Re S & J Tairi & Sons Pty Ltd (in liq)
[2023] VSC 750
•13 December 2023
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST
S ECI 2023 05244
IN THE MATTER of S & J TAIRI & SONS PTY LTD (IN LIQUIDATION)
(ACN 111 481 086)
BETWEEN:
| ADRIAN JOHN WARRY and SHANE LESLIE DEANE in their capacity as joint and several liquidators of S & J TAIRI & SONS (IN LIQUIDATION) (ACN 111 481 086) | First Plaintiff |
| and | |
| S & J TAIRI & SONS PTY LTD (IN LIQUIDATION) (ACN 111 481 086) as trustee for the DONALDSON DISCRETIONARY TRUST | Second Plaintiff |
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JUDGE: | M Osborne J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 6 December 2023 |
DATE OF JUDGMENT: | 13 December 2023 |
CASE MAY BE CITED AS: | Re S & J Tairi & Sons Pty Ltd (in liq) |
MEDIUM NEUTRAL CITATION: | [2023] VSC 750 |
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INSOLVENCY — Appointment of receivers and managers over trust property — Whether appointment of receivers over trust property was just and convenient or otherwise in the interests of creditors of the trust — Jones (Liquidator) v Matrix Partners Pty Ltd [2018] FCAFC 40 — Re Brimson Pty Ltd [2019] FCA 1023 — Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | A Carruthers | Miltons Lawyers |
HIS HONOUR:
On 6 December 2023, I made orders appointing Adrian John Warry and Shane Leslie Deane, who are the joint and several liquidators of S & J Tairi & Sons Pty Ltd in liquidation (the ‘Company’), as receivers and managers to the assets and undertaking of the Donaldson Discretionary Trust (the ‘Trust’). These are the reasons for those orders.
The Company is or was the trustee of the Trust. It carried on a business known as Evelyn Recycling trading scrap metal, copper and other materials from premises leased by it in Mount Evelyn. According to records produced by the Company as well as information provided by its sole director, Bruce Raymond Donaldson, the Company only traded as trustee of the Trust and did not operate any business or endeavour in its own right.
The Company’s financial decline resulted from a long-standing failure to lodge quarterly business activity statements and tax returns.
The liquidators were appointed on 21 March 2023 pursuant to s 491(2) of the Corporations Act 2001 (Cth) (the ‘Act’), after a general meeting of members convened by Mr Donaldson resolved to place the Company into a creditor’s voluntary liquidation.
The Company’s business and assets were sold prior to the appointment of the liquidators. The terms of sale included the assumption by the purchaser of employee entitlements.
The Australian Tax Office (the ‘ATO’) have lodged a formal proof of debt in the amount of $300,448.65.
Although there is evidence that the Company only ever acted as trustee of the Trust, the liquidators have not been able to obtain a copy of the trust deed despite making enquiries of Mr Donaldson and of the Company’s former accountant. The liquidators are concerned about an absence of power to deal with the Company’s assets which are now limited to the sale proceeds.
More particularly, the liquidators are concerned that the trust deed is likely to have contained a clause that provides that the Company cease to be a trustee of the Trust upon liquidation (commonly referred to as an ‘ipso facto’ clause) and that if that is so, the Company holds the remaining assets as a bare trustee with no power to deal with them.
As such, the liquidators sought:
(a) orders pursuant to s 37(1) of the Supreme Court Act 1986 (Vic) appointing the liquidators as receivers and managers to trust assets with ancillary orders affording them power to deal with those assets;
(b) orders pursuant to s 63(1) of the Trustee Act 1958 (Vic) conferring powers on the Company to enable it to deal with the assets of the Trust together with ancillary orders granting the liquidators power to deal with trust assets.
The liquidators relied on the following affidavits:
(a) the affidavit of Adrian Warry affirmed 3 November 2023 which sets out the background and relevant factual matters; and
(b) an affidavit of service of Liana Slussareff affirmed 13 November 2023 in which she deposes to service of the relevant documents on the Australian Securities and Investment Commission (‘ASIC’), the major creditor, the ATO, and on Mr Donaldson.
No person opposed the granting of the relief sought.
The relevant legal principles are uncontroversial. Notably:
(a) the Company as a corporate trustee retains a right of indemnity into the trust assets, relating to liabilities incurred by reason of acting as trustee;[1]
[1]Jones (Liquidator) v Matrix Partners Pty Ltd [2018] FCAFC 40, [85] (Allsop CJ), [142] (Siopsis J), [198] (Farrell J) (‘Matrix’); Re Brimson Pty Ltd [2019] FCA 1023, [48]-[51] (Moshinsky J) (‘Brimson’).
(b) this right of exoneration generates a supporting lien or charge being a beneficial proprietary interest in the trust assets in favour of the former trustee of the Trust;[2]
[2]Matrix (n 1) [49], [87] (Allsop CJ); Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth [2019] HCA 20, [133]-134] (Gordon J) (‘Carter Holt’).
(c) if it be the case that the Company is no longer the trustee by reason of an ipso facto clause, the former trustee holds title to trust assets as bare trustee with limited powers to deal with those assets but the ability to retain possession (as against beneficiaries) for the purpose of achieving its right of indemnity;[3]
(d) the liquidator may not sell trust assets without an order of the Court or the appointment of a receiver and manager over the trust assets;[4] and
(e) the courts are generally willing upon an appropriate application to make orders permitting the liquidator of a former trustee to sell trust assets.[5]
[3]Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360, 369-370.
[4]Matrix (n 1) [44], [91] (Allsop CJ), [139] (Siopsis J), [196] (Farrell J); Brimson (n 1) [48]-[49] (Moshinsky J).
[5]Brimson (n 1) [50] (Moshinsky J); Re Glenvine Pty Ltd (in liq) [2020] NSWSC 866, [45] (Black J).
The conferral of statutory powers under each of s 37(1) of the Supreme Court Act 1986 (Vic) and s 63(1) of the Trustee Act 1958 (Vic) is broad.[6] Section 37(1) of the Supreme Court Act 1986 (Vic) permits the appointment of receivers and managers when it is just and convenient to do so. A liquidator’s costs are payable out of the trustee’s right of indemnity over the trust assets particularly where the company in liquidation acted solely as corporate trustee.[7] Orders providing for the liquidator’s costs in line with s 556(1) of the Act are also now commonly sought and made. In the present case, the provide for the protection and preservation of trust property and are made for the benefit of persons who have an interest in that property.
[6]Section 63(1) of the Trustee Act 1958 (Vic) refers to where “it is in the opinion of the Court expedient, but the same cannot be effected by reason of the absence of any power for that purpose”, while s 37(1) of the Supreme Court Act 1986 (Vic) refers to “where it is just and convenient to do so”.
[7]Carter Holt (n 2) [169]-[171] (Gordon J).
The orders are in the interest of creditors of the Trust. It is possible that the effect of the liquidation is that the Company holds the assets as a bare trustee with no power to deal with them. Given the absence of the trust deed however, it is not certain that this is the case. Given that circumstance, it is just or convenient to appoint the liquidators as receivers and managers and to make orders for the conferral upon them of the necessary powers to finalise the liquidation. The appointment of the liquidators as receivers and managers to the assets and undertaking of the Trust will facilitate the prompt and efficient finalisation of the liquidation of the Company.
Accordingly, the orders made on 6 December 2023 were as follows:
1.Pursuant to section 37(1) of the Supreme Court Act 1986 (Vic) Adrian John Warry and Shane Leslie Deane, liquidators, be appointed nunc pro tunc as receivers and managers (‘Receivers’) to the assets and undertakings of the Donaldson Discretionary Trust (‘Trust’).
2.The need for the Receiver to file a guarantee under rule 39.05 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) be dispensed with.
3.The Receiver is authorised to have possession of, call in, preserve, maintain and sell the assets comprising the Trust property.
4. The Receiver will have the following powers:
(a)to do all things necessary or convenient to effect the sale or realisation of the Trust property, with the powers that a liquidator has in respect of property of a company pursuant to section 477(2) of the Corporations Act 2001 (Cth);
(b)to apply the proceeds from the sale or realisation of Trust property to discharge the liabilities of the Second Plaintiff (all of which were incurred by it in its capacity as trustee) in accordance with the priorities set out in section 556 of the Corporations Act 2001 (Cth); and
(c)to distribute any surplus proceeds from the sale of the Trust property (if any) to a new trustee of the Trust or, if there is no new trustee, to the beneficiaries of the Trust.
5.The costs, expenses and remuneration incurred by the First Plaintiff in acting as Receivers and those of and incidental to this application be costs and expenses in the liquidation of the Second Plaintiff and paid in priority from the property of the Trust.
6.There be liberty to apply to any person who can demonstrate sufficient interest to modify any directions, orders and/or declarations made pursuant to this Originating Process on not less than 72 hours’ notice to the First Plaintiff.
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