Re Inon Nominees Pty Ltd (in liquidation)
[2013] VSC 211
•30 April 2013
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
CORPORATIONS LIST
No. SCI 2011 5191
IN THE MATTER of INON NOMINEES PTY LTD (IN LIQUIDATION) (ACN 005 076 317)
BETWEEEN:
| MICHELE GIACOBBE and | Plaintiffs |
| JOSEPH GIACOBBE | |
| and | |
| ANTHONY GIACOBBE | First Defendant |
| and | |
| INON NOMINEES PTY LTD (IN LIQUIDATION) (ACN 005 076 317) | Second Defendant |
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JUDGE: | FERGUSON J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 25 March 2013 | |
DATE OF JUDGMENT: | 30 April 2013 | |
CASE MAY BE CITED AS: | Re Inon Nominees Pty Ltd (in liquidation) | |
MEDIUM NEUTRAL CITATION: | [2013] VSC 211 | |
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CORPORATIONS – Family trustee company wound up on the just and equitable ground where irretrievable breakdown – Application by liquidator for directions – Company’s only assets three undeveloped lots of land – Proceeds of sale of one property likely to be sufficient to meet current liabilities – Whether liquidator justified in selling all property – Corporations Act 2001 (Cth) s 479(3), Supreme Court (General Civil Procedure) Rules 2005 (Vic), r 54.02.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr R E T Wodak | Pearsons Barristers & Solicitors |
| For the First Defendant | In person | |
| For the Second Defendant | Mr C Juebner | SBA Law |
HER HONOUR:
On 28 June 2012, the Court ordered that Inon Nominees Pty Ltd be wound up on the just and equitable ground[1] and appointed Luke Christopher Targett and Rachel Elizabeth Burdett‑Baker as liquidators.[2] Inon is the trustee of the Giacobbe Family Trust with the beneficiaries being various members of the Giacobbe family. The trust no longer carries on business and the only remaining assets of the trust are three pieces of undeveloped land at Airport West.[3] Those properties are not generating any income. Inon has outstanding liabilities exceeding $20,000 for rates and taxes and an overdraft liability of about $80,000. In addition, there are the liquidators’ fees and disbursements which exceed $30,000. It is only necessary for one of the properties to be sold to meet those liabilities. However, the liquidators are of the view that all three properties should be sold with the net proceeds of sale to be distributed to the beneficiaries of the trust. They have obtained proposals from two selling agents who value the properties at between $1.2 million and $1.55 million, in part dependent upon whether the properties are sold together or separately. The liquidators have sought directions that they would be justified in taking the course that they propose.
[1]Corporations Act 2001 (Cth), s 461(k).
[2]Giacobbe v Giacobbe & Anor [2012] VSC 285.
[3]There may be some foundations and footings on one of the properties.
At the time that the winding up order was made, the plaintiffs, Michele and Joseph Giacobbe were the directors of Inon. They are father and son. Joseph holds 50 per cent of the shares in Inon with the other 50 per cent being held by his cousin, Anthony. The background to the trust, the role of Inon as trustee and the dispute between the two branches of the Giacobbe family is set out in the reasons for judgment in Giacobbe v Giacobbe & Anor.[4] I will not repeat it again other than to say that Joseph and Anthony have for many years been and remain in bitter dispute with one another.
[4][2012] VSC 285.
Michele and Joseph are concerned about the costs of the liquidation. They submitted that the application by the liquidators for directions may be an unnecessary additional expense. In their view, the decision about the sale of the properties is of the type that liquidators are regularly called upon to make and may not need to be the subject of directions from the Court. Subject to that, they supported the liquidators’ application as they strongly favour the sale of all properties and the distribution of the net proceeds of sale to the beneficiaries.
Anthony opposes that course and contends that the better path is for only one of the properties to be sold to meet the current liabilities with the liquidators then to retire and a new trustee to be appointed so that the trust can continue.
I will deal first with the question of whether it is appropriate for the Court to give directions to the liquidators. Rule 54.02 of the Supreme Court (General Civil Procedure) Rules 2005 (Vic) and general principles of equity enable liquidators to seek directions in relation to the execution of a trust. Rule 54.02 provides (so far as relevant):
(2) …. a proceeding may be brought for–
(a)the determination of any question which could be determined in an administration proceeding, including any question–
(i)arising in the ….execution of a trust;…
(b)an order directing a… trustee to–
…
(iii)do or abstain from doing any act;
(c)an order–
…
(ii)directing any act to be done … in the execution of a trust which the Court could order to be done if the … trust were being… executed under the direction of the Court.
Thus under r 54.02 and in the exercise of its inherent jurisdiction, the Court has broad powers to give directions to trustees.[5]
[5]Re Atkinson [1971] VR 612, 615; Hornsby v Playoust (No 2) [2005] VSC 125 [10].
Section 479(3) of the Corporations Act provides that a liquidator may apply to the Court for directions in relation to any particular matter arising under the winding up. The history of s 479 was considered by McLelland J in Re GB Nathan & Co Pty Ltd (in liq).[6] His Honour observed:
The legislative pedigree of s 479 may be traced back to s 23 of the Companies (Winding up) Act 1890 (UK) (53 & 54 Vict, c 63), which in turn derived from s 89 of the Bankruptcy Act 1883 (UK) (46 & 47 Vict, c 52) which itself was based on s 20 of the Bankruptcy Act 1869 (UK) (32 & 33 Vict, c 71). An early precursor of a liquidator's application for directions may be found in s 34 of the Joint Stock Companies Winding Up Act 1848 (UK) (11 & 12 Vict, c 45), which provided for an official manager (an early form of liquidator) to “take the Directions of the Master from Time to Time with reference to all Proceedings necessary to be done or taken in order to [sic] the complete and effectual winding up of the Affairs of the Company¼”.
A statutory procedure for application for directions by a trustee, executor or administrator was introduced by s 30 of the Law of Property Amendment Act 1859 (UK) (22 & 23 Vict, c 35).
These various statutory provisions for directions were a development from the practice of the Court of Chancery under the general law in giving directions to those entrusted with the administration of property under the control of the court. Two main classes of such persons were (1) trustees of trust property, or executors or administrators of a deceased estate, under administration by the court pursuant to a decree, for general administration, and (2) receivers (and managers) appointed by the court in respect of property the subject of litigation. In such cases the exercise by those persons (to whom I will collectively refer as official administrators) of administrative or managerial functions was subject to close control by the court and in many instances they could safely exercise their powers only with the approval, and in accordance with the directions, of the court….[7]
[6][1991] 24 NSWLR 674.
[7]Ibid 677.
Hence, the Court’s power to give directions to liquidators in cases such as this sits comfortably with and complements its power to give advice and directions to the company as trustee.
The liquidators are concerned that if they sell all three properties against the wishes of Anthony, then they will be exposed to the risk of litigation brought by him. The liquidators accepted that the Court should not give directions on an issue which is no more than a commercial decision, but submitted that this case goes beyond that. Their position is that it is appropriate for them to apply for directions in circumstances where first, the sale is clearly opposed by one side of the family and, secondly, where it is only necessary to satisfy the current liabilities to sell one parcel of land but there are other very good reasons for selling all of the land. The liquidators relied on Re Ansett Australia Limited,[8] in which Goldberg J observed:
Where issues as to the propriety or reasonableness of the conduct undertaken, or the decision made, by an administrator is called into question, it is open to the Court to give a direction which, in substance, sanctions or approves the conduct undertaken, or decision made, by the administrator.[9]
[8](2002) 41 ACSR 605.
[9]Ibid 616, [46].
Whilst his Honour was there dealing with administrators, the principle to be applied is the same when it is a liquidator who seeks directions.
In my opinion, this is a case where it is appropriate for directions to be given to the liquidators under s 479(3) Corporations Act and under r 54.02 of the Supreme Court (General Civil Procedure) Rules (insofar as they are seeking advice and directions about the execution of the trust). Anthony disputes the need to sell all of the properties, to bring forward the vesting date and to distribute the trust assets. He does so in circumstances where it is only necessary to sell one of the properties to meet the existing liabilities and he does so against a significant background of disputation between the two parts of the family. This is not a case where the Court is giving its imprimatur to a business decision. Rather, the Court is asked for directions in relation to the reasonableness of the conduct of the liquidators in the winding up and execution of the trust.
I will now consider whether the specific directions sought by the liquidators should be made. As stated above, the liquidators seek directions that they would be justified in selling the three properties and distributing the net proceeds of sale to the beneficiaries of the trust.[10]
[10]The liquidators did not press their application to be appointed joint and several appointors and guardians of the trust.
Under the terms of the trust deed, amongst other things, the trustee is empowered to sell real estate, to carry on the business of a property owner and to collect rent and income from its properties. The trustee is required to hold the capital of the trust fund until the vesting day of 30 June 2050, or such earlier date as the trustee appoints to be the vesting day, when it is to be distributed to the beneficiaries. Consequently, if the liquidators sell all of the properties, they could cause Inon to bring forward the vesting day at which time the net assets would be distributed to the beneficiaries.
Anthony deposed that the trust was set up for a long‑term benefit, the properties were bought after the rift in the family, and since the liquidators have been appointed, there has been no need for the two branches of the family to have dealings with one another. In his view, an independent trustee would be able to continue what was intended when the trust was established — that is, ongoing distributions to the beneficiaries, including beneficiaries who are not yet born. He raised these matters in his written submissions. In addition, he contended that the trust should not be vested because it has carried on for some time without different combinations of directors of Inon causing it to be vested and, if the vesting date were to be brought forward, the beneficiaries would lose the advantages offered by a family trust. Anthony is also concerned about first, the valuation for one of the properties, secondly, whether all three properties would be capital gains tax free if they were sold and thirdly, whether it is the right time for the properties to be sold. Although Anthony raised all of these matters, it was clear from his oral submissions that at the heart of his concerns are his suspicions that there has been and will continue to be improper conduct on the part of Joseph. He is fearful that Joseph will somehow control the distribution of the trust assets in such a way that it would be unfair to some of the beneficiaries. He submitted that the family dispute is primarily between him and Joseph, albeit with members of his side of the family not having spoken to members of Joseph’s part of the family for over 30 years. In his view, whilst it is certainly not a good family relationship, it is not an acrimonious one.
One of the liquidators has concluded, from his dealings with the two parts of the family, that they remain in an intractable dispute over the affairs of Inon and are in disagreement as to how the assets should be dealt with. In the liquidators’ view, it is appropriate for all of the properties to be sold and for the funds realised to be distributed to the beneficiaries of the trust after the payment of selling costs, the trust debts and their professional fees and expenses.
If the liquidators were to sell only one of the properties then, once the liquidation was concluded, a new trustee would need to be appointed. There is no prospect that the two sides of the Giacobbe family could agree on the identity of an independent third party trustee. Whilst Anthony contends that his father, Antonio, is the person who is given the sole responsibility of appointing a new trustee, that is disputed by Michele and Joseph who are of the view that the joint appointors under the trust deed are Antonio and Michele. If Antonio were to purport to appoint a new trustee, it is likely that litigation would follow disputing his right to do so. If the Court were to appoint a replacement trustee, it is likely that there would be continued disputation between the two streams of the family. Further, if an independent professional were to be appointed as trustee, that would likely lead to increased expense as the trustee would be entitled to a fee for its services.
Further, if only one of the properties were to be sold, then unless Inon starts a new business or causes the remaining properties to become income producing (for example, by leasing them), new and ongoing liabilities would arise in the future, such as the independent trustee’s fees and council rates, which Inon would not have the cash resources to meet.
On the other hand, if the trust assets are realised and there is to be a distribution, it will be the independent liquidators who will determine what distributions are to be made and to which of the beneficiaries. Joseph will not be in control of that process. This addresses Anthony’s principal concern. As to Anthony’s allegations that there has been improper conduct on the part of Joseph, that will be a matter for the liquidators to investigate should they be satisfied, amongst other things, that Inon has any claim against him and that such a claim would warrant prosecution. In conducting the winding up, the liquidators can take into account what Anthony said in relation to other matters that he raised on this application (the basis of the valuation for one of the properties, the timing of a sale and any potential capital gains tax implications that might arise from the sale[11]). In any event, there was insufficient evidence about those matters to warrant refusal of the liquidators’ application.
[11]The liquidators’ current position is that a sale of the properties will not attract capital gains tax.
In conclusion and taking into account:
· that Inon, as trustee, is not carrying on any business;
· that the trust assets are not otherwise income producing;
· the existing liabilities and ongoing liabilities that will accrue;
· the family dispute;
· the inability of the two branches of the family to agree on the appointment of an independent trustee;
· the cost of an independent trustee;
· the power of Inon under the trust deed including the power to sell trust property and to alter the vesting date;
· the power of the liquidators to investigate the conduct of the directors (both past and present) should they form the view that this is necessary in the discharge of their duties;
· the liquidators will determine the distributions to be made to beneficiaries,
I will direct that the liquidators would be justified in selling the three properties and then distributing the net funds realised to the beneficiaries of the trust should the vesting date be brought forward.
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