Re Dwyer Durack (A Firm); [No 2]
[2024] WASC 296
•19 AUGUST 2024
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: RE DWYER DURACK (A FIRM); EX PARTE MERVYN JONATHAN KITAY as administrator of DWYERS LEGAL PTY LTD (ADMINISTRATOR APPOINTED) [No 2] [2024] WASC 296
CORAM: HILL J
HEARD: 19 JULY 2024
DELIVERED : 19 AUGUST 2024
PUBLISHED : 19 AUGUST 2024
FILE NO/S: COR 21 of 2024
MATTER: IN THE MATTER OF DWYER DURACK (A FIRM)
EX PARTE
MERVYN JONATHAN KITAY as administrator of DYWERS LEGAL PTY LTD (ADMINISTRATOR APPOINTED)
Plaintiff
Catchwords:
Corporations - External administration - Winding up - Where company in liquidation is bare trustee - Application for appointment of liquidator as receiver of trust property - 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 Act 1935 (WA) s 25(9)
Result:
Orders made and directions given
Category: B
Representation:
Counsel:
| Plaintiff | : | B S Panov |
Solicitors:
| Plaintiff | : | Mendelawitz Morton Commercial Lawyers |
Cases referred to in decision:
Carter Holt Harvey Woodproducts Australia Pty Ltd v The Commonwealth [2019] HCA 20; (2020) 268 CLR 524
Caterpillar Financial Australia Ltd v Ovens Nominees Pty Ltd [2011] FCA 677
In the matter of Hercules Car Parking Systems (Victoria) Pty Ltd [2018] NSWSC 409
In the matter of Mecfab Holdings Pty Ltd [2015] NSWSC 46
Jones v Matrix Partners Pty Ltd; Re Killarnee Civil & Concrete Contractors Pty Ltd (in liq) [2018] FCAFC 40; (2018) 260 FCR 310
Re Carrello, in the matter of Gembrook Investments Pty Ltd (in liq) [2019] FCA 1143
Re Dwyer Durack (A Firm); ex Parte Mervyn Jonathan Kitay as administrator of Dwyers Legal Pty Ltd (administrator appointed) [2024] WASC 77
Re O'Keeffe Heneghan Pty Ltd (in liq) [2018] NSWSC 1885
Re Universal Distributing Co Ltd (in Liq) [1933] HCA 2; (1933) 48 CLR 171
Re Victoria Station Corporations Pty Ltd (admins apptd) [2018] VSC 163, (2018) 56 VR 26
Woodhouse v Francis [No 2] [2022] WASC 318
Woods & White v Hopkins [2016] WASC 16
HILL J:
This application concerns the legal partnership that previously traded as Dwyer Durack (Partnership).
The plaintiff is the liquidator of Dwyers Legal Pty Ltd (in liquidation) (Company). The Company was the trustee of both the MLK Practice Trust (MLK Trust) and the PLF Practice Trust (PLF Trust) (the Trusts). The Company in its capacity as trustee for the MLK Trust and separately as trustee of the PLF Practice Trust were the partners (in equal shares) of the Partnership.
On 2 February 2024, the plaintiff was appointed as administrator of the Company pursuant to s 436A of the Corporations Act 2001 (Cth) (Act). On 16 February 2024, the plaintiff filed an originating process seeking orders under s 90-15 of the Insolvency Practice Schedule (Corporations) (IPS) (sch 2 to the Act). At that time, a number of orders sought by the plaintiff could not be made as no resolution had been passed for the winding up of the Company and there was no evidence the partners had resolved to wind up the Partnership.
On 1 March 2024, directions were given in respect of the conduct of the voluntary administration and the originating process adjourned until 14 June 2024. At the request of the plaintiff, this hearing was vacated and subsequently relisted for 19 July 2024. On that date, orders were made for the appointment of the plaintiff as receiver of the assets of each of the MLK Trust and PLF Trust. In addition, various directions were given as to the conduct of the winding up, including as to the priorities for the distribution of the assets of the Partnership.
At the time orders were made, I indicated that I would subsequently publish reasons for making these orders. These are those reasons.
Evidence on the application
In support of their application, the plaintiff relied on four affidavits: two affidavits of Mervyn Jonathan Kitay filed 19 February 2024 and 4 July 2024, an affidavit of Kylie Kissel filed 18 July 2024 and an affidavit of service of Boika Simeva Panov filed 22 February 2024.
Factual background
Much of the factual background to this matter was set out in my reasons for decision on the first application by the plaintiffs on 1 March 2024.[1]
[1] Re Dwyer Durack (A Firm); ex Parte Mervyn Jonathan Kitay as administrator of Dwyers Legal Pty Ltd (administrator appointed) [2024] WASC 77.
The Partnership was governed by a partnership agreement dated 26 June 2006 (Partnership Agreement) and six deeds, dating from 27 June 2011 to 27 March 2023 (Partnership Deeds). Clause 32 of the Partnership Agreement sets out the provisions which govern the dissolution of the Partnership. Relevantly, cl 32.4 of the Partnership Agreement provides that upon the Partnership being wound up:[2]
The sale proceeds and all other money of the Partnership must be applied in the following order:
(1)the costs of winding up the partnership;
(2)the debts and liabilities of the partnership to persons who are not partners;
(3)the amount due to each partner for excess contributions (as distinguished from capital contributions) and any interest due on them;
(4)each partner's share of the capital in the partnership Shares and any interest due on it; and
(5)any surplus to the partners in the Partnership Shares.
[2] Affidavit of Mervyn Jonathan Kitay filed 4 July 2024, 'MK-16'.
On 28 February 2024, the partners of the Partnership resolved to terminate the Partnership with effect from 2 February 2024.[3]
[3] Affidavit of Kylie Kissell filed 18 July 2024, 'KK-1'.
On 7 June 2024, the plaintiff was appointed as liquidator of the Company.[4] Pursuant to cl 9.5 of the MLK Trust Deed and cl 25 of the PLF Trust Deed, on the appointment of a liquidator, the Company was required to retire as trustee for the Trusts and was disqualified from acting as trustee.
[4] Affidavit of Mervyn Jonathan Kitay filed 4 July 2024 [17].
Should the plaintiff be appointed as receiver of the assets of the MLK Trust and PLF Trust?
Where a corporate trustee enters external administration, the company's right of indemnity and accompanying equitable lien over the assets of the trust survives the appointment. Where a company has been removed as trustee of the trust by reason of the terms of the trust deed, the company retains the right to hold trust assets as bare trustee. However, the liquidator of the company does not have the power to sell those assets to satisfy that indemnity without an order from the court.[5]
[5] 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).
The liquidator, in essence, has two options. First, to apply for an order that confers power on the liquidator to deal with the assets of the trust or, second, to apply to be appointed as receiver and manager of the trust.
In this case, the plaintiff seeks to be appointed as receiver and manager of the Trust.
Order 51 r 1 of the Rules of the Supreme Court 1971 (WA) gives the court power to appoint a receiver. The court also has power, pursuant to s 25(9) of the Supreme Court Act 1935 (WA), to appoint a receiver where it appears to be just and convenient.
I accept that pursuant to the express terms of each of the MLK Trust Deed and the PLF Trust Deed, on the plaintiff's appointment as liquidator, the Company was required to retire as trustee for the Trusts and was disqualified from acting as trustee. As a consequence, the Company is now a bare trustee of the assets of each of the MLK Trust and the PLF Trust and does not have the power to sell or otherwise deal with the assets of the Trusts. There is no evidence that a new trustee has been appointed to either trust.
In the absence of any relevant conflict, it is commonly the case that the court will appoint the liquidator of the corporate trustee as receiver without security.[6] Appointing a liquidator or administrator of a corporate trustee as a receiver of a trust's assets facilitates and simplifies the winding up of the corporate trustee by providing for the trust's business and assets to be under the same control as the corporate trustee while it is in external administration. This aids in the vindication of the trustee company's right of indemnity out of the trust's assets.[7]
[6] In the matter of Hercules Car Parking Systems (Victoria) Pty Ltd [2018] NSWSC 409 (Brereton J).
[7] In the matter of Mecfab Holdings Pty Ltd [2015] NSWSC 46 [9].
I am satisfied in the circumstances of this case that it is appropriate to appoint the plaintiff as receiver and manager of the MLK Trust and the PLF Trust security. This will protect the Company's right of indemnity, as well as the position of creditors. Other advantages with the proposal include that the plaintiff is subject to the regulatory regime applicable to insolvency practitioners, he has professional indemnity insurance and is subject to the continued supervision of the court.
Should directions be given to the plaintiff?
The plaintiff also sought two orders under s 90‑15 of the IPS to facilitate his dealing with the assets of the Company to enable the winding up of the Company, the Trusts and the Partnership to proceed. The first concerned the characterisation and treatment of the assets of the Company, the Trusts and the Partnership, and the second was whether the plaintiff was entitled to an indemnity from the assets of the Partnership.
Orders in these terms were initially sought at the first hearing on 23 February 2024. At the time, I declined to make these orders on the basis that the liquidation of the Company and winding up of the Partnership was, at that time, hypothetical and might never arise. This is no longer the case, as the Company is now in liquidation and the partners have resolved to terminate the Partnership.
The legal principles that govern an application under s 90-15 of the IPS are well known and were summarised in my previous reasons for decision.[8] I do not intend to repeat that analysis here. It is sufficient to add that various courts have considered that it is appropriate to make directions under s 90-15 of the IPS or its predecessors in relation to each of these matters.[9]
[8] Re Dwyer Durack (A Firm); ex Parte Mervyn Jonathan Kitay as administrator of Dwyers Legal Pty Ltd (administrator appointed).
[9] Woodhouse v Francis [No 2] [2022] WASC 318. Also see, for example, Woods & White v Hopkins [2016] WASC 16 [34] - [37]; Re O'Keeffe Heneghan Pty Ltd (in liq) [2018] NSWSC 1885; Re Victoria Station Corporations Pty Ltd (admins apptd) [2018] VSC 163, (2018) 56 VR 26.
For the following reasons, I am satisfied that it is appropriate to give the directions sought by the plaintiff that he would be justified and acting properly in conducting the administration on the basis proposed.
First, pursuant to cl 10.6 of the MLK Trust Deed and cl 8 of the PLF Trust Deed, the trustee has a right of indemnity out of the assets of the Trusts in respect of any liability incurred in connection with acting as trustee, in addition to any indemnities they might be entitled to by law.[10] As a former trustee, I accept the Company has a right of indemnity against the assets of the Trusts.[11] This right is a proprietary interest which does not depend on the liquidator holding office as such.[12]
[10] Affidavit of Mervyn Jonathan Kitay filed 16 February 2024, 'MK-23', 'MK-24', 'MK-25'.
[11] Re Carrello, in the matter of Gembrook Investments Pty Ltd (in liq) [2019] FCA 1143.
[12] Carter Holt Harvey Woodproducts Australia Pty Ltd v The Commonwealth [2019] HCA 20; (2020) 268 CLR 524.
Second, on the evidence before me, I accept that the Company did not trade or hold any assets other than in its capacity as trustee for each of the Trusts and that the Trusts did not trade or hold any assets other than their respective interests in the Partnership.
Third, I accept that the issue raised by this order requires the exercise of a legal judgment. In these circumstances, it is appropriate that the plaintiff receive the protection of the proposed directions as to the course of conduct.[13]
[13] Woodhouse v Francis [No 2] [32].
Fourth, the order sought by the plaintiff is an extension of the order previously made on 7 June 2024. Since then, it has been resolved to wind up the Company and to terminate the Partnership. It is appropriate to make the orders sought to reflect these events.
Fifth, the steps that are or have been reasonably taken by the plaintiff as liquidator and the costs and expenses reasonably incurred by him in the care, preservation and realisation of the Partnership property will benefit the creditors of the Partnership and the partners themselves. Consistent with the principle in Re Universal Distributing Co Ltd (in Liq),[14] the plaintiff's reasonable costs and expenses (including their reasonable remuneration) associated with this should be paid from the assets of the Partnership in priority to the claims of the Partnership's creditors and partners.
[14] Re Universal Distributing Co Ltd (in Liq) [1933] HCA 2; (1933) 48 CLR 171.
I also accept that the form of orders sought in terms of service of the court's orders and the allowance for any aggrieved party to apply to this court to vacate or vary these orders protects the creditors of the Partnership from any possible prejudice of this application.
What priorities govern the distribution of assets on the winding up of the Partnership?
The plaintiff also sought directions concerning the priority of entitlement to the assets of the Partnership for the purposes of its winding up.
In Woodhouse v Francis [No 2],[15] I summarised the conflicting authorities that have considered which priority regime governs the winding up of a partnership whose members are companies in liquidation. These reasons reflect my views on this issue and it is unnecessary to repeat them. Relevantly, in that case, I concluded that:[16]
[T]he conclusion reached by Acting Master Gething in Woods & White v Hopkins and by Black J in Re O'Keeffe Heneghan Pty Ltd (in Liq), that the priorities regime in s 556 of the Act does not apply to the winding up of the Partnership, is correct. That is, in my view, the joint assets of the Partnership should be applied first to the payment of the debts of the Partnership. In applying the joint assets, the order of priority in s 556 of the Act does not apply; the order of priority in the Deed applies. (footnotes omitted)
[15] Woodhouse v Francis [No 2] [2022] WASC 318.
[16] Woodhouse v Francis [No 2] [87] - [89], [93].
The factual circumstances in this matter are analogous to those in Woodhouse v Francis [No 2].
I accept that the issue raised by this order requires the exercise of a legal judgment. In these circumstances, it is appropriate that the plaintiff receive the protection of the proposed directions as to the course of conduct.
In this case, I am satisfied that it is appropriate to give the direction sought by the plaintiff as to the priority of entitlement to the assets of the Partnership, namely that the proceeds of the Partnership property be distributed in accordance with the Partnership Agreement and Partnership Deeds.
This is because the Partnership was governed by the terms of the Partnership Agreement and Partnership Deeds. Clause 32 of the Partnership Agreement sets out the provisions which govern the dissolution of the Partnership, including the distribution of its assets. On this basis, s 57 of the Partnership Act 1985 (WA) does not apply.
Conclusion
For these reasons, it was my view that orders should be made in terms of the orders sought by the plaintiff. Accordingly, at the conclusion of the hearing, I made orders in terms of 'Annexure A'.
'Annexure A'
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
KC
Associate to the Honourable Justice Hill
16 AUGUST 2024
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