Re LH Squared Pty Ltd (In Liquidation) Ex Parte
[2023] WASC 222
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: RE LH SQUARED PTY LTD (IN LIQUIDATION) EX PARTE; DERMOTT JOSEPH MCVEIGH & KELLY DALE MEYN AS JOINT AND SEVERAL LIQUIDATORS OF LH SQUARED PTY LTD (IN LIQUIDATION) [2023] WASC 222
CORAM: HILL J
HEARD: 16 JUNE 2023
DELIVERED : 16 JUNE 2023
PUBLISHED : 23 JUNE 2023
FILE NO/S: COR 80 of 2023
MATTER: IN THE MATTER OF RE LH SQUARED PTY LTD (IN LIQUIDATION)
EX PARTE
DERMOTT JOSEPH MCVEIGH AS JOINT AND SEVERAL LIQUIDATORS OF LH SQUARED PTY LTD (ACN 165 192 334) (IN LIQUIDATION) & KELLY DALE MEYN AS JOINT AND SEVERAL LIQUIDATORS OF LH SQUARED PTY LTD (ACN 165 192 334) (IN LIQUIDATION)
First Plaintiffs
LH SQUARED PTY LTD (ACN 165 192 334) (IN LIQUIDATION)
Second 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) s 477(2)
Insolvency Practice Schedule 2016 (Corporations) (Cth) s 90-15, 90-20
Rules of the Supreme Court 1971 (WA) O 51 r 1
Supreme Court Act 1935 (WA) s 25(9)
Result:
Application granted
Category: B
Representation:
Counsel:
| First Plaintiffs | : | L Bone |
| Second Plaintiff | : | L Bone |
Solicitors:
| First Plaintiffs | : | HWL Ebsworth Lawyers (Perth) |
| Second Plaintiff | : | HWL Ebsworth Lawyers (Perth) |
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
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
HILL J:
(This judgment was delivered extemporaneously and has been edited from the transcript.)
The first plaintiffs are joint and several liquidators of the second plaintiff, LH Squared Pty Ltd (Liquidators), having been appointed as administrators on 9 May 2023[1] and then as liquidators on 14 June 2023.[2] Prior to the appointment of the Liquidators, LH Squared Pty Ltd (Company) was the trustee of the Henri Family Trust (Trust) and the LH Squared Trust (LH Trust).
[1] Open affidavit of Kelly Dale Meyn filed 1 June 2023 [1], 'KDM-1', 'KDM-2'.
[2] Second affidavit of Nimrod Amanuel filed 15 June 2023 'NA-5'.
On 1 June 2023, the Liquidators filed an originating process in this court seeking, amongst other things, orders:
(a)pursuant to s 90‑15 of the Insolvency Practice Schedule (Corporations) directing that the Liquidators have been and will be acting reasonably and are justified in the administration and now liquidation of the Company by treating the assets of the Company, save for those identified in [5(d)], as assets of the Trust;
(b)pursuant to s 25 of the Supreme Court Act 1935 (WA) that the Liquidators be appointed nunc pro tunc and without security as joint and several receivers and managers of the assets of the Trust. This order was alternatively sought in the inherent jurisdiction of this court, further and alternatively under s 89 of the Trustees Act 1962 (WA) (Trustees Act);
(c)that the Liquidators, in acting as receivers and managers, have the powers under s 477(2) of the Corporations Act 2001 (Cth) (Act), as if the reference to 'corporation' in that section was a reference to the Trust; and
(d)that the Liquidators are entitled to be paid remuneration, costs, and expenses out of the property of the Trust assets.
Factual background
In support of the application, the plaintiffs relied on two affidavits of Kelly Dale Meyn filed 1 June 2023 (one open; one confidential) as well as two affidavits of Nimrod Amanuel, filed 8 June 2023 and 15 June 2023.
The Company was incorporated on 7 August 2013.[3] A current and historical company extract obtained from the records of the Australian Securities and Investments Commission (ASIC) discloses that the Company has a sole director and shareholder, Lyle Tahir Henri.[4]
[3] Open affidavit of Kelly Dale Meyn filed 1 June 2023 'KDM-2'.
[4] Open affidavit of Kelly Dale Meyn filed 1 June 2023 'KDM-2'.
Based on the enquires undertaken to date, the Liquidators believe:
(a)the Company operated under the business name 'Henri Living';[5]
(b)the Company was the trustee of the Trust and the LH Trust;[6]
(c)the Company did not trade in its own right;[7] and
(d)save for:
(i)$10 in cash, which is an asset of the LH Trust; and
(ii)$17,425 in respect of unpaid trust distributions of the LH Trust
the Company only acted in its capacity as trustee of the Trust and did not conduct any other business or hold any assets or incur any liabilities in any other capacity.[8]
[5] Open affidavit of Kelly Dale Meyn filed 1 June 2023 [10(c)(i)].
[6] Open affidavit of Kelly Dale Meyn filed 1 June 2023 [10(a)], [10(b)].
[7] Open affidavit of Kelly Dale Meyn filed 1 June 2023 [10(d)].
[8] Open affidavit of Kelly Dale Meyn filed 1 June 2023 [45(b)] - [45(d)], [48(b)].
Among the books and records of the Company is a copy of the Trust deed. The Trust deed discloses that the Trust was established on 1 July 2014.[9] Pursuant to cl 10.8(b) of the Trust deed, upon the appointment of the administrators and now Liquidators, the Company was required to retire as trustee of the Trust and was disqualified from acting as trustee.
[9] Open affidavit of Kelly Dale Meyn filed 1 June 2023 'KDM-15'.
Service of Application
I am satisfied that ASIC has been served with copies of the originating process and supporting open affidavits a reasonable time before the hearing of the application,[10] as required by r 2.8 of the Supreme Court (Corporations) Rules 2004 (WA).
[10] Second affidavit of Nimrod Amanuel filed 15 June 2023 'NA-3', 'NA-4'.
The plaintiff has also given notice of the application to the creditors and beneficiaries of the Company as trustee for the Trust.[11]
[11] Second affidavit of Nimrod Amanuel filed 15 June 2023 'NA-2'.
No-one has given notice to the plaintiffs' solicitors or to the court that they wish to be heard on the application.
Legal principles for appointment of receiver
The legal principles that govern this application are well known and can be summarised in the following terms.
Where a corporate trustee enters into 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, but the liquidators of the company do not have the power to sell those assets to satisfy that indemnity absent intervention by the court.[12]
[12] 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).
Order 51 r 1 of the Rules of the Supreme Court 1971 (WA) (Rules) deals with the court's 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.
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.[13]
[13] See In the matter of Hercules Car Parking Systems (Victoria) Pty Ltd [2018] NSWSC 409 (Brereton J).
Appointing a liquidator or administrator of a corporate trustee as a receiver of a trust's assets facilitates and simplifies the external administration 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.[14]
[14] See In the matter of Mecfab Holdings Pty Ltd [2015] NSWSC 46 [9].
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.
[15] See 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).
Disposition
On the evidence before me, I accept that by reason of cl 10.8(b) of the Trust deed, on the appointment of the first plaintiffs as administrators, the Company was required to retire as Trustee of the Trust and was immediately disqualified from acting as trustee. As a consequence, the Company is now a bare trustee of the Trust's assets and does not have the power to sell or otherwise deal with the assets of the Trust.
I accept that the proposal to appoint the Liquidators as receivers and managers of the Trust without security is in accordance with the legal principles outlined above and will protect the Company's right of indemnity as well as the position of creditors.
In these circumstances, I accept there are advantages with the proposal that the first plaintiffs, as liquidators, be appointed as joint and several receivers and managers of the Trust. These advantages include that they are subject to the regulatory regime applicable to insolvency practitioners, they have professional indemnity insurance and are subject to the continued supervision of the court.
I 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 Company from any possible prejudice of this application.
I also accept Mr Meyn's evidence that the Company has acquired assets and incurred liabilities only as trustee of the Trust, save for the matters outlined above at [5(d)]. For this reason, it is appropriate to make orders under s 90‑15 of the Insolvency Practice Schedule (Corporations) that the first plaintiffs will be acting properly and are justified in proceeding to conduct the affairs of the Trust on the basis that, save for the outlined exceptions, the business and assets of the Company comprised the assets of the Trust.
The plaintiffs sought orders for the remuneration of the Liquidators to be paid out of the assets of the Trust. Given I have accepted Mr Meyn's evidence, I also accept that it is appropriate to make these orders.
I will also make orders pursuant to O 67B r 5 of the Rules that the confidential affidavit of Mr Meyn filed 1 June 2023 be treated as confidential and make the appropriate restrictions to this affidavit.
The plaintiffs sought orders for the costs of the application be paid from the Trust property. I consider this to be the appropriate costs order and make that order.
Finally, the plaintiffs sought order to correct a number of matters in respect of the originating process. Given the appointment of the first plaintiffs as liquidators of the Company since the originating process was filed, I consider it is appropriate to make orders pursuant to O 18 and O 21 of the Rules to amend [11] of the originating process to correct a typographical error and to amend the titles of the first plaintiffs to reflect this fact.
For these reasons, 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.
FD
Associate to the Honourable Justice Hill
23 JUNE 2023
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