] Austin J referred to the very wide power to wind up a company on the just and equitable ground and noted that the Court will frequently combine an order under s 601AH(2) with an order for winding up on the just and equitable ground.[27] The Court may do so in circumstances that include where the former directors of a defunct company are unwilling to resume management or it is inappropriate for them to do so and yet there is good reason to reinstate the company.[28]
[26][2009] NSWSC 1460.
[27]Ibid, [7].
[28]Ibid.

In the present case there is no one willing to act as director, yet, there is good reason to reinstate the company. The company is not carrying on business, whether in its own right or as trustee. Apart from the real property the United States, about which there is no evidence, the only asset of the Fund that has been identified is the proceeds of the life insurance policy.

In the circumstances, particularly where the assets of the Fund are modest, it is important to do what can be done in a practical way to ensure that the company and the Fund are wound up in an orderly, but also in a cost and time efficient manner.

Section 24 of the Civil Procedure Act 2010 (Vic) (‘the CPA’) imposes an obligation on parties and practitioners to use reasonable endeavours to ensure that costs are reasonable and proportionate to the complexity of the issues in dispute and the amount in dispute. Parties and practitioners are bound to give effect to the overarching purpose in s 7 of the CPA to ensure that the real issues in dispute are resolved in an efficient, timely and cost-effective manner. Counsel who appeared on the application and the parties themselves are to be commended for having approached the complexities to which I have referred and the application as a whole in a cooperative manner, consistent with their CPA obligations, notwithstanding their competing interests.

Orders

I propose to make detailed orders in accordance with Annexure A, expressly reserving liberty to Mr Gollant and to any interested party to apply on five business days’ notice.

I note that Mr Gollant has provided his written consent to act both as receiver and as liquidator. The orders in Annexure A do not accord precisely with the draft orders submitted by counsel for the parties. If counsel have any concerns about the wording of the orders they should contact my chambers within the next seven days.

ANNEXURE A

IN THE SUPREME COURT OF VICTORIA
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST

S ECI 2022 01131

IN THE MATTER of W & C BROADHURST PTY LTD (ACN 612 158 479)

SARAH BROADHURST (IN HER CAPACITY AS EXECUTRIX OF THE WILL AND ESTATE OF THE LATE WARREN BROADHURST)	Plaintiff
v
AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION	First Defendant
- and -
CHERYL BROADHURST	Second Defendant

ORDER

JUDGE:	The Honourable Justice Delany
DATE MADE:	30 November 2022
ORIGINATING PROCESS:	Originating Process filed on 4 April 2022
HOW OBTAINED:	At trial, 16 September and 4 November 2022
ATTENDANCE:	Mr D Mence with Mr N Modrzewski for the Plaintiff No appearance for the First Defendant Mr L Hogan for the Second Defendant
OTHER MATTERS:	1. The Court notes that the First Defendant by letter dated 22 April 2022 indicated that it did not oppose the relief sought in the Plaintiff’s originating process provided no adverse costs order be made against it. 2. The plaintiff, by her Counsel, undertook to abide by any order which this Court may make as to damages, in case this Court shall be of the opinion that any have been sustained, by reason of this order, which the plaintiff ought to pay. 3. The Court notes that the objectives of the appointment of a receiver are to: a. enable the receiver to get in and realise the property of the Fund (as defined below) to enforce the right of indemnity of the Company (as defined below) to discharge the liabilities incurred by it in its capacity as trustee of the Fund and to provide the Proceeds (as defined below) to an appointed liquidator to discharge those liabilities of the Company in accordance with the priorities set out in s 556 of the Corporations Act 2001 (Cth); b. enable the receiver to recover the costs of the receivership and, because the sole function of the Company was to act as trustee of the Fund, the costs and expenses in the winding up of the Company; and c. distribute any surplus in the Fund in accordance with the Orders below.

THE COURT ORDERS THAT:

The First Defendant reinstate the registration of W&C Broadhurst Pty Ltd (ACN 612 158 479) (‘Company’) as trustee for the Broadhurst Super Fund (ABN 50 455 702 356) (‘Fund’) pursuant to s 601AH(2) of the Corporations Act 2001 (Cth) (‘Act’).

Appointment of Receiver

Under s 37(1) of the Supreme Court Act 1986 (Vic), and rule 39.02(1) of the Supreme Court (General Civil Procedure) Rules 2015 (Vic), Mathew Gollant of CJG Advisory, Level 1, Suite 5, 443 Lt Collins Street Melbourne, Victoria, a registered liquidator in the State of Victoria, be appointed as receiver and manager of the property of the Fund (‘Receiver’), without provision of security.
The Receiver have the powers in Order 4, together with all the powers that a receiver has in respect of the business and property of a company under section 420 of the Act (other than in sections 420(2)(s), (t), (u) and (w)) as if the reference in that section to ‘the corporation’ were a reference to the Fund, including to:
a.   receive the property referred to in Order 7 below;
b.   deal with the policy proceeds as defined in Order 7 and any other property of the company and of the Fund; and
c.   distribute any surplus in accordance with these Orders.
Without limiting the effect of Order 3, the Receiver shall have power:
a.   to do all things necessary or convenient to be done for or in connexion with or as incidental to the attainment of the objective noted at paragraph 3 of ‘Other Matters’;
b.   to discontinue, terminate or wind up any such business, enterprise or venture, in whole or in part; and
c.   to sell and convert into cash any property or asset of the Fund.
The Receiver is to serve forthwith by email a copy of these orders on the proper officer of:
a. the Australian Prudential Regulation Authority; and
b. the Commissioner of Taxation.
Upon completion of the realisation of Fund property and payment of costs, expenses and liabilities, the Receiver is to deliver to:
a. the Court; and
b. the Commissioner of Taxation,
a statement of receipts and payments in relation to the realisation of the Fund property and payments made by the Receiver.

Transfer of property

The First Defendant is directed pursuant to s 601AH(3)(d) of the Act to transfer to the Receiver any and all property of, or held by, the Company that vested pursuant to s 601AD(1A) or (2) of the Act, including the amount of $434,109.38 paid to the First Defendant by or for MLC Limited in respect of MLC policy 93174759 (‘policy proceeds’).
Within seven days of receipt of the policy proceeds, the Receiver is to pay the policy proceeds into Court.

Appointment of Liquidator

Upon the policy proceeds having been paid into Court in accordance with Order 8, the Company be wound up on just and equitable grounds pursuant to s 461(k) of the Act and the Receiver is appointed as liquidator of the Company and of the Fund (‘Liquidator’).
The Liquidator may cause the Company to resign as trustee of the Fund if, in the circumstances of his appointment, the Company would be a “disqualified person” pursuant to s 120(2)(e) of the Superannuation Industry (Supervision) Act 1993 (Cth).
The Plaintiff lodge a copy of this order as authenticated together with a completed Form 105 with the First Defendant.

Declaration of interests

The Court declares that the policy proceeds:
a.   are, on reinstatement of the Company, an asset of the Company as trustee of the Fund;
b.   constitute a ‘splittable payment’ falling within paragraph 15 of the Orders of Registrar Mathews of the Federal Circuit Court of Australia made on 12 May 2020 in proceeding (P)MLC14254/2019;
c.   after the payment of the reasonable costs, expenses and remuneration of Mr Gollant and deductions of all other costs, charges, fees, liabilities or other amounts whatsoever entitled to be deducted by the Receiver or the Liquidator as contemplated by these Orders, or by a trustee of the Fund in accordance with the Fund governing documents and all applicable laws, each of:
i.Sarah Broadhurst, in her capacity as executrix of the estate of Warren Broadhurst; and
ii.Cheryl Broadhurst, in her own capacity,
are entitled to 50% of the net policy proceeds.
Upon the winding up of the company and the Fund, and after payment of Mr Gollant’s reasonable costs, expenses and remuneration, the money remaining in Court is to be paid out of Court equally to Sarah and Cheryl.

Costs & other orders

The Plaintiff’s and Second Defendant’s costs of this application be costs and expenses in the winding up of the Company.
The costs, expenses and remuneration of the Receiver in:
a. acting as Liquidator; and
b. acting as the Receiver of the assets and undertaking of the Fund,
be paid from the Fund property. For the avoidance of doubt such amounts are payable in priority to any payments to any trustee of the Fund from time to time or to the Plaintiff and the Second Defendant in accordance with Order 12.
Liberty is granted to the Receiver to apply to the Court including for orders discharging and releasing the Receiver on five business days’ notice by sending an email to the Associate to the appropriate Judicial Officer.
Liberty to apply is reserved to all parties on five days' notice, any such notice to specify the relief to be sought.

SCHEDULE OF PARTIES

SARAH BROADHURST (IN HER CAPACITY AS

EXECUTRIX OF THE WILL AND ESTATE

OF THE LATE WARREN BROADHURST)

Plaintiff

AUSTRALIAN SECURITIES AND INVESTMENTS

COMMISSION

First Defendant

CHERYL BROADHURST

Second Defendant

[2022] VSC 737

30 November 2022