Re Mali Nominees Pty Ltd (in liq)
[2022] VSC 28
•4 February 2022
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2021 03314
IN THE MATTER OF MALI NOMINEES PTY LTD (IN LIQUIDATION) (ACN 081 429 432) AND JL PROP PTY LTD (IN LIQUIDATION) (ACN 602 013 034)
BETWEEN:
| STEPHEN JOHN MICHELL in his capacity as liquidator of MALI NOMINEES PTY LTD (IN LIQUIDATION) (ACN 081 429 432) AND OTHERS (in accordance with the schedule) | First Plaintiff |
| And | |
| RKOHU PTY LTD (ACN 654 354 864) | Defendant |
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JUDGE: | Button J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 2 February 2022 |
DATE OF JUDGMENT: | 4 February 2022 |
CASE MAY BE CITED AS: | Re Mali Nominees Pty Ltd (in liq) |
MEDIUM NEUTRAL CITATION: | [2022] VSC 28 |
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CORPORATIONS – Liquidation of trustee companies – Directions regarding whether reasonable to proceed on the basis that the companies carried on business solely as trustee – Application by liquidator for appointment as receiver and manager of trust – Company acting as bare trustee – Trustee right of indemnity – Whether liquidator acted honestly and reasonably – Whether costs, expenses and remuneration to be paid out of trust assets – Corporations Act 2001 (Cth) ss 420, 1318, 90-15, Sch 2 – Trustee Act 1958 (Vic) s 63.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | M Grady | Maddocks |
TABLE OF CONTENTS
Introduction........................................................................................................................................ 1
Background......................................................................................................................................... 4
Directions regarding trustee role of Mali and JL Prop............................................................... 7
Appointment of Mr Michell as receiver of the assets and undertaking of the RKF Trust 11
Exoneration under s 1318 of the Corporations Act and/or s 67 of the Trustee Act............... 14
Reservation of liberty...................................................................................................................... 16
Orders................................................................................................................................................. 16
HER HONOUR:
Introduction
Stephen John Michell (Mr Michell) is the liquidator of Mali Nominees Pty Ltd (in liq) (ACN 081 429 432) (Mali) and JL Prop Pty Ltd (in liq) (ACN 602 013 034) (JL Prop). He was appointed liquidator of Mali and JL Prop on 24 August 2021, having previously been appointed voluntary administrator on 30 July 2021.
Due to events occurring since this proceeding was commenced on 10 September 2021 (including the appointment of a new trustee, the appointment of receivers to assets of JL Prop and the failure of efforts to sell the aged care businesses conducted by Mali) the relief sought by Mr Michell changed. When the application came on for hearing, after those intervening events resulted in amendments to the Originating Process, the relief sought by Mr Michell (in draft orders circulated the day before the hearing) was as follows:
1.The first plaintiff is justified and acting reasonably in proceeding on the basis that:
(a)Mali carried on business in its capacity as trustee of the Rita Kohu Family Trust (RKF Trust);
(b)all assets of Mali are properly characterised as property held by Mali on trust for the RKF Trust;
(c)JL Prop carried on business in its capacity as trustee of the John’s Lane Property Trust; and
(d)all assets of JL Prop are properly characterised as property held by JL Prop on trust for the JL Prop Trust.
2.The first plaintiff is appointed as receiver and manager (Receiver) of all the assets and undertaking of the RFK [sic] Trust.
3.The Receiver has all the powers that a receiver has in respect of the business and property of a company under s 420 of the Corporations Act 2001 (Cth) (other than in s 420(2)(s), (t), (u) and (w)) as if the reference in that section to “the corporation” were a reference to the RFK [sic] Trust including, without limitation, the power to do all things necessary or convenient to:
(a)investigate transactions made using funds derived from the assets of the RKF Trust;
(b)demand the books and records of the RKF Trust from any person;
(c)determine and make payment of any claims against the assets of the RKF Trust;
(d)distribute the proceeds of the sale of the assets of the RKF Trust (after payment of the costs, expenses and remuneration of Mr Michell in his capacity as the Receiver and as voluntary administrator and liquidator of Mali and JL Prop) to any creditors of the RKF Trust; and
(e)distribute any surplus thereafter to the beneficiaries of the RKF Trust; and
(f)dispose of any asset.
4.The requirement under rule 39.05 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) for the Receiver to give security is dispensed with.
5.The costs, expenses, and remuneration of the first plaintiff in:
(a)acting as the Receiver of the assets and undertaking of the RFK [sic] Trust;
(b)acting as voluntary administrator of Mali and JL Prop; and
(c)acting as liquidator of Mali and JL Prop,
be paid from the assets of the RFK [sic] Trust and JL Prop Trust respectively.
6.The first plaintiff is relieved from any liability incurred in the conduct of the business carried on by the RKF Trust or the JL Prop Trust (together, the Trusts) and/or arising from any dealing with the property of those Trusts between 30 July 2021 (being the date of his appointment) and the date of this order.
7.There is liberty to apply to any person who can demonstrate sufficient interest to modify any order made in this proceeding on not less than 48 hours’ notice to the Liquidator.
In support of his application, Mr Michell relies on affidavits sworn by him on 10 September 2021, 20 October 2021, 5 November 2021, 3 December 2021 and 2 February 2022. The final affidavit was sworn to put in evidence various matters of which I was informed from the Bar table during the hearing of the application, largely responsive to questions raised by the Court.
The application and supporting evidence was served on the defendant, Rkohu Pty Ltd (ACN 654 354 864) (Rkohu). Rkohu is the current trustee of the Rita Kohu Family Trust (the RKF Trust), and is also the current trustee of the John’s Lane Property Trust (the JL Prop Trust). Rkohu was appointed trustee of those trusts on 14 October 2021, Mali having been disqualified as trustee upon its entry into voluntary administration on 30 July 2021, and JL Prop having been disqualified as trustee upon its entry into liquidation on 24 August 2021. The application and supporting material was also served on Rita Kohu, the specified beneficiary and appointor of both trusts.
Rkohu confirmed, by a letter from its solicitors dated 14 October 2021, that:
(a) it did not oppose the orderly realisation of assets by Mr Michell to pay creditors of the trusts; and
(b) it neither consented to nor opposed the orders sought in the Originating Process.
The same firm of solicitors acts for Ms Kohu, and accepted service of documents on her behalf.
While the Originating Process was amended since that correspondence was sent, the latest version was served on Rkohu and it did not revise its position. It has not filed any notice of appearance or sought to oppose the relief sought. In addition, having been sent a copy of the draft form of orders sought by Mr Michell prior to the hearing, there was some further email correspondence between Mr Michell’s solicitors and the solicitors for Rkohu and Ms Kohu regarding the terms of those orders. Subject to a drafting issue being corrected (the detail of which it is not necessary to set out here), it did not take issue with the substantive orders sought.
Notice of the application was given to all known creditors of Mali and JL Prop, together with notice of the hearing date and access to the affidavit material. The creditors so notified included a secured creditor of JL Prop, who appointed receivers to the assets of JL Prop on 9 November 2021. No creditor filed a notice of appearance.
As such, the application was not opposed by the current trustee, Ms Kohu or any creditor of Mali or JL Prop.
Background
Mali previously conducted the business of operating two aged care facilities in Alphington and Mount Eliza. The aged care business conducted in Mount Eliza was conducted on two lots of land owned by JL Prop.
Mali was the trustee of the RKF Trust, which was settled on 11 March 2014. As noted above, Ms Kohu is the named specified beneficiary and is also the appointor and guardian of the trust. The RKF Trust is a discretionary trust. The category of general beneficiaries is widely described and includes relatives of Ms Kohu, companies or trusts in which she has an interest, educational and charitable institutions. The trustee of the RKF Trust was expressly empowered by the terms of that trust to carry on any trade or business and to employ any persons.
The trust deed for the RKF Trust included a provision stating that the trustee ‘shall automatically be deemed to have vacated office … if such Trustee (being a company) comes under an administration or enters into liquidation (not being a voluntary liquidation for the purposes of amalgamation or reconstruction)’. As a consequence of this clause, Mali was automatically removed as trustee upon the appointment of Mr Michell as voluntary administrator on 30 July 2021.
The JL Prop Trust was settled on 25 September 2014. As with the RKF Trust, the JL Prop Trust is a discretionary trust of which Ms Kohu is the only specified beneficiary and appointor. The classes of general beneficiaries of the JL Prop Trust are broadly similar to those of the RKF Trust. The JL Prop Trust deed also provided for the automatic vacation of the office of trustee upon the company entering into liquidation, other than a voluntary liquidation for the purposes of amalgamation or reconstruction. Accordingly, JL Prop was removed as trustee of the JL Prop Trust upon the resolution to wind up JL Prop on 24 August 2021.
It was not until 14 October 2021, after this proceeding had been commenced by Mr Michell, that Ms Kohu exercised her power of appointment and appointed Rkohu as trustee of the RKF Trust and the JL Prop Trust. Mr Michell did not contest the efficacy of that appointment. It follows that, while Mali and JL Prop were bare trustees of the trusts for a period, a new trustee is in office.
Following his appointment as liquidator of Mali and JL Prop, Mr Michell, with the assistance of his staff, continued trading the aged care businesses operating in Alphington and Mount Eliza. At that time his objective was to preserve the value of the businesses and sell them as a going concern. The work which Mr Michell was required to undertake was complex and involved time-critical matters necessary to ensure the proper care of vulnerable residents and interactions with government authorities, made all the more complex in view of the fact that it was necessary for him to secure Commonwealth funding to ensure the continued operation of the aged care businesses. Further, at the time of his appointment a ‘sanctions’ notice had been issued to Mali, which restricted its ability to accept daily accommodation payments from residents.
The work undertaken by Mr Michell following his appointment as voluntary administrator (and then as liquidator) included examining the companies’ books and records, managing the aged care businesses on a day-to-day basis, corresponding with secured creditors, corresponding with suppliers, reviewing cash flow forecasts for the continued trading of the businesses, addressing occupational health and safety matters, liaising with the Commonwealth Department of Health and the Aged Care Quality and Safety Commission, obtaining the financing referred to above, liaising with the Department of Health in administering the Refundable Accommodation Deposits (RAD) Guarantee Scheme (the Scheme), meeting with employees and residents of the aged care facilities, liaising with the director of Mali and JL Prop, Ms Kohu, and finance department staff to discuss the financial position and affairs of the companies, liaising with bankers, and undertaking work with his solicitors, Maddocks, in connection with the application.
Prior to his appointment as voluntary administrator of Mali and JL Prop, rent owed by Mali to JL Prop was paid by Mali into the loan account of JL Prop held with Westpac Bank. Following his appointment, Mr Michell had a separate bank account established into which that rent was directed. At the date of the hearing of the application, that fund (as Mr Michell deposed to) held just over $222,000.
Mr Michell endeavoured to sell the assets and operations of the aged care businesses. He sought proposals from three sales agents in early August 2021. An expression of interest campaign was commenced with offers received in mid-September 2021. Since that time, Mr Michell was involved in discussions with the Commonwealth authorities referred to above and with secured creditors, in an attempt to negotiate a sale of the aged care businesses as a going concern in complex circumstances.
Despite his efforts, Mr Michell was unable to secure the sale of the aged care businesses as a going concern. He deposed that the main reason that the attempts to sell on that basis were not successful is that any sale would have required the support of the Commonwealth government by the Commonwealth agreeing to assume the RAD liabilities under the Scheme. While Mr Michell had meetings with the Commonwealth regarding the potential sale of the businesses, he received notice from the relevant department on 10 November 2021 that there was no legislative mechanism available to the government under the Scheme for the payment of RAD liabilities after they fall due in the event of sale of an aged care business. None of the potential purchasers’ offers were in excess of the RAD liabilities they would have assumed upon acquiring the aged care businesses. As a result, Mr Michell formed the opinion that it was not possible to sell the aged care businesses as a going concern as any purchaser would be required to assume the RAD liabilities. In addition, Mr Michell deposed that the businesses were making losses and only operating with the support of government funding grants. Accordingly, Mr Michell made the decision to close the aged care businesses and undertook the necessary steps to ensure that residents, employees and other stakeholders were suitably informed and that arrangements were made to find accommodation for the residents of the aged care businesses and relocate those residents.
Mr Michell deposed that, leading up to the final closure of the businesses, there were a number of tasks that his staff would continue to perform including management of the operation of the businesses on a day-to-day basis during the wind-down phase, work with relocation consultants to identify vacancies in aged care facilities, arranging meetings with other aged care facilities to provide care and presentations to residents, assisting with relocation of residents and like matters, as well as arranging for the sale of plant and equipment and bed licences held by Mali, and continued liaison with relevant government departments, creditors and debtors.
Upon the final closure of the aged care business at Mount Eliza, Mr Michell deposed that he will be arranging for vacant possession of the land and buildings to return to the receivers and managers of JL Prop and JL Prop as trustee for the JL Prop Trust. I was informed (albeit from the Bar table) that Mr Michell does not intend to hand over control of the bank account (being the account into which rent has been paid) to the receivers.
Directions regarding trustee role of Mali and JL Prop
Mr Michell sought judicial directions under s 90-15 of Schedule 2 – Insolvency Practice Schedule (Corporations) to the Corporations Act 2001 (Cth) (Corporations Act). That section provides that the Court ‘may make such orders as it thinks fit in relation to the external administration of a company’. The principles developed in relation to the power formerly found in s 479(3) of the Corporations Act to give directions to a liquidator continue to inform the exercise of the s 90-15 power.
As submitted by counsel for Mr Michell, those principles can be summarised as follows:
(a) the power to give advice is intended to facilitate the performance of a liquidator’s functions and should be interpreted widely to give effect to that purpose;[1]
[1]In the matter of Octaviar Administration Pty Ltd (in liq) [2017] NSWSC 1556, [9] (Black J).
(b) the Court may give a direction where it is just and beneficial to the liquidation to do so;[2]
[2]Dean-Willcocks v Soluble Solution Hydroponics Pty Ltd (1997) 42 NSWLR 209 at 212 (Young J).
(c) the function of the power is to give the liquidator advice as to the proper course of action to take in the liquidation;[3]
(d) the court will not give a direction as to a matter of commercial or business judgment – rather, there must be a ‘a legal issue of substance or procedure, it may be an issue of power, propriety or reasonableness’;[4] and
(e) the power ought not ordinarily be used to determine substantive rights and make binding orders,[5] although the width of section 90-15 would now permit the Court to decide substantive rights if the necessary parties were before the Court.[6]
[3]Re MF Global Australia Ltd (in liq) [2012] NSWSC 994; (2012) 267 FLR 27 at [7] (Black J).
[4]Re Ansett Australia No 3 (2002) 115 FCR 409 at [65] (Goldberg J).
[5]Re Graf Holdings & Parer Holdings [ [1999] NSWSC 217 at [38] (Austin J).
[6]Re Hawden Property Group Pty Ltd (in liq) (2018) 125 ACSR 355 AT 357 [8] (Gleeson JA).
Mr Michell seeks a direction that he is justified in conducting the liquidation of Mali and of JL Prop on the basis that each of them carried on business solely as trustee for the RKF Trust and that all of their assets are held by them as trustee of those trusts. In Re Amerind Pty Ltd (Receivers and Managers Appointed) (in liquidation),[7] Robson J set out a list of factors which Courts have taken into account in determining the question of whether a company trades in its own right or as trustee of a trust. Those factors are as follows (as set out in counsel’s submissions):
[7](2017) 121 ACSR 206.
(a) the existence of constituent trust documents which establish a trust, including any draft trust documents which cross-reference one another;
(b) whether accounts were maintained separately to the company’s operational expenditure accounts and/or the company’s own property;
(c) whether the company’s name in its capacity as trustee was noted on key employment documents, such as letters of employment and tax file declarations;
(d) whether invoices rendered by the company in question were issued by the company in its capacity as trustee of the trust;
(e) whether company meeting minutes disclosed the existence of a trust, or disclosed that the company was operating as a trust;
(f) whether expenses were accounted as receipts of the company as trustee; and
(g) whether records, contained in the general ledger of the company, recorded activity consistent with the operation of a trust, such as the issue of units.
In support of his application for such a direction in respect of Mali, Mr Michell submitted that he had conducted investigations into the affairs of each company and formed the opinion that the companies only ever acted as corporate trustees of the trust. In respect of Mali, his opinion was based on the following evidence:
(a) the trust deed for the RKF Trust reveals that Mali is the trustee of the trust, and confers on the trustee a power to carry on business;
(b) the financial reports obtained by the Mr Michell for the 2018, 2019 and 2020 financial years were prepared in the name of Mali as trustee of the RKF Trust;
(c) employment contracts with employees state on their face that Mali entered into those contracts as trustee of the RKF Trust;
(d) the bank accounts of the business are held in the name of the RKF Trust;
(e) the asset register for the Alphington Aged Care business is held in the name of the ‘Trustee Rita Kohu Family Trust’;
(f) statements of account issued to residents of the aged care villages bear the ABN of Mali in its trustee capacity;
(g) the liquidator has not obtained any financial reports that have been prepared for Mali in its own capacity or in its capacity as trustee of any other trust; and
(h) there was no documentation suggesting Mali conducted any business other than as trustee.
In respect of Mali, I accept that all of the evidence and documentation assembled by Mr Michell points to Mali having conducted itself only as trustee of the RKF Trust and not in any other capacity.
Further, I consider that the directions sought by Mr Michell is appropriately given to facilitate the performance of his functions and will assist him in the proper execution of his role as liquidator without straying into matters of commercial or business judgment, or otherwise determining any substantive rights.
In relation to JL Prop, as counsel for Mr Michell properly noted, the evidence is ‘less overwhelming’. However, given that JL Prop merely holds real property and does not carry on a trading business, the relative lack of documentation in respect of JL Prop is of less significance. However, Mr Michell relied upon the fact that the trust deed for the JL Prop Trust records JL Prop as trustee and the lease of properties owned by JL Prop to Mali records the lessor as ‘JL Prop as trustee for the Johns [sic] Lane Property Trust’. Further, evidence was adduced establishing that JL Prop held a bank account with Westpac, which account was explicitly held in its trustee capacity.
The only potential contra-indication in evidence was the fact that one of JL Prop’s two secured creditors had only registered a financing statement against the company’s ACN, and not also against the trust’s ABN. Although a matter of speculation, counsel submitted that that omission may readily be explained on the basis that that creditor fell into one of the pitfalls of registration on the PPSR. That speculation is supported by the fact that the creditor in question paid out the debt owed by JL Prop to Westpac (which had registered its financing statement against both the ACN and ABN) and proceeded to appoint receivers. Accordingly, I do not regard the status of the PPSR as tending against the view formed by Mr Michell regarding the JL Prop having acted only in a trustee capacity.
Notwithstanding the relative lack of documentation in respect of JL Prop, I nevertheless consider it appropriate to give the direction sought. Other than the PPSR (addressed above), there is no evidence tending against the conclusion, formed by Mr Michell, that JL Prop likewise only ever acted in a trustee capacity. While Mr Michell is a stranger to the commercial operations of Mali and JL Prop, as noted above Rkohu and Ms Kohu have been given notice of the orders sought and do not oppose them. It might be expected that they (and in particular Ms Kohu) would challenge the factual basis for the conclusions reached by Mr Michell if they were ill-founded. However, neither Rkohu nor Ms Kohu have sought to challenge the factual basis for the directions sought or otherwise to oppose the relief sought by Mr Michell.
Appointment of Mr Michell as receiver of the assets and undertaking of the RKF Trust
Mr Michell seeks an order appointing him in his capacity as liquidator of Mali as receiver and manager of all the assets and undertaking of the RKF Trust. While he previously sought a similar order in respect of the JL Prop Trust, following the appointment of the private receivers by a secured creditor of JL Prop, Mr Michell no longer seeks an order appointing him as receiver of the assets and undertaking of the JL Prop Trust. Mr Michell also seeks orders that he have all powers that a receiver has in respect of the business and property of a company under s 420 of the Corporations Act, other than sub-ss 2 (s), (t), (u) and (w). Mr Michell further seeks an order that the requirement under r 39.05 of the Supreme Court (General Civil Procedure) Rules 2015 for the receiver to give security, be dispensed with.
It is well established that, upon its removal as trustee, a corporate trustee serves as bare trustee until the appointment of a new trustee. Accordingly, when Mali and JL Prop ceased to be trustees of the RKF Trust and the JL Prop Trust, they held the assets of those trusts as bare trustees.[8] As bare trustees, their powers were limited to preserving and protecting the trust assets. While Mali and JL Prop’s right of indemnity from the trust assets for debts incurred by them as trustee was unaffected by their removal from office and the appointment of Rkohu,[9] Mr Michell as liquidator did not have the power to sell trust assets.[10] Following an earlier conflict in the authority, it is now established that a former trustee in the position of Mali and JL Prop does not have the right to retain trust assets against the new trustee in order to realise its right of indemnity but is bound to convey the trust property to the new trustee.[11]
[8]Caterpillar Financial Australia Ltd v Ovens Nominees Pty Ltd [2011] FCA 677, [22]-[28].
[9]Jones (Liquidator) v Matrix Partners Pty Ltd, in the matter of Killarnee Civil & Concrete Contractors Pty Ltd (in liq) (2018) 260 FCR 310 (Killarnee) at 343[142].
[10]Killarnee, [44]; Re Cremin, in the matter of Brimson Pty Ltd (in liq) (2019) 136 ACSR 649 (Cremin), [49].
[11]Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd [2008] NSWSC 1344,[50]; Pitard Consortium Pty Ltd v Les Denny Pty Ltd (2019) 58 VR 524 [9]-[11].
Commonly, the liquidator of a former corporate trustee is then appointed by the Court as receiver to enable it to sell trust assets. This ‘common course’, as described by Moshinsky J in Re Cremin, has been adopted in circumstances where the insolvent former corporate trustee is a bare trustee (with no new trustee having been appointed) but has also been adopted in circumstances where a new trustee has been appointed.[12]
[12]See for example: Connelly, re Gregorski Investments Pty Ltd (in liq) v 320 Nominees Pty Ltd as trustee of the Gregorski Property Trust [2019] FCA 1400; Michell (Liquidator) v Delltta Holdings Pty Ltd (in liq) as trustee for The Brookhill Trust [2019] FCA 2133. See also Re Waratah Group Pty Ltd (in liq) [2020] VSC 523, [56]-[57] where Delany J noted that the potential for the appointment of a new trustee made it appropriate to appoint the liquidators as receivers and managers of the relevant trust in order to “pre-empt” any difficulties that would arise upon the appointment of a new trustee.
I am satisfied that it is appropriate to make an order appointing Mr Michell in his capacity as liquidator of Mali as the receiver and manager of the assets and undertaking of the RKF Trust. Such an order is appropriate and desirable to enable the liquidator to vindicate the former trustee’s right of indemnity out of trust assets for the benefit of creditors. I note that no person, including Rkohu or Ms Kohu, the specified beneficiary of the RKF Trust, opposes the order.
I am further satisfied that it is appropriate to order that Mr Michell, as receiver, have all the powers that a receiver has in respect of the business and property of a company under s 420 of the Corporations Act other than the powers specified in sub-ss 2 (s), (t), (u) and (w).
Rule 39.05 of the Supreme Court (General Civil Procedure) Rules provides that, unless the Court orders otherwise, a receiver is to give security in the form of a guarantee. However, the Court will commonly appoint the liquidator of a corporate trustee as receiver without security and dispense with any obligation that would otherwise be imposed to file a guarantee absent any relevant conflict.[13] It is appropriate that liquidators of a former trustee be appointed receiver without the obligation to file a guarantee as the appointment facilitates the external administration of the company and aids in the vindication of the right of indemnity out of the trust assets.[14]
[13]Elkerton (Liquidator), in the matter CGB Property Holdings Pty Ltd (in liq) [2020] FCA 1464 (Elkerton), [25].
[14]Elkerton, [25].
It is further appropriate in this case to make an order that costs, expenses and remuneration of Mr Michell in acting as receiver of the assets and undertaking of the RKF Trust, acting as voluntary administrator of Mali and JL Prop, and acting as liquidator of Mali and JL Prop be paid from the trust assets of the respective trusts. Where a corporate trustee acts only in that capacity, as is the case with Mali and JL Prop, the liquidator is entitled to be paid remuneration, whether for administering trust assets or for general liquidation work, out of the trust assets as the company has no other assets than the trust assets.[15] The position is the same in respect of work done as a voluntary administrator.[16] This is not a case where there are assets held outside the trusts to which recourse might be had to meet Mr Michell’s remuneration.[17]
[15]Re North Food Catering Pty Ltd [2014] NSWSC 77, [9]-[17].
[16]Re JML Property Services Pty Ltd (in liq) [2018] NSWSC 1069, [13].
[17]Re North Food Catering Pty Ltd [2014] NSWSC 77, [9], [10], [17]; Cremin, [51].
In discussion with counsel, it emerged that the order sought to provide for payment of Mr Michell’s remuneration in respect of the administration and liquidation of JL Prop would only have utility on the basis that Mr Michell proposes to utilise the account into which rent has been paid by Mali following his appointment as administrator. There was no evidence that either this intention or the direction of rent into a separate account had been disclosed to the receivers appointed by the secured creditor of JL Prop. However, counsel for Mr Michell confirmed in open court that the order being sought to authorise payment of Mr Michell’s remuneration as voluntary administrator and liquidator of JL Prop from the assets of the JL Prop Trust would not pre-empt the outcome of any dispute that might emerge between the receivers and Mr Michell concerning claims to the fund of approximately $220,000 in rents paid by Mali to JL Prop following Mr Michell’s appointment.
Exoneration under s 1318 of the Corporations Act and/or s 67 of the Trustee Act
Mr Michell seeks an order that he be relieved from any personal liability he might have incurred in conducting the business of Mali and JL Prop, or dealing with their assets, between the date of his appointment and the date of the order appointing him receiver of the assets and undertaking of the RKF Trust and the date of final orders in respect of the JL Prop Trust. During discussion in the hearing, counsel for Mr Michell confirmed it was not necessary for the period of Mr Michell’s excusal to extend beyond the appointment of the receivers to the property of JL Prop.
Section 67 of the Trustee Act 1967 provides as follows (emphasis added):
If it appears 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.
Section 1318 of the Corporations Act relevantly provides as follows (emphasis added):
(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. …
In order for the discretion to excuse Mr Michell from potential liability to arise, the Court must be satisfied that Mr Michell acted ‘honestly and reasonably’ (s 67 Trustee Act 1967) or ‘honestly’ (s 1318 Corporations Act). The Court must further be satisfied that having regard to all the circumstances, it is appropriate that the person be excused from any potential breach.
In the case of Mr Michell, I am satisfied that he has acted honestly at all times. Based on the evidence, it is clear that Mr Michell continued to conduct the day-to-day operations of the aged care businesses, and in so doing, dealt with trust assets, in circumstances where it was appropriate and necessary that he do so in order to preserve (or at least attempt to preserve for future sale) the value of the assets of the trusts, and to ensure the proper accommodation and care of the elderly residents of the aged care homes. I am satisfied that he acted reasonably in so doing.
Counsel for Mr Michell acknowledged that there may be some criticism directed at the delay in bringing the present application, particularly in relation to Mali, which was removed as trustee upon voluntary administration at an earlier point of time than Mr Michell’s appointment as liquidator. He submitted that the delay has been minimal and ought not be overstated, having regard to the fact that the application was brought within 10 business days after the creditors resolved to wind up the companies.
While I am satisfied that the delay may fairly be described as minimal in relation to JL Prop, I consider that the application in relation to Mali should have been brought more promptly given Mali was automatically removed as trustee upon the appointment of Mr Michell as voluntary administrator on 30 July 2021. Nevertheless, I do not consider that the extent of the delay in respect of the application, so far as it concerns Mali, ought to result in me declining to relieve Mr Michell from any potential liability. While it is regrettable that the application in respect of Mali was not made more promptly, it is understandable that the situation of relative crisis into which Mr Michell was thrust — he was appointed as voluntary administration of an aged care business in financial difficulty and against which a ‘sanctions’ notice had been issued — meant that his attention was immediately focused on matters other than instructing lawyers to commence the proceedings necessary to authorise the actions which he was busy undertaking. Had Mr Michell sought the Court’s approval to undertake the steps that he in fact undertook to conduct the business at the time of his appointment, he would have received that authorisation for the reasons already stated. As such, it is relevant to note that it has been observed that where a trustee’s conduct would have been authorised by the Court had the trustee sought such authorisation, the ‘trustee may expect to be excused’.[18]
[18]Kerferd v Perpetual Executors and Trustees Association of Australasia Ltd (1893) 19 VLR 700, 706, cited by Gordon J in Caterpillar Financial Australia Ltd v Ovens Nominees Pty Ltd [2011] FCA 677, [40].
Reservation of liberty
The orders sought by Mr Michell included an order granting liberty to apply to any person with sufficient interest, to modify the orders made on not less than 48 hours’ notice to Mr Michell. That order provides an additional safeguard to the interests of the receivers, their appointor and any other person affected by these orders.
Orders
Orders will be made in the following terms:
1.The First and Second Plaintiff (Mr Michell) is justified and acting reasonably in proceeding on the basis that:
(a)Mali Nominees Pty Ltd (In Liquidation) (ACN 081 429 432) (Mali) carried on business in its capacity as trustee of the Rita Kohu Family Trust (RKF Trust);
(b)all assets of Mali are properly characterised as property held by Mali on trust for the RKF Trust;
(c)JL Prop Pty Ltd (In Liquidation) (ACN 602 013 034) (JL Prop) carried on business in its capacity as trustee of the John’s Lane Property Trust (JL Prop Trust); and
(d)all assets of JL Prop are properly characterised as property held by JL Prop on trust for the JL Prop Trust.
2.Mr Michell is appointed as receiver and manager (Receiver) of all the assets and undertaking of the RKF Trust.
3.The Receiver has all the powers that a receiver has in respect of the business and property of a company under s 420 of the Corporations Act 2001 (Cth) (other than in s 420(2)(s), (t), (u) and (w)) as if the reference in that section to “the corporation”’ were a reference to the RKF Trust including, without limitation, the power to do all things necessary or convenient to:
(a)investigate transactions made using funds derived from the assets of the RKF Trust;
(b)demand the books and records of the RKF Trust from any person;
(c)determine and make payment of any claims against the assets of the RKF Trust;
(d)distribute the proceeds of the sale of the assets of the RKF Trust (after payment of the costs, expenses and remuneration of Mr Michell in his capacity as the Receiver and as voluntary administrator and liquidator of Mali) to any creditors of the RKF Trust; and
(e)dispose of any asset.
4.The requirement under rule 39.05 of the Supreme Court (General Civil Procedure) Rules 2015 for the Receiver to give security is dispensed with.
5.The costs, expenses, and remuneration of Mr Michell in:
(a)acting as the Receiver of the assets and undertaking of the RKF Trust;
(b)acting as voluntary administrator of Mali and JL Prop; and
(c)acting as liquidator of Mali and JL Prop,
be paid from the assets of the RKF Trust and JL Prop Trust respectively.
6.Mr Michell is relieved from any liability:
(a)incurred in the conduct of the business carried on by the RKF Trust and/or arising from any dealing with the property of that trust between 30 July 2021 (being the date of his appointment as voluntary administrator of Mali) and the date of this order; and
(b)incurred in the conduct of the business carried on by the JL Prop Trust and/or arising from any dealing with the property of that trust from 30 July 2021 (being the date of his appointment as voluntary administrator of JL Prop) up to the time of the appointment of Andrew Hewitt and Matthew Byrnes as receivers and managers of JL Prop on 9 November 2021.
7.There is liberty to apply to any person who can demonstrate sufficient interest to modify any order made in this proceeding on not less than 48 hours’ notice to Mr Michell.
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SCHEDULE OF PARTIES
| S ECI 2021 03314 | |
| BETWEEN: | |
| STEPHEN JOHN MICHELL IN HIS CAPACITY AS LIQUIDATOR OF MALI NOMINEES PTY LTD (IN LIQUIDATION) (ACN 081 429 432) | First Plaintiff |
| STEPHEN JOHN MICHELL IN HIS CAPACITY AS LIQUIDATOR OF JL PROP PTY LTD (IN LIQUIDATION) (ACN 602 013 034) | Second Plaintiff |
| MALI NOMINEES PTY LTD (IN LIQUIDATION) (ACN 081 429 432) | Third Plaintiff |
| JL PROP PTY LTD (IN LIQUIDATION) (ACN 602 013 034) | Fourth Plaintiff |
- and - | |
| RKOHU PTY LTD (ACN 654 354 864) | Defendant |
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