Re All In One Contracting Pty Ltd (in liq)
[2023] VSC 330
•16 June 2023
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2023 00391
IN THE MATTER of ALL IN ONE CONTRACTING PTY LTD (In Liquidation) (ACN 603 071 790)
BETWEEN:
| MATTHEW KUCIANSKI in his capacity as Liquidator of ALL IN ONE CONTRACTING PTY LTD (In Liquidation) ACN 603 071 790 & ANOR (according to the attached Schedule) | Plaintiffs |
| v | |
| NO-RESPONDENT | Defendant |
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JUDGE: | Irving AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 31 May 2023 |
DATE OF JUDGMENT: | 16 June 2023 |
CASE MAY BE CITED AS: | Re All In One Contracting Pty Ltd (in liq) |
MEDIUM NEUTRAL CITATION: | [2023] VSC 330 |
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CORPORATIONS – Bare trustee – Insolvency of corporate trustee – Winding up of trust – Necessary powers – Section 63 of the Trustee Act 1958 (Vic) – Power of sale – Orders and directions – Section 90-15 of Schedule 2 (Insolvency Practice Schedule (Corporations)) to the Corporations Act 2001 (Cth) – Application of Parts 5.5 and 5.6 of the Corporations Act 2001 (Cth) to application and distribution of trust property – Orders made.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr A Segal | Madgwicks |
| No appearance for the Defendant |
HIS HONOUR:
The first plaintiff is the liquidator (Liquidator) of All In One Contracting Pty Ltd (in liq). The Liquidator has applied under s 90-15 of the Insolvency Practice Schedule (Corporations) (IPS), being Schedule 2 of the Corporations Act 2001 (Cth) (Act), s 1318 of the Act and ss 63 and 67 of the Trustee Act 1958 (Vic) (Trustee Act) for the following relief:
(a) A declaration pursuant to s 90-15 of Schedule 2 of the IPS that the Liquidator is justified in conducting the winding up of All in One Contracting Pty Ltd (in liq) (Company) on the basis that:
(i) the Company carried on business in its capacity as trustee of the All In One Unit Trust (Trust) and all assets of the Company are properly characterised as property held by the Company in its capacity as trustee of the Trust (Trust Property);
(ii) the Liquidator is and was entitled to be paid from the Trust Property his remuneration, costs and expenses properly incurred in winding up the Trust which includes, but is not limited to preserving, realising or getting in the assets of the Trust, the Trust Property, or carrying on any business or activities of the Trust, or in conducting any sale of the Trust Property, or in distributing the Trust Property (once realised), or in conducting the winding up of the Company (Remuneration and Expenses); and
(iii) the Remuneration and Expenses include remuneration, costs and expenses of and incidental to this application and are to be paid in accordance with the priority specified in s 556(1) of the Act.
(b) An order pursuant to s 63 of the Trustee Act conferring nunc pro tunc the following powers on the Company as necessary to enable the Company to wind up the Trust:
(i) The power to carry on the business of the Trust;
(ii) The power to sell the assets of the Trust;
(iii) The power to compromise any claim made against the Company in its capacity as trustee of the Trust or against any of the Trust property on any terms the Company sees fit;
(iv) The power to bring any claim against a party on behalf of the Trust; and
(v) The power to execute any tax returns, financial statements or other documents relating to the Trust.
(c) An order pursuant to s 90-15 of the IPS that the Liquidator is able to rely on his statutory powers as Liquidator of the Company pursuant to s 477 of the Act to take all reasonable steps to wind up the Trust pursuant to paragraph (b) above.
(d) A declaration pursuant to s 90-15 of the IPS that the Liquidator was justified and otherwise acted reasonably in dealing, realising, selling or otherwise disclaiming Trust Property in accordance with Parts 5.5 and 5.6 of the Act.
(e) An order that the costs of this application be costs in the winding up.
Background
On 1 June 2022, the Company was wound up by way of a resolution of the sole member of the Company and the Liquidator was appointed. The Company is recorded as trustee of the Trust constituted by a deed of trust dated 26 November 2014 (Trust Deed).
The Liquidator’s investigations into the affairs of the Company have revealed that the Company operated exclusively as trustee of the Trust and that it did not undertake activities or conduct any business in its own right and that at all times it held, and continues to hold, all property on trust for the Trust. The Liquidator’s investigations also reveal that the Company incurred liabilities solely in its capacity as trustee of the Trust. Those investigations included a review of the Company’s books and records, bank accounts and general security agreements, credit submissions and documentation obtained from the Australian Taxation Office (ATO).
As at the date of the Liquidator’s appointment the sole shareholder of the Company was Jagasav Pty Ltd (Jagasav). Jagasav, in its capacity as trustee for the Savari Family Trust, holds all units of the Trust. Ms Alisha Fay Savari is the sole director of Jagasav. The Liquidator has informed Ms Savari of his application, including the time of the hearing of the application by the Court.
The Liquidator deposed that at the time of his initial appointment he was aware that the Company was the trustee of the Trust, but that he was not provided with a copy of the Trust Deed and was not aware of its terms until 25 August 2022. Clause 26(b)(ii) of the Trust Deed provides that the Trustee shall be disqualified from holding office if, being a company, it goes into liquidation. The effect of this term is that, from the date of the Liquidator’s appointment, the Company was automatically removed as Trustee of the Trust. As such, the Company holds the Trust’s assets as bare trustee, subject to its right of indemnity from the Trust to satisfy liabilities of the Trust. The Liquidator deposed that he became aware of the removal clause when his staff reviewed the Trust Deed on 1 September 2022.
The Liquidator deposed that, as at 30 January 2023, being the date of his affidavit, he was not aware of any steps having been taken to replace the trustee of the Trust. The Liquidator’s counsel confirmed this remained the case as at the date of the hearing.
The Liquidator has recovered the following assets of the Trust:
(a) $547.46 being cash held in a bank account by the Company at the time of the Liquidator’s appointment;
(b) $13,995 being the net surplus of sums collected from trade debtors of the Company; and
(c) $2,399 being a refund from a pre-appointment subscription.
In addition, the Liquidator has issued demands to:
(a) an entity related to the Company with respect to an outstanding asset loan disclosed in the Company’s books and records; and
(b) the Deputy Commissioner of Taxation with respect to identified alleged voidable preferential payments.
In relation to the demand on the Deputy Commissioner of Taxation, the Liquidator deposed that in the course of pursuing that sum, it may be necessary to issue proceedings.
Notice to interested parties
Sophia Pichardo Espinoza is a solicitor employed by the Liquidator’s legal representative. Ms Espinoza has sworn four affidavits of service in the proceeding dated 9 March 2023, 22 March 2023, 5 April 2023 and 26 May 2023.
Ms Espinoza’s evidence was that:
(a) on 7 March 2023, following a number of unsuccessful attempts to serve Ms Savari with the Liquidator’s originating process, the affidavit of the Liquidator sworn 30 January 2023 and an email from the Court dated 24 February 2023 advising the hearing of the originating process was re-listed for 10 March 2023 (Documents), she emailed the Documents to Ms Savari’s husband’s email address. The Liquidator had previously confirmed that Ms Savari has access to her husband’s email address;
(b) on 27 February 2023, the Documents were sent by registered post to a business address of Jagasav, not the registered office as per the Australian Securities and Investment Commission (ASIC) company search;
(c) on 28 February 2023, the Documents were delivered to ASIC, who confirmed receipt on 2 March 2023;
(d) on 7 March 2023, Ms Espinoza attended Jagasav’s registered address and left the documents outside the front door;
(e) on 10 March 2023, in compliance with the Court’s orders made on 10 March 2023, Ms Espinoza emailed a copy of the Court’s orders of that date relisting the hearing of the Liquidator’s application to 24 March 2024 to Jagasav;
(f) on 10 March 2023, Ms Espinoza was forwarded a copy of an email sent by Mr Savari to the Liquidator, which itself forwarded a copy of Ms Espinoza’s email of 10 March 2023. Mr Savari’s email to the Liquidator asked whether Mr and Ms Savari were required ‘to do something here’. The Liquidator responded on 20 March 2023 noting the nature of the proceeding, requesting confirmation that Ms Savari had received the Documents and advising that Ms Savari may obtain legal advice or appear at the hearing scheduled for 24 March 2023. Ms Savari replied to the Liquidator on 20 March 2023 confirming receipt of the Documents;
(g) on 10 March 2023, Ms Espinoza attended the registered office of Jagasav and left a copy of the Court’s order of that date under the front door, the office being unattended;
(h) on 24 March 2023, the Court made an order adjourning the hearing of the Liquidator’s application to 8 May 2023 and requiring the Liquidator to serve a copy of that order on Jagasav by emailing it to a specified email address;
(i) on 30 March 2023, Ms Espinoza emailed the Court’s order of 24 March 2023 to the specified email address and received a failed delivery notice informing her that her email could not be delivered. Subsequently, but on the same date, another solicitor sent a copy of the Court’s order of 24 March 2023 to the specified email address and did not receive a failed delivery notification;
(j) on 1 May 2023, the Court made a further order relisting the hearing of the Liquidator’s application before me on 31 May 2023, and requiring the Liquidator to serve a copy of that order on Jagasav at the same specified email address used to serve the earlier order; and
(k) on 2 May 2023, a solicitor at the Liquidator’s legal representative’s firm emailed a copy of the Court’s order of 1 May 2023 to the specified email address and did not receive a failed delivery notification.
Relevant legal principles
The Liquidator’s counsel provided written submissions in support of the Liquidator’s application. Those submissions referred the Court to a number of authorities disclosing the legal principles relevant to the Liquidator’s application.
In Catepillar Financial Australia Ltd v Ovens Nominees Pty Ltd (Catepillar),[1] Gordon J summarised the principles as follows:
[1][2011] FCA 677, [14]–[17].
First, a liquidator of a corporate trustee may have recourse to trust assets to satisfy trust liabilities in the course of a corporate winding up…That is consistent with the general principles that:
1.Where a corporate trustee incurs a liability it has a right of indemnity out of trust assets and retains an equitable lien or equitable charge over trust assets to secure the right of indemnity;
2.Where a trustee is still to incur a liability, it has a right of exoneration out of trust assets in respect of any prospective liability. The right of indemnity and/or right of exoneration out of trust assets is limited to circumstances where the trustee is properly acting in its capacity as trustee of the trust and is not guilty of any gross negligence or breach of trust; and
3. A corporate trustee has a right to deal with trust assets in accordance with the terms of the trust for the purposes of satisfying any liabilities in respect of which the right of indemnity or the right of exoneration attaches, and this includes the power to sell trust assets.
What then is the position of the creditors of the corporate trustee in the winding up of that company? Creditors of the corporate trustee are entitled to claim in the winding up of the corporate trustee and to rank on the basis of any provable claim they have against the corporate trustee. This claim will be met by the corporate trustee out of the trust assets through the trustee’s right of indemnity (subject always to the availability of assets to meet the claim).
The trustee’s right of indemnity and/or exoneration is not automatically lost in the event that a corporate trustee is wound up in insolvency. Of course, to be payable out of the trust assets, the trust creditor’s claim must relate to a liability incurred by the corporate trustee in its capacity as trustee of the trust in respect of which the right of indemnity or right of exoneration attaches.
In addition, a liquidator has an entitlement to claim the costs and expenses incurred in winding up the affairs of the corporate trustee provided these relate to the performance of trust duties and, in respect of any liability incurred, the liquidator has a right of indemnity against trust assets and, in respect of any prospective liability, a right of exoneration against those assets.
Gordon J went on to note that, although the right of the corporate trustee to have recourse against trust assets to satisfy creditors’ claims and the liquidator’s costs of winding up when dealing with trust assets continues after the resignation or removal of the corporate trustee, the authorities were in conflict where a trustee had been removed as trustee consequent upon the winding up by virtue of a disqualification clause in the trust deed. Her Honour noted that in such a case a corporate trustee retains its right of indemnity and right of exoneration and that the liquidator can enforce these rights against trust assets. Her Honour examined the authorities relevant to how a liquidator might enforce those rights in circumstances where a replacement trustee was appointed.[2]
[2]Ibid [20]–[25].
In Catepillar, Gordon J noted there was no present likelihood of a new trustee being appointed. In such a case the company remains a bare trustee, able to hold the assets of the trust but with its powers, duties and rights limited to protecting the trust assets. Those limited powers do not include a power of sale.[3]
[3]Ibid [26]–[28].
The liquidator of an insolvent former trustee cannot sell the trust’s property without an order of the Court, or by appointment of a receiver over the trust assets.[4]
[4]Re Cremin (in his capacity as liquidator of Brimson Pty Ltd in (ACN 621 156 643)(in liq) & Ors (2019) 136 ACSR 649, [49].
Section 63(1) of the Trustee Act provides:
Where in the management or administration of any property vested in trustees, any sale, lease, mortgage, surrender, release or other disposition, or any purchase, investment, acquisition, expenditure or other transaction, is in the opinion of the Court expedient, but the same cannot be effected by reason of the absence of any power for that purpose vested in the trustees by that trust instrument (if any) or by law, the Court may by order confer upon the trustees, either generally or in any particular instance, the necessary power for the purpose on such terms and subject to such provisions and conditions (if any) as the Court thinks fit and may direct in what manner any money authorized to be expended, and the costs of any transaction are to be paid or borne as between capital and income.
This section permits conferral of power on a corporate trustee and its liquidators. That this is so is a necessary implication from the terms of the section or is a necessary ancillary order, because, in substance, it is only the liquidator who controls the insolvent corporate trustee and who must be the recipient of and exercise any relevant power.[5]
[5]Rathner (liquidator), in the matter of Garrows Close Pty Ltd (in liq) [2021] FCA 505, [8].
Section 63(1) provides the Court with the power to authorise the necessary dealing with and application of trust assets, even in circumstances where the assets are held by the company as bare trustee.[6]
[6]Ibid [9]-[10].
Where a ‘company has acted as a trustee of only one trust, where all assets owned by the company were held by its trustee save its right of indemnity which is a personal asset, where all liabilities incurred by it were incurred in its capacity as trustee, and where there is no trading on, the preferrable course is to confer suitable powers’ on the liquidator under trustee legislation instead of appointing the liquidator as receiver.[7]
[7]Ibid [12].
Section 1318 of the Act provides:
1318 Power to grant relief
(1)If, in any civil proceeding against a person to whom this section applies for negligence, default, breach of trust or breach of duty in a capacity as such a person, it appears to the court before which the proceedings are taken that the person is or may be liable in respect of the negligence, default or breach but that the person has acted honestly and that, having regard to all the circumstances of the case, including those connected with the person’s appointment, the person ought fairly to be excused for the negligence, default or breach, the court may relieve the person either wholly or partly from liability on such terms as the court thinks fit.
(2)Where a person to whom this section applies has reason to apprehend that any claim will or might be made against the person in respect of any negligence, default, breach of trust or breach of duty in a capacity as such a person, the person may apply to the Court for relief, and the Court has the same power to relieve the person as it would have had under subsection (1) if it had been a court before which proceedings against the person for negligence, default, breach of trust or breach of duty had been brought.
…
(4) This section applies to a person who is:
…
(d)a receiver, receiver and manager, liquidator or other person appointed or directed by the Court to carry out any duty under this Act in relation to a corporation.
…..
Section 67 of the Trustee Act provides:
If it appear to the Court that a trustee, whether appointed by the Court or otherwise, is or may be personally liable for any breach of trust, whether the transaction alleged to be a breach of trust occurred before or after the commencement of this Act, but has acted honestly and reasonably, and ought fairly to be excused for the breach of trust and for omitting to obtain the directions of the Court in the matter in which he committed such breach, then the Court may relieve him either wholly or partly from personal liability for the same.
Orders sought
The Company became the bare trustee of the assets of the Trust upon the winding up of the Company and the appointment of the Liquidator. The Company acted only as trustee of the Trust and in no other capacity. All the Company’s assets are held by it as trustee of the Trust. All liabilities incurred by the Company were incurred in its capacity as trustee of the Trust. No new trustee has been appointed. The Liquidator has advised the director of the Company, ASIC, Jagasav and creditors of his application and no objections have been received.
In my view, it was appropriate to order pursuant to s 90-15 of the IPS, that the Liquidator is justified in conducting the winding up of the Company on the basis that the Company carried on business in its capacity as trustee of the Trust, and that all assets and undertakings of the Company are held by the Company in its capacity as trustee of the Trust.
In the circumstances of this case it was appropriate for the Court to confer upon the Company the power of sale of the Trust assets pursuant to s 63 of the Trustee Act, subject to the duties prescribed by that Act, rather than appointing the Liquidator as receiver.
In accordance with authority, I also made an order pursuant to s 90-15 of the IPS that the Liquidator is and was justified and otherwise acts and acted reasonably in proceeding on the basis that he can deal with, hold, apply and distribute the property of the Trust in accordance with Parts 5.5 and 5.6 of the Act.
The Liquidator has prepared and provided a report to creditors setting out the tasks he has undertaken. He has sought and received from a majority of creditors approval of his remuneration for work done and anticipated, up to an amount of $56,690.15. I also made an order pursuant to s 90-15 of the IPS confirming the Liquidator’s entitlement to be indemnified out of the Trust assets in respect of the costs and expenses they have incurred, including the costs and expenses of this application.
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SCHEDULE OF PARTIES
| S ECI 603 071 790 | |
| BETWEEN: | |
| MATTHEW KUCIANSKI in his capacity as Liquidator of ALL IN ONE CONTRACTING PTY LTD (In Liquidation) (ACN 603 071 790) | First Plaintiff |
| ALL IN ONE CONTRACTING PTY LTD (In Liquidation) (ACN 603 071 790) | Second Plaintiff |
| - v - | |
| NO-RESPONDENT | Defendant |
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