Point Coolum Limited v State of Queensland
[2022] QSC 291
•16 December 2022
SUPREME COURT OF QUEENSLAND
CITATION:
Point Coolum Limited v State of Queensland & Anor [2022] QSC 291
PARTIES:
POINT COOLUM LIMITED
ACN 649 743 359(applicant)
v
STATE OF QUEENSLAND(first respondent)
REGISTRAR OF TITLES
(second respondent)
FILE NO/S:
BS No 8788 of 2022
DIVISION:
Trial Division
PROCEEDING:
Application
ORIGINATING COURT:
Supreme Court of Queensland
DELIVERED ON:
16 December 2022
DELIVERED AT:
Brisbane
HEARING DATE:
21 November 2022
JUDGE:
Williams J
ORDER:
1. Pursuant to section 568F of the Corporations Act 2001 (Cth) the estate in fee simple in the properties described as Lot 303 on SP132586, Title Reference 50460478 and Lot 304 on SP168093, Title Reference 50503749 (the Properties) vest in the applicant for the purpose of the sale of the Properties, and for all other steps which in the discretion of the applicant are necessary or desirable to effect such a sale including (without limitation): acquiring an access strip for the Properties; the steps contemplated in the agreement between the applicant and the Body Corporate for the Point Coolum Beach CTS 22578 dated 29 May 2021 (as varied); and obtaining a mortgage to fund the purchase of the access strip and/or to fund the taking of the other steps.
2. Upon the sale of the Properties, the applicant must apply the proceeds of sale as follows:
(a) first, in payment of land tax, rates and water (and other similar charges, if any), whether or not there is a statutory charge registered on the property titles;
(b) secondly, in payment of all costs, charges and expenses properly incurred by Point Coolum as incidental to the sale, or any attempted sale, or otherwise, including without limitation the preparatory and other steps taken by the applicant pursuant to order 2 hereto, and the costs of this application;
(c) thirdly, in payment of any mortgages;
(d) fourthly, in payment of any body corporate debt and recovery costs as those expressions are defined in the Body Corporate and Community Management (Accommodation Module) Regulation 2020 (Qld); and
(e) the residue (if any) of the proceeds so received shall be paid into Court.
3. The applicant must, after the sale of the Properties provide an account of its payments and receipts to William John Fletcher as liquidator for Andrew Schulz Associates Pty Ltd.
4. Paragraphs 3 to 8 of the amended originating application are dismissed.
5. The applicant and respondents each bear their own costs of the proceeding.
6. Liberty to apply.
CATCHWORDS:
CORPORATIONS – WINDING UP – CONDUCT AND INCIDENTS OF WINDING UP – EFFECT OF WINDING UP ON OTHER TRANSACTIONS – DISCLAIMER OF ONEROUS PROPERTY – where there are two lots in a body corporate scheme with a registered proprietor that is deregistered – where the liquidator of the company has disclaimed the property – where the applicant applies for the land to be vested in it pursuant to s 568F of the Corporations Act for the purpose of sale of the property – where the body corporate is supportive of the applicant – where the land in its current state is unsaleable – where the applicant has agreed to do what needs to be done to make the Lots saleable – whether the applicant is a person in or to whom it seems appropriate that the property be vested
Australia and New Zealand Banking Group Limited v State of Queensland [2018] FCA 464
Energy Brix Australia Corporation Pty Ltd (in liq) [2022] VSC 700
ING Bank (Australia) Limited v Queensland, Re Watson [2017] FCA 411National Australia Bank v New South Wales [2009] 260 ALR 115
Body Corporate and Community Management (Accommodation Module) Regulation 2020, s 156
Corporations Act 2001 (Cth), s 568FUniform Civil Procedure Rules 1999 (Qld), r 377
COUNSEL:
S Moody for the applicant
D D Keane with S A Amos for the respondentsSOLICITORS:
Stratum Legal for the applicant
Crown Law for the respondents
The applicant commenced proceedings by way of an originating application seeking various orders. The application was listed in the applications list in relation to an application for leave to amend the originating application and also the amended originating application itself.
On 21 November 2022, an order was made pursuant to r 377(1)(c) of the Uniform Civil Procedure Rules 1999 (Qld) granting the applicant leave to amend its originating application and to add the second respondent as a party.
The amended originating application was filed by leave on 21 November 2022 and the hearing proceeded in respect of relief sought in the amended originating application.
It became apparent by the end of the hearing that in effect the applicant was seeking the relief identified in paragraphs 1 and 2 of the amended originating application on that day, and if the Court refused the application pursuant to s 568F of the Corporations Act 2001 (Cth) (Corporations Act) then the applicant wanted to be heard further in respect of the relief sought in paragraphs 3 to 8 of the amended originating application.
While not consenting, the respondents did not oppose the orders sought at paragraphs 1 and 2 of the amended originating application, subject to some amendments proposed in alternative draft orders (Revised Draft Order).
The Revised Draft Order was accepted by the applicant as the preferred position and the hearing proceeded on the basis of consideration of the appropriateness of the orders in the Revised Draft Order as opposed to the applicant’s proposed draft order.
It was agreed that if the Court was satisfied to make the orders proposed in paragraphs 2, 3 and 4 of the Revised Draft Order (in respect of paragraphs 1 and 2 of the amended originating application), then it would be appropriate to dismiss paragraphs 3 to 8 of the amended originating application.
The orders sought by the applicant in some respects deviate from the “usual orders” and it is necessary to consider whether the orders sought are within power and also whether it is appropriate to make the orders in the current factual circumstances.
Background facts
The application concerns land which forms part of the Point Coolum Beach Community Title Scheme 22578 (referred to as the Scheme) which is located at 1 Bay Terrace, Coolum Beach in the State of Queensland. The Scheme includes 58 residential units and two vacant blocks of land, relevantly:
(a)Lot 303 on Survey Plan 132586, Title Reference 50460478 (Lot 303); and
(b)Lot 304 on Survey Plan 168093, Title Reference 50503749 (Lot 304).
Lots 303 and 304 were originally part of the staged development of the Scheme and the registered proprietor listed on the title is “Andrew Schulz Associates Pty Ltd ACN 010 382 733” (Schulz).
As at 19 May 2006, there was a registered mortgage in favour of Grasshopper Holdings Pty Ltd ACN 063 341 042 (Grasshopper Holdings) in respect of each of Lot 303 and Lot 304.
On 24 February 2012, Schulz was wound up.
On 24 June 2012, Grasshopper Holdings was deregistered as a corporation.
On 19 March 2014, the liquidator of Schulz signed a notice of disclaimer, thereby disclaiming Schulz’s interest in Lot 303 and Lot 304, which was received by ASIC on 26 March 2014.
On 23 November 2014, Schulz was deregistered.
On 27 April 2021, the applicant was incorporated.
On 23 December 2021, the applicant applied to ASIC under s 601AE(2) of the Corporations Act for a transfer of the mortgages on Lot 303 and Lot 304.
On 9 August 2022, the applicant’s application was granted by ASIC.
On 9 September 2022, the applicant lodged a form 1 transfer in respect of the mortgages.
On 13 September 2022, Titles Queensland provided registration confirmation statements which verified that the transfer of the mortgages had been registered on the Freehold Land Register.
Other relevant facts include:
(a)Lots 303 and 304 are steeply sloping and heavily vegetated.
(b)On 29 August 2018, a valuation report stated the values of Lot 303 and 304 as $500,000 and $410,000 respectively. On 12 May 2021, a second valuation report valued the Lots as $800,000 and $560,000 respectively on assumptions, including that the Lots would be sold free of statutory charges and access could be provided by the Body Corporate.
(c)The applicant is a company limited by guarantee and was incorporated for the sole purpose of obtaining Lots 303 and 304, marketing and selling those Lots for the best price and then requiring the ultimate purchaser of Lots 303 and 304 to pay the statutory creditors and to pay a portion of the Body Corporate debt with the balance to be forgiven by the Body Corporate.
(d)The applicant does not currently know the amounts that remain outstanding on the two mortgages.
(e)The Body Corporate is supportive of the applicant’s application as being the only feasible way in which Lots 303 and 304 can be rehabilitated. In these circumstances, the Body Corporate is willing to compromise part of the Body Corporate debt to facilitate this outcome.
(f)As a result of the notice of disclaimer from the liquidator of Schulz, Lots 303 and 304 vested in the Crown in the right of the State of Queensland and the Crown took its interest subject to any existing mortgages or charges.
(g)There is an agreement between the applicant and the Body Corporate which records:
(i)The tasks to be undertaken by the applicant, namely to obtain the registered mortgages and release them, obtain the property the subject of this application, obtain the extra land from UnityWater required for practical access to the property, incorporate that land into the property, market and sell the property for the best price available and enter into a contract of sale and a deed of forgiveness of debt with the purchaser.
(ii)The ultimate aim is to return the property to a state of functionality, useability and as a valuable contributor to the Body Corporate.
(iii)After those steps are completed, the applicant will be wound up.
As previously noted, the Body Corporate is supportive of the applicant’s application and has effective control of the applicant. By the agreement between the applicant and the Body Corporate, the Body Corporate’s Committee has the ultimate discretion as to whether or not the applicant can accept a tender in respect of the two Lots.
Pursuant to paragraph 1 of the amended originating application, the applicant seeks an order under s 568F of the Corporations Act that Lots 303 and 304 vest in the applicant.
Pursuant to paragraph 2 of the amended originating application, the applicant seeks an order as to the application of the proceeds of sale of Lots 303 and 304, including a payment of any Body Corporate debt owed with respect of Lots 303 and 304.
Section 568F of the Corporations Act provides:
“(1)The Court may order that disclaimed property vest in, or be delivered to:
(a) a person entitled to the property; or
(b)a person in or to whom it seems to the Court appropriate that the property be vested or delivered; or
(c)a person as trustee for a person of a kind referred to in paragraph (a) or (b).
(2) The Court may make an order under subsection (1):
(a)on the application of a person who claims an interest in the property, or is under a liability in respect of the property that this Act has not discharged; and
(b) after hearing such persons as it thinks appropriate.
(3)Subject to subsection (4), where an order is made under subsection (1) vesting property, the property vests immediately, for the purposes of the order, without any conveyance, transfer or assignment.”
The authorities recognise that s 568F confers a broad discretion on the Court. See for example Energy Brix Australia Corporation Pty Ltd (in liq) [2022] VSC 700 at [31].
Relevant to the exercise of the Court’s power, the necessary elements can be summarised as follows:
(a)Upon a disclaimer of the property by liquidator of a company;
(b)On the application of a person who claims an interest in the property, or is under a liability in respect of the property that this Act has not discharged;
(c)After hearing such persons as it thinks appropriate; and
(d)Where the person is entitled to the property or otherwise it seems to the Court appropriate that the property be vested or delivered to that person.
Here, element (a) is satisfied. The liquidator has disclaimed Lots 303 and 304 and there is no evidence that there was any challenge to the disclaimer.
In respect of element (b), the applicant has an interest in Lots 303 and 304 as the registered mortgagee of both Lots. It is uncontroversial that as the registered mortgagee the applicant has an interest in the land and has standing to make an application under s 568F of the Corporations Act.
In respect of element (c), the applicant has given notice of the application to the former directors of Schulz (care of its liquidator), the Commissioner of State Revenue, UnityWater, the Sunshine Coast Regional Council, Grasshopper Holdings (the former mortgagee), Westpac and the Australian Taxation Office.
There is no other person that is identified as a person to whom notice should have been given. Nor is it contended by the respondents that there are any other persons who should have been given notice.
In respect of element (d), this is the element that requires further consideration in the current circumstances. Relevantly, the applicant claims an interest in Lots 303 and 304 as registered mortgagee for the purpose of having standing to bring the application pursuant to s 568F. However, the applicant did not originally seek an order for Lots 303 and 304 to be vested in it for the purposes of realising its security. The Revised Draft Order includes a limitation on the vesting of properties for the stated purpose rather than an unqualified vesting as contained in the amended originating application.
The respondents in their submissions helpfully refer to cases under s 568F of the Corporations Act and the equivalent provision of s 133 of the Bankruptcy Act 1996 (Cth) (Bankruptcy Act) where consideration has been given to the purpose of property vesting.
For example, in National Australia Bank v New South Wales [2009] 260 ALR 115 at 122, Rares J recognised that the land should vest for the purpose for which it was originally mortgaged, that is to secure payment to the bank of all principal, interest and other moneys due to it notwithstanding the effect of the disclaimer. The order was made that the legal title of the land vest in the bank so that it may sell the estate in fee simple to a purchaser subject to conditions. Further, the order was that on a sale by the bank it was entitled to retain from the proceeds of sale all moneys to which it would have been entitled assuming that there had been no disclaimer and it had sold exercising its power of sale.
The respondents also identify some cases where orders have been made vesting disclaimed property in a mortgagee under s 568F of the Corporations Act that a mortgagee may, but is not bound, to act as if it were exercising its powers of mortgagee. See for example Australia and New Zealand Banking Group Limited v State of Queensland [2018] FCA 464.
Relevantly, the authorities do not support a mortgagee being entitled to deal with the entirety of the property. Orders made include for a sale of property to allow the mortgagee to realise its security, to allow the mortgagee to calculate the entirety of the debt secured and owing by the mortgage, the proceeds of sale to include payment in discharge of the mortgage after payment of statutory charges and costs incidental to the sale, and a requirement that any residue is paid into Court after all secured creditors have been paid.
Similarly, in ING Bank (Australia) Limited v Queensland, Re Watson [2017] FCA 411 at [35]-[38], Derrington J discussed the “usual terms” of an order under the equivalent section in the Bankruptcy Act. The “usual terms” provide for how the mortgagee may deal with the property, that a mortgagee is not required to serve any notices as may be required under the Property Law Act 1974 (Qld) or the national credit code, that the mortgagee is entitled to calculate the entirety of its debt and deduct and retain for its own absolute use and property such amount from any proceeds of sale of the property as if it were secured by the mortgage, including costs of the application and of the sale of the property, the priority of the proceeds of sale, including what is to happen to any surplus funds, and that an account is provided to certain persons, including the Court.
The “usual terms” as identified also reflect the conditions upon which Rares J vested the disclaimed property in the case of National Australia Bank v New South Wales.
The respondents identify in their submissions that they have not been able to locate any case where a mortgagee has sought for the property to be vested in it for any other purpose other than to realise its security or to provide authority for the proposition that a mortgagee is entitled to deal with the entirety of the disclaimed property and without any account for sale proceeds being given to the liquidator or the Court.
It is in these circumstances that the respondents submit that based on the authorities, it is more appropriate to vest a property in the mortgagee for the purpose of which it was originally mortgaged. That is, that the mortgagee is to sell the disclaimed property, subject to conditions which require the mortgagee to only retain the extent of its security and to pay any surplus proceeds of sale into Court or another person as the Court determines appropriate.
Further, it is contended by the respondents that there are strong policy considerations that any orders incorporate these terms and conditions. Otherwise, it would expand the scope of the mortgagee’s ability to deal with disclaimed property and could result in a mortgagee retaining proceeds in excess of its security.
It is acknowledged that the discretion under s 568F of the Corporations Act is broad and that this section on its face only requires the Court to be satisfied that it is appropriate to vest a disclaimed property in the applicant.
In all of these circumstances, the respondents submit that if the Court considers it appropriate to order that Lots 303 and 304 vest in the applicant, the order should include a requirement that it be for the purpose of the sale of those Lots.
On the evidence filed in support of the application that is the intention of the applicant.
There is force in the submission made by the respondents as to the appropriate form of order in respect of vesting of the property being limited to the relevant purpose.
The relief sought in paragraph 2 of the amended originating application seeks orders as to the order of the application of the proceeds of sale. There are some differences between what is proposed in the amended originating application and in the applicant’s draft order and the Revised Draft Order. Again, I will refer to Revised Draft Order as that is ultimately what was contended for by all parties at the hearing.
The Revised Draft Order is as follows:
“Upon the sale of the Properties, the Applicant must apply the proceeds of sale as follows:
(a) first, in payment of land tax, rates and water (and other similar charges, if any), whether or not there is a statutory charge registered on the property titles;
(b)secondly, in payment of all costs, charges and expenses properly incurred by Point Coolum as incidental to the sale, or any attempted sale, or otherwise, including without limitation the preparatory and other steps taken by the Applicant pursuant to order 2 hereto, and the costs of this application;
(c) thirdly, in payment of any mortgages;
(d) fourthly, in payment of any body corporate debt and recovery costs as those expressions are defined in the Body Corporate and Community Management (Accommodation Module) Regulation 2020 (Qld); and
(e) the residue (if any) of the proceeds so received shall be paid into Court.”
It is necessary to consider the position in relation to the various payments that would be affected by the proposed order.
Mr Pickering, who has provided two affidavits in support of the application on behalf of the applicant, deposes to his belief that there is no prospect of a surplus based on the value of the Body Corporate debt.
Mr Pickering is also of the opinion that the application would not end up with a “windfall” as the value of the two Lots is far exceeded by the amount of the debt owed to the secured creditors and the Body Corporate.
The evidence as to the value of Lots 303 and 304 is that they are collectively valued at $1,360,000, subject to certain assumptions.
There are registered securities over Lots 303 and 304 totalling $15,694.77, being $13,191.44 in respect of Lot 303 in amounts owed to the Commissioner of State Revenue and UnityWater. There is an amount of $2,503.33 being owed to the Commissioner of State Revenue and UnityWater in respect of Lot 304.
The amounts secured by the mortgages are unknown and there is no material before the Court as to the quantum of that secured amount. However, there is evidence that it is intended that the mortgages would be discharged by the applicant and that no security amount would be deducted from the proceeds of sale. It is not clear from the evidence whether that discharge has in fact occurred or would be done as part of any sale process.
There are also further amounts owing to the Sunshine Coast Regional Council and UnityWater in respect of Lots 303 and 304 where no charge has been registered on the title or, in the case of UnityWater, it is owed amounts greater than secured by the statutory charges. These amounts are as follows:
(a)Lot 303: Sunshine Coast Regional Council in the amount of $89,284.77 and UnityWater $3,907.46;
(b)Lot 304: Sunshine Coast Regional Council in the amount of $21,806.66 and UnityWater $3,858.61.
There is also evidence that the Commissioner of State Revenue has issued garnishee notices, however these would attach to moneys due or which may become due to Schulz. Pursuant to the proposal, any proceeds of sale would not be due to Schulz but to the applicant and there would accordingly be no moneys to which the garnishee notices could attach.
In respect of paragraph (a) of the Revised Draft Order, this form of order is wider than statutory charges affecting Lots 303 and 304 in which the relevant statute provides are payable in priority to a registered mortgage.
The applicant’s original proposed wording would cover the amounts under the Land Tax Act 2010 (Qld) which are a first charge on the land and have priority over all other encumbrances.
However, the Sunshine Coast Regional Council has not registered any charge in respect of the outstanding rates and accordingly, those outstanding rates would not be paid in priority on the original proposed wording. Similarly, in respect of the UnityWater charges, the amounts which exceed the amount of the charge would similarly not be encompassed by the original wording.
The amount of $15,694.77 only would be payable in priority under the applicant’s original proposed wording.
Ultimately, having considered all the issues in respect of paragraph 2 of the amended originating application, the respondents submit that if the Court is satisfied that it is appropriate to make the order, then paragraph (a) should include payment of all rates, charges, water and land tax in the form of the Revised Draft Order.
Paragraph (b) deals with costs and expenses properly incurred incidental to the sale. It is appropriate that these be provided for in the order but at this stage, there is no ability to estimate the likely quantum of those costs.
Paragraph (c) deals with payment of any mortgages. As indicated previously, there is no evidence that any sale proceeds will be applied to any mortgages.
Paragraph (d) provides for payment of any Body Corporate debt owed in respect of Lots 303 and 304. The Body Corporate is effectively an unsecured creditor of Schulz.
The respondents contend that contrary to the position taken by the applicant the Body Corporate debt does not attach to the land. Pursuant to s 156(3) of the Body Corporate and Community Management (Accommodation Module) Regulation 2020 (Qld), a liability to pay a body corporate debt in relation to a lot is enforceable jointly and severally against each of the following persons:
(a)A person who is the owner of a lot when the debt became payable; and
(b)A person, including a mortgagee in possession, who becomes an owner of the lot before the debt is paid.
Importantly, the provision provides that the debt becomes payable by the “owner”. It does not run with the land in the traditional sense. Section 156(3) of the Body Corporate and Community Management (Accommodation Module) Regulation 2020 (Qld) in effect expands those who may be pursued for any unpaid body corporate debt.
The applicant’s primary concern is that given the size of the Body Corporate debt it is unlikely that any purchaser would take the risk of purchasing Lots 303 and 304 given that they would become liable for the debt. It is in these circumstances that the application has been made in an attempt to clear the land of the debt and to also set it up for the future, as hopefully being contributing lots to the Body Corporate expenses.
The Body Corporate, under the legislation, has the benefit of being able to pursue the owner of a lot or a new owner of the lot before the debt is paid however it does not obtain the status of secured creditor. Practically, the Body Corporate would need to claim the unpaid debt from the new owner and may need to sue if it remained unpaid.
The evidence identifies that as at 22 June 2022, Lot 303 owed the Body Corporate $2,337,357.81 for unpaid sinking fund levies, administrative fund levies, insurance levies, penalty interest and recovery costs.
Further, as at 22 June 2022, Lot 304 owed the Body Corporate $434,036.33 for unpaid sinking fund levies, administrative fund levies, insurance levies, penalty interest and recovery costs.
The applicant submits that if the Court were to vest Lots 303 and 304 in the applicant, the applicant would become immediately liable for the whole of the Body Corporate debt, being $2,896,417.16 as at 13 October 2022.
Further, if the applicant was to sell Lots 303 and 304 to a third party purchaser, the purchaser would become liable for the whole of the Body Corporate debt, being $2,896,417.16.
The respondents contend that a new owner takes subject to any applicable defences, including limitation period defences and whether the alleged debt has been properly incurred. In this regard, the respondents identify:
(a)The unpaid levies relate to the period from June 2009 to present.
(b)There is an amount of $171,357.14 that was admitted by the liquidator of Schulz as owing and it may have been proved in the winding up however, that is not clear on the evidence.
(c)Potential limitation period defences may be relevant and the amount of Body Corporate debt incurred within the last six years is $823,193.70.
(d)Purported debt recovery fees in the period from 2018 to 2022 where Schulz was deregistered in 2014.
On the available evidence it is impossible to reach a concluded view in respect of some of these issues.
The applicant’s position is that any new owner becomes liable for the whole amount of the debt and there is no issue in respect of the limitation period that arises. The respondents submit that this is not beyond challenge and the limitation period may be a live issue in relation to the amount of any debt claimed against a new owner.
The applicant contends that no surplus would arise that would require payment into Court. However, the respondents submit that outcome would only be the position if Body Corporate debts incurred more than six years ago were paid from the proceeds of any sale of Lots 303 and 304.
It is in all of these circumstances that ultimately the respondents contend that what is proposed in paragraph (d) is not a “usual form” of order. The usual form includes payment only of secured creditors in the appropriate priority.
What is generally sought by paragraph (d) of the amended originating application is an order to allow an unsecured creditor to have priority to proceeds of sale of disclaimed property over other unsecured creditors.
In this regard, the liquidator’s report does identify other unsecured debts owed to Westpac and the Australian Taxation Office and others. Notice of this application has been given to Westpac and the Australian Taxation Office and no response has been provided.
It is in all of these circumstances that the respondents identify that the effect of the order would be to place the applicant and the Body Corporate in a better position than other unsecured creditors by allowing the applicant an unfettered discretion to apply those proceeds to an uncontested debt.
Ultimately, the respondents’ position is that if the Court was satisfied as to the appropriateness of paragraph 2(d), it would be appropriate to require the applicant to provide an account to the liquidator of Schulz in relation to all the proceeds of sale, being consistent with the “usual form” of order.
The applicant submits it is appropriate that the Revised Draft Order be made for the following reasons:
(a)The applicant is the registered mortgagee.
(b)In the eight years since the liquidator’s disclaimer, no-one else has stepped forward to seek a vesting order.
(c)No-one else is likely to step forward to seek a vesting order because the Lots are burdened with debt and are unsaleable.
(d)The applicant is not likely to make a windfall, and if it does make a windfall, the applicant agrees to pay those moneys into Court.
(e)The applicant is best placed to do what needs to be done to make the Lots saleable and pay out secured creditors (this includes obtaining access to Lots 303 and 304).
(f)Secured creditors will be paid upon the sale of the property by the applicant.
(g)The alternatives are undesirable and insufficient.
(h)Something needs to be done.
The applicant points to the fact that eight years have passed since the liquidator’s disclaimer of Lots 303 and 304. During that time, both Lots have continued to accrue significant Body Corporate debt as well as other debts. Given the size of the debt that has accrued, there is concern that no-one else is likely to step forward unless there is some mechanism for dealing with the outstanding Body Corporate debt.
The applicant was incorporated by a number of lot owners in the Scheme for the purpose of acquiring and selling Lots 303 and 304 to pay out secured creditors and a portion of the Body Corporate debt.
The applicant has taken considerable steps to be able to bring this application including obtaining the mortgages to provide standing. There is also an agreement with the Body Corporate that it will compromise part of the Body Corporate debt as part of the sale to a third party purchaser.
It is submitted on behalf of the applicant that in selling Lots 303 and 304 it is hoped that the purchaser will pay Body Corporate levies going forward and develop the Lots as was originally intended.
Further, it is also submitted that it is appropriate that the property vest in the applicant as only the applicant can do what is required to be done in respect of obtaining access to the Lots to make it viable for sale. It is submitted that this is ultimately in the best interest of the State, the statutory creditors and the Body Corporate.
In respect of the issue of obtaining access, Lots 303 and 304 are presently landlocked and there is no practicable access to the Lots from the main road or from the road network inside the Scheme. This negatively affects the saleability of the two Lots and the applicant and the Body Corporate have been working on a resolution of this issue, including negotiation of the purchase of an access strip.
The Body Corporate and individual lot owners have been left with what is described as an “intolerably difficult position”. As a result of the situation in respect of Lots 303 and 304, every other lot owner in the Scheme has had to “pick up the tab” for the shortfall in respect of the levies relevant to Lots 303 and 304 to enable the Body Corporate to continue to function.
The stark reality is the Body Corporate and the individual lot owners have no other choice. For example, insurance premiums would require the full amount of the premium to be paid and this funding would need to be found from other sources given the position of Lots 303 and 304.
As identified in the material filed in support of the application, the purpose of the application for the orders is to sell Lots 303 and 304 and obtain partial payment of the Body Corporate debt and have new owners of those Lots going forward who would be able to pay relevant levies. There is also the ability for Lots 303 and 304 to be developed as a final stage of the Scheme as had been part of the original intention of the Scheme.
Mr Pickering states in his affidavit affirmed on 9 November 2022 at [74]:
“I honestly believe that if the Body Corporate, my fellow Committee members and I did not take this extraordinary step, then nothing would ever change, and the lot owners in the Scheme − mostly ordinary mums and dads of modest means – would have to continue to bear the burden of Lots 303 and 304’s inability to contribute to body corporate expenses with no end in sight.”
In all of these circumstances it is ultimately submitted on behalf of the applicant that the outcome as reflected in the Revised Draft Order is in the best interests of the State, the statutory creditors and the Body Corporate.
In all of the circumstances I am satisfied that the Court does have the power to make an order vesting the property in the applicant subject to conditions.
Further, I am satisfied that it is appropriate that the vesting order be limited specifically to the purpose of the sale of the properties and for the steps necessary or desirable to effect such a sale as reflected in the Revised Draft Order.
In respect of the proposed order for the priority of the application of the proceeds of sale, it is appropriate to include the broadened paragraph (a) for payment of land tax, rates and water, whether or not there is a statutory charge registered on the property titles in first priority.
In respect of paragraph (d), while the effect of the order is to give priority to some of the Body Corporate debt over other secured creditors, in all the circumstances of this case there is an appropriate basis to make such an order.
The inclusion of paragraph (e) that any residue be paid into Court and also the proposed order that the applicant provide an account of the payments to the liquidator of Schulz are also appropriate and provide some safeguard in the event that there is a surplus.
In the particular circumstances of this case, the Body Corporate and the individual lot owners have, for a considerable period of time, had no option but to, in effect, cover the debt of Lots 303 and 304 in order to have the Body Corporate continue to operate. While there is some debate about the amount of the debt that could be recovered if proceedings were commenced (for example as a result of the operation of the limitation period), it is at least arguable that the full amount of the debt becomes due and payable by a new owner (but I do not conclusively determine that issue).
However, in the particular factual circumstances of this case where Lots 303 and 304 are now vested in the State of Queensland but are inoperable as part of the Scheme, there are clear benefits in the proposal to extinguish the debts owed to the Body Corporate to “rejuvenate” the two Lots as viable parts of the Scheme.
Two of the main unsecured creditors, Westpac and the Australian Taxation Office, have been notified of the application and have not provided a response nor participated in the proceedings.
While there are some aspects of this application which may be characterised as novel, it is within the power of the Court and there are strong policy and practical arguments for making the Revised Draft Order.
In these circumstances I am satisfied that it is appropriate to make the orders sought in the form of paragraphs 2, 3 and 4 of the Revised Draft Order.
In light of this outcome, it is also appropriate to order that paragraphs 3 to 8 of the amended originating application be dismissed.
Further, the applicant and respondents have agreed that each bear their own costs of the proceeding.
Accordingly, the order of the Court is that:
1.Pursuant to section 568F of the Corporations Act2001 (Cth) the estate in fee simple in the properties described as Lot 303 on SP132586, Title Reference 50460478 and Lot 304 on SP168093, Title Reference 50503749 (the Properties) vest in the applicant for the purpose of the sale of the Properties, and for all other steps which in the discretion of the applicant are necessary or desirable to effect such a sale including (without limitation): acquiring an access strip for the Properties; the steps contemplated in the agreement between the applicant and the Body Corporate for the Point Coolum Beach CTS 22578 dated 29 May 2021 (as varied); and obtaining a mortgage to fund the purchase of the access strip and/or to fund the taking of the other steps.
2.Upon the sale of the Properties, the applicant must apply the proceeds of sale as follows:
(a) first, in payment of land tax, rates and water (and other similar charges, if any), whether or not there is a statutory charge registered on the property titles;
(b)secondly, in payment of all costs, charges and expenses properly incurred by Point Coolum as incidental to the sale, or any attempted sale, or otherwise, including without limitation the preparatory and other steps taken by the applicant pursuant to order 2 hereto, and the costs of this application;
(c) thirdly, in payment of any mortgages;
(d) fourthly, in payment of any body corporate debt and recovery costs as those expressions are defined in the Body Corporate and Community Management (Accommodation Module) Regulation 2020 (Qld); and
(e) the residue (if any) of the proceeds so received shall be paid into Court.
3.The applicant must, after the sale of the Properties provide an account of its payments and receipts to William John Fletcher as liquidator for Andrew Schulz Associates Pty Ltd.
4.Paragraphs 3 to 8 of the amended originating application are dismissed.
5.The applicant and respondents each bear their own costs of the proceeding.
6.Liberty to apply.
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