Re Baljit Kaur Pty Ltd (in Liq); Dominish v Singh
[2024] WASC 239
•2 JULY 2024
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: RE BALJIT KAUR PTY LTD (IN LIQ); DOMINISH -v- SINGH [2024] WASC 239
CORAM: HILL J
HEARD: 21 JUNE 2024 & ON THE PAPERS
DELIVERED : 27 JUNE 2024
PUBLISHED : 2 JULY 2024
FILE NO/S: COR 93 of 2024
MATTER: IN THE MATTER OF BALJIT KAUR PTY LTD (IN LIQ)
BETWEEN: AARON JOSEPH DOMINISH joint and several liquidators of BALJIT KAUR PTY LTD & CAMERON HUGH SHAW joint and several liquidators of BALJIT KAUR PTY LTD
First Plaintiffs
BALJIT KAUR PTY LTD (IN LIQUIDATION)
Second Plaintiff
AND
GURPAL SINGH
Defendant
Catchwords:
Corporations - Winding up - Where company in liquidation was trustee of trust - Where, on appointment of liquidators, company was replaced as trustee by sole shareholder - Application for directions - Application for appointment of liquidator as receiver and manager of trust property to secure trustee's right of indemnity out of assets of trust - No opposition to application - Turns on own facts
Legislation:
Corporations Act 2001 (Cth) sch 2 s 90-15
Rules of the Supreme Court 1971 (WA) O 51 r 1
Supreme Court (Corporations) Rules 2004 (WA) r 2.8
Supreme Court Act 1935 (WA) s 25(9)
Result:
Application granted
Category: B
Representation:
Counsel:
| First Plaintiffs | : | L E Pye |
| Second Plaintiff | : | L E Pye |
| Defendant | : | No appearance |
Solicitors:
| First Plaintiffs | : | Mills Oakley |
| Second Plaintiff | : | Mills Oakley |
| Defendant | : | No appearance |
Cases referred to in decision:
Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth [2019] HCA 20; (2019) 268 CLR 524
Caterpillar Financial Australia Ltd v Ovens Nominees Pty Ltd [2011] FCA 677
Cremin, in the matter of Brimson Pty Ltd (in liq) [2019] FCA 1023
Jones v Matrix Partners Pty Ltd; Re Killarnee Civil & Concrete Contractors Pty Ltd (in liq) [2018] FCAFC 40; (2018) 260 FCR 310
Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd [2008] NSWSC 1344
Re Mali Nominees Pty Ltd (in liq) [2022] VSC 28
HILL J:
On 9 April 2024, the first plaintiffs were appointed as liquidators of the second plaintiff, Baljit Kaur Pty Ltd (Company). Prior to their appointment, the Company was the trustee of the Singh Family Trust (Trust).
Under the terms of the trust deed governing the Trust, on the appointment of the first plaintiffs as liquidators, the Company was automatically removed as trustee of the Trust and the defendant, as the sole shareholder of the Company, appointed as trustee in its place.
On 10 June 2024, the plaintiffs filed an originating process seeking, among other things, orders that the Liquidators be appointed as receivers and managers of the property, assets and undertaking of the Trust and seeking directions that they would be justified and acting reasonably in proceeding on the basis that the Company carried on business solely in its capacity as trustee of the Trust.
The originating process was initially listed for hearing on 21 June 2024. At this hearing, I ordered that the current trustee of the Trust (Mr Singh) be joined as a defendant to the proceedings, the proceeding be served on him in that capacity (notice having previously been given to him of the proceedings on 13 June 2024) and adjourned the hearing of the originating process until 28 June 2024.
On 27 June 2024, when no notice of appearance had been filed by the defendant, I acceded to a request by the plaintiffs' solicitors to determine the matter on the papers, made orders (with some amendments to those proposed by the plaintiffs) and vacated the hearing. These are my reasons for making these orders.
Factual background
In support of the application, the plaintiffs relied on four affidavits:
(a)two affidavits of Aaron Joseph Dominish (one open and one confidential) both filed 10 June 2024; and
(b)two affidavits of Lucy Elizabeth Pye, a legal practitioner employed by Mills Oakley (the solicitors for the plaintiffs), filed 18 and 24 June 2024.
On 1 November 2017, the Company was incorporated.[1] Its sole director, company secretary and shareholder is the defendant.[2] From March 2018, the Company, as trustee of the Trust, operated two service stations trading as Vibe Petroleum in the south-west region of Western Australia under two separate agreements.
[1] Affidavit of Aaron Joseph Dominish filed 10 June 2024 [20].
[2] Affidavit of Aaron Joseph Dominish filed 10 June 2024, 'AD-01'.
On 9 April 2024, by order of Registrar Trott of the Federal Court of Australia, the Company was wound up in insolvency and the first plaintiffs appointed as liquidators.[3]
[3] Affidavit of Aaron Joseph Dominish filed 10 June 2024 [7] - [8].
Based on the investigations undertaken to date, Mr Dominish believes:[4]
(a)the Company was trustee of the Trust;
(b)the Company did not trade in its own right; and
(c)the Company only acted in its capacity as trustee of the Trust and did not conduct any other business or hold any assets in any other capacity;
(d)the Company did not own any real property and has only limited assets in cash, a motor vehicle and stock; and
(e)outstanding amounts may be payable to former employees in excess of $300,000, unsecured creditors in excess of $30,000, and amounts owing to the Australian Taxation Office exceeding $1 million.
[4] Affidavit of Aaron Joseph Dominish filed 10 June 2024 [13].
In the course of acting as liquidator of the Company, Mr Dominish has been provided with a copy of the deed governing the Trust (Trust Deed), which was established on 3 November 2017.[5] Pursuant to cl 21.1, on an Event of Disqualification (which includes an order for the winding up of the Company under provisions of the Act), the Company was required to retire as trustee of the Trust and was disqualified from acting as trustee. Where the trustee ceased to act before the Vesting Day, under cl 21.2, the new trustee was the Default Successor, which is defined as the shareholder with the largest shareholding in the Company.[6]
[5] Affidavit of Aaron Joseph Dominish filed 10 June 2024, 'AD-04', Schedule 2.
[6] Affidavit of Aaron Joseph Dominish filed 10 June 2024 [32] - [34].
That is, by operation of the Trust Deed, on the appointment of the plaintiffs as liquidators on 9 April 2024, the Company automatically ceased to be trustee of the Trust and the defendant, as the sole shareholder of the Company, was appointed as the new trustee.[7]
[7] Affidavit of Aaron Joseph Dominish filed 10 June 2024 [15].
Service of application
ASIC has been served with copies of the originating process and the affidavit,[8] as required by r 2.8 of the Supreme Court (Corporations) Rules 2004 (WA), as has Mr Singh.[9]
[8] Affidavit of Lucy Elizabeth Pye filed 18 June 2024.
[9] Affidavit of Lucy Elizabeth Pye filed 24 June 2024.
Neither Mr Singh or anyone else gave notice to the plaintiffs' solicitors or the court that they wished to be heard on the application.
Relevant legal principles
Where a company has been removed as trustee of a trust under the terms of the trust deed and a new trustee appointed, the company holds the trust assets as bare trustee and does not have the right to retain them as against the new trustee.[10] While the company's right of indemnity and accompanying equitable lien over the assets of the trust survives the appointment, the liquidator of the company does not have the power to sell any trust assets to satisfy its right of indemnity absent intervention by the court.[11] The court can either grant relief authorising the sale of trust property or appoint the liquidator as receiver over the trust assets.[12]
[10] Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd [2008] NSWSC 1344 [50].
[11] See Jones v Matrix Partners Pty Ltd; Re Killarnee Civil & Concrete Contractors Pty Ltd (in liq)[2018] FCAFC 40; (2018) 260 FCR 310 [44], [85] ‑ [91] (Allsop CJ), [139], [142] (Siopis J) and [198] (Farrell J); Caterpillar Financial Australia Ltd v Ovens Nominees Pty Ltd [2011] FCA 677 [22] - [28] (Gordon J).
[12] Jones v Matrix Partners Pty Ltd; Re Killarnee Civil & Concrete Contractors Pty Ltd (in liq) [44] (Allsop CJ); [196] (Farrell J).
Courts are generally willing, upon an appropriate application, to make orders permitting the liquidator of a former corporate trustee to sell trust assets. This is because the trust assets are not property of the company but are trust property in which the company has an interest by way of lien or charge to secure its right of exoneration.[13] Any proceeds from the exercise of a corporate trustee's right of exoneration can only be applied to satisfy the liabilities of the trust.[14]
[13] Cremin, in the matter of Brimson Pty Ltd (in liq) [2019] FCA 1023 [49].
[14] Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth [2019] HCA 20; (2019) 268 CLR 524 [40] (Kiefel CJ, Keane & Edelman JJ), [106] (Gordon J).
The court has power, pursuant to s 25(9) of the Supreme Court Act 1935 (WA) and O 51 r 1 of the Rules of the Supreme Court 1971 (WA), to appoint a receiver where it appears to be just and convenient.
Once the sale of the trust's assets has occurred, the proceeds may be appropriated by way of exoneration as part of the conduct of the liquidation in accordance with the statutory priorities set out in pt 5.6, div 6 of the Act.[15] This includes the costs of the liquidation. Orders may be made nunc pro tunc to authorise any sale of assets that have already occurred.[16]
[15] Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth [2019] HCA 20; (2019) 268 CLR 524 [55] - [58] (Kiefel CJ, Keane & Edelman JJ), [95] - [97] (Bell, Gageler & Nettle JJ), [171] (Gordon J).
[16] Jones v Matrix Partners Pty Ltd; Re Killarnee Civil & Concrete Contractors Pty Ltd (in liq) [91], [152], [198].
Pursuant to s 90-15(1) of the Insolvency Practice Schedule, the court may make 'such orders as it thinks fit in relation to the external administration of a company'. The power is broad and is at least as extensive as the powers formerly available under s 479(3) and s 511 of the Act. The principles which govern the exercise of this power can be summarised as follows:[17]
(a)the power to give advice is intended to facilitate the liquidator's performance of their functions and should be interpreted widely to give effect to that purpose;
(b)the court may give a direction where it is just and beneficial to the liquidation to do so;
(c)the function of the power is to give the liquidator advice as to the proper course of action to take in the liquidation;
(d)the court will not give a direction as to a matter of commercial or business judgment; there must be a legal issue of substance or procedure, including an issue of power, propriety or reasonableness; and
(e)the power will generally not be used to determine substantive rights and make binding orders, although the width of s 90-15 allows the court to do so if the necessary parties are before the court.
[17] Re Mali Nominees Pty Ltd (in liq) [2022] VSC 28 [23].
Should the plaintiffs be appointed as receivers?
I accept that by reason of cl 21.1 of the Trust Deed, on the appointment of the first plaintiffs as liquidators, the Company immediately ceased to be trustee of the Trust and the defendant was appointed in its place. While the Company's right of indemnity from trust assets for debts incurred by it as trustee of the Trust was not affected by its removal, without an order of the court, the first plaintiffs do not have the power to sell trust assets to enforce the lien which protects its right of indemnity.
It is common for the liquidator of a former corporate trustee of a trustee to be appointed by the court as receiver to enable this to occur. This is both where the company is a bare trustee and also where a new trustee has been appointed.[18]
[18] Re Mali Nominees Pty Ltd (in liq) [33] and the authorities cited there.
I am satisfied that the Company only acted as trustee of the Trust and in no other capacity, and that all Trust assets held by the Company were held in its capacity as trustee of the Trust. Unless the orders sought by the plaintiffs are made, the first plaintiffs do not have sufficient cash resources in their possession to satisfy the liabilities of the Company as trustee of the Trust.
There are no obvious conflicts that would disentitle the first plaintiffs from being appointed as receivers and managers of the Trust. On this basis, I accept it is expedient for the first plaintiffs to have the power to sell the property of the Trust and for the first plaintiffs to be appointed as receivers and managers of the Trust without security. In my view, the appointment will facilitate the external administration of the Company and aid in the vindication of the Company's right of indemnity out of the assets of the Trust.
The orders that are proposed, which require service of the court's orders on the Company's creditors and allow for any aggrieved party to apply to this Court to vacate or vary these orders, protect the creditors of the Company from any possible prejudice that might otherwise arise from this application.
In relation to the orders sought under s 90-15 of the Insolvency Practice Schedule, I accept Mr Dominish's evidence that the Company has acquired assets and incurred liabilities only as trustee of the Trust. For this reason, it is appropriate to make orders that the first plaintiffs will be acting properly and are justified in proceeding to conduct the affairs of the Trust on the basis that the business and assets of the Company comprised the assets of the Trust.
Finally, in relation to the costs of the application, the plaintiffs sought orders for the costs of the application be costs in the winding up of the second plaintiff and otherwise be paid from the Trust property. In my view, this is the appropriate costs order.
Conclusion
For these reasons, I was satisfied it was appropriate to make the orders which are annexed to these reasons marked 'Annexure A'.
Annexure A
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
JN
Associate to the Honourable Justice Hill
2 JULY 2024
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