Re Trident Star Enterprises Pty Ltd (admin apptd)

Case •

[2025] VSC 215

•

24 April 2025
IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL COURT

CORPORATIONS LIST

S ECI 2025 01699

IN THE MATTER OF TRIDENT STAR ENTERPRISES PTY LTD (ADMINISTRATORS APPOINTED) (ACN 097 541 841)

BETWEEN:

DANIEL PETER JURATOWITCH AND RACHEL ELIZABETH BURDETT IN THEIR CAPACITY AS JOINT AND SEVERAL VOLUNTARY ADMINISTRATORS OF TRIDENT STAR ENTERPRISES PTY LTD (ACN 097 541 841) First and Second Plaintiffs
- and -
TRIDENT STAR ENTERPRISES PTY LTD
(ADMINISTRATORS APPOINTED) (ACN 097 541 841) 		Third Plaintiff

---

JUDGE:

Cosgrave J

WHERE HELD:

Melbourne

DATE OF HEARING:

3 April 2025

DATE OF JUDGMENT:

24 April 2025

CASE MAY BE CITED AS:

Re Trident Star Enterprises Pty Ltd (admin apptd)

MEDIUM NEUTRAL CITATION:

[2025] VSC 215

---

CORPORATIONS — Voluntary administration —Declaration of validity of appointment of voluntary administrators to trustee company — Purported exercise of director’s powers pursuant to a power of attorney — Corporations Act 2001 (Cth) s 447A.

CORPORATIONS — Voluntary administration — Application for orders under Corporations Act 2001 (Cth) sch 2 ss 90-15 and 90-20 — Insolvency Practice Schedule (Corporations) — Whether the company was justified and acting reasonably in proceeding on basis that it acted solely in its capacity as trustee at all times — Whether the administrators are entitled to use trust assets to pay their expenses and the creditors of the trust.

CORPORATIONS — Voluntary administration — Application for orders conferring powers to deal with trust assets on the trustee company under Trustee Act 1958 (Vic) s 63(1) — Where the company is a bare trustee — Whether the administrators should be appointed as receivers of the trust assets under Supreme Court Act 1986 (Vic) s 37(1).

CORPORATIONS — Voluntary administration — Application for relief from liability under Corporations Act 2001 (Cth) s 1318 and/or Trustee Act 1958 (Vic) s 67 — Where administrators exceeded powers as bare trustee in selling trust property — Whether administrators acted honestly and reasonably.

CORPORATIONS — Voluntary administration —Application for extension of the convening period for the second meeting of creditors — Corporations Act 2001 (Cth) s 439A.

---

APPEARANCES:

 Counsel Solicitors
For the plaintiffs Mr C Hibbard Pointon Partners

HIS HONOUR:

Introduction

  1. The first and second plaintiffs (“the Administrators”) are the voluntary administrators of the third plaintiff (“the Company”). By an originating process filed on 1 April 2025, the Administrators seek orders concerning:

(a)        the validity of their appointment as voluntary administrators;

(b)       the business and assets of the C J Investment Trust (“the Trust”) of which the Company was formerly the trustee; and

(c)        the extension of the convening period for the second meeting of creditors of the company.

  1. On 17 July 2001, the Company was incorporated. The Company’s sole director is Jonathan Christopher De Fraga. He has been a director of the Company since incorporation. The sole shareholder in the company is De Fraga Investments Pty Ltd, a company whose sole director is also Mr De Fraga. The sole shareholder is Chantal De Fraga, Mr De Fraga’s wife.

  1. The Company operates a business in Richmond known as the Kingston Hotel. This business currently employs 29 staff. Until October 2024, the Company also operated another hotel in Richmond known as the Swan Hotel.

  1. It appears that the Company operated solely as trustee for the Trust. The Trust was established by deed executed on about 19 July 2001, two days after the incorporation of the Company. The Administrators have learned from the Company’s accountant that all units in the Trust are now held by De Fraga Investments Pty Ltd as trustee for the De Fraga Family Trust.

  1. On 16 October 2024, specialists diagnosed Mr De Fraga with a serious illness.

  1. On 29 January 2025, the Deputy Commissioner of Taxation commenced a winding up application against the Company. The application relied upon the Company’s failure to comply with a statutory demand dated 7 October 2024.

  1. In early February 2025, Mrs De Fraga approached Thomas Carroll of Broadside Lawyers with respect to options available to the Company. As a result of discussions between the two of them, Mrs De Fraga informed Mr Carroll that she wanted to appoint voluntary administrators to the Company.

  1. On 25 February 2025, Mr De Fraga executed an enduring power of attorney under which he appointed his wife as his attorney “to do anything on [his] behalf that [he] can lawfully do by an attorney”.

  1. On 11 March 2025, Mrs De Fraga signed a resolution on behalf of the sole director of the Company in her capacity as Mr De Fraga’s attorney. The resolution purported to appoint the Administrators as voluntary administrators of the Company.

  1. On 14 March 2025, the Deputy Commissioner of Taxation consented to an adjournment of its winding up application.

  1. Since their appointment, the Administrators have undertaken a number of tasks. Their principal role involved the continued operation of the Kingston Hotel business. The conduct of the administration has been hampered by several factors including the state of the Company’s books and records.

  1. The Administrators consider that the best outcome in achieving the objects of Part 5.3A of the Corporations Act 2001 (Cth) (“Corporations Act”) would be a deed of company arrangement (“DOCA”) proposed by Mrs De Fraga and/or other family members. If that course of action is unavailable, the Administrators contemplate an open sale of the company’s business.

Nature of the application

  1. Due to the urgent nature of the application, I told the applicants that I would consider the matter overnight and probably make the orders the following day before giving reasons at a later date. Having satisfied myself it was appropriate, I made the orders on 4 April 2025. These are my reasons for granting the application.

  1. The application by the Administrators raises six key issues.

  1. First, the Administrators seek an order validating their appointment. As noted above, the administration came about as a result of a resolution signed by the wife of the Company’s sole director. Although the relevant parties did not appreciate it at the time, the law is clear that a person holding a power of attorney cannot exercise a director’s powers on behalf of the director pursuant to the power of attorney.

  1. Secondly, the Company appears at all times to have acted solely as trustee for the Trust. The Administrators seek a direction that they are justified and acting reasonably in proceeding upon that basis.

  1. Thirdly, if all the relevant assets of the Company are trust assets, before the Administrators can properly deal with those assets, they need to either be appointed as receivers of the assets or be granted power to deal with the trust assets. The Administrators seek orders conferring the relevant trust powers on the Company.

  1. Fourthly, the Administrators seek an order that they are justified in paying the costs of administering the Trust and the creditors of the Trust out of the property of the Trust.

  1. Fifthly, in operating the Kingston Hotel business through the Trust, the administrators have inevitably dealt with trust assets. The Administrators seek an order excusing them from any liability for wrongdoing as a result of the use and application of the trust assets.

  1. Finally, the Administrators seek a three-month extension of the convening period for the second meeting of creditors. The primary reason for this is that the most likely person to propose a DOCA, namely Mrs De Fraga, is preoccupied at present with her husband in fighting a grave illness. If no proposal eventuates for a DOCA, the Administrators anticipate requiring some additional time to effect a sale of the Company’s business.

Validation of appointment

  1. A company resolution dated 11 March 2025 appointed the Administrators. Mrs De Fraga signed that resolution. The minutes describe Mrs De Fraga as making a resolution “pursuant to the powers under the enduring power of attorney of Jonathan Christoper De Fraga made on 24 February 2025”. At the time, Mr De Fraga was the company’s sole director.

  1. The Administrators contend that it is in the interests of the creditors for the administration to continue and for the Court to make an order under s 447A of the Corporations Act to address the validity of their appointment.

Legal principles

  1. A director cannot confer the powers or duties of a director on another person by making them their attorney. As Bryson J said in Mancini v Mancini:

The office of director is a personal responsibility and can only be discharged by the person who holds the office. If there is any exception, it must be found in the constitution of the company and in some authorisation there found to act by an alternate or other substitute or delegate. The office of a director is not a property right capable of being exercised by an attorney or other substitute or delegate of the person holding the office.[1]

[1](1999) 17 ACLC 1570 at [30]. See also Twigg v Twigg (No 4) (2020) 147 ACSR 389 at [115] and the cases cited therein.

  1. Section 447A of the Corporations Act confers wide powers on the Court to modify how Part 5.3A of the Corporations Act applies to a particular company. The overriding requirement is that the order “be designed to achieve the objective of Part 5.3A and have a nexus with how Part 5.3A is to operate in relation to the particular company”.[2]

    [2]ReFoodora Australia Pty Ltd (admin apptd) [2018] NSWSC 1426 at [7].

  1. The authorities reveal that s 447A has frequently been invoked to dispel uncertainty about the validity of the appointment of administrators. Indeed, in a similar case to the present where a daughter who held a power of attorney from her infirm parents sought the appointment of administrators to the company of which her parents were directors, Hammerschlag J in Re Kahlefeldt Securities Pty Ltd (admin apptd) validated the appointment of the administrators.[3]

    [3][2022] NSWSC 939.

  1. Where a party seeks an order under s 447A early in the administration to cure any potential defect in the appointment of the administrator, it is relevant to consider:

·the likely insolvency of the company;

·the enquiries the administrators took to confirm the validity of their appointment;

·the potential disruption which may be caused by a future challenge to the validity of the administrator’s appointment;

·the conduct of the directors prior to the appointment;

·any work the administrators have carried out on the assumption that their appointment is valid;

·whether substantial injustice would be caused to any party by the making of the orders; and

·whether making the order is otherwise consistent with the objectives of Part 5.3A of the Corporations Act.[4]

[4]Re Big Village Australia Pty Ltd (admin apptd) [2023] FCA 48 at [33]. See also Re Biometric Identity Systems Pty Ltd (admin apptd) (2019) 139 ACSR 213 at [25].

Analysis

  1. The Administrators consider that the Company is insolvent and is presently subject to a presumption of insolvency under s 459C of the Corporations Act by virtue of its failure to satisfy the statutory demand served by the Deputy Commissioner of Taxation.

  1. At the time of their appointment, the Administrators considered the question of the power of attorney but did not believe it would affect the validity of their appointment. It was only subsequently that legal representatives of the Administrators drew their attention to the potential problem and thereafter, the Administrators acted promptly to initiate the present proceeding.

  1. The Administrators have taken substantive steps in conducting the administration. Primarily, they have continued to operate the Kingston Hotel business and have procured the transfer of the liquor licence. It is likely that any challenge to the validity of their appointment would be disruptive to the business and create further inconvenience and potential loss to creditors.

  1. There is no suggestion of bad faith or improper behaviour in the process which led to the appointment of the Administrators. The evidence supports the view that Mrs De Fraga acted bona fide in seeking to appoint administrators to the Company.

  1. Apart from running the Kingston Hotel business, the Administrators have sought to organise and understand the books of account of the Company and to work on terms for a potential DOCA. The Administrators submit that their actions have been reasonable in the circumstances and should not prevent the Court from making an order pursuant to s 447A.

  1. In making this application, the Administrators served the relevant court documents on all interested parties. This included the Australian Securities and Investments Commission, National Australia Bank as the primary secured creditor, the landlord of the Kingston Hotel premises, and several other secured creditors and unsecured creditors who had submitted proofs of debt in the administration of the Company. None of those parties attended the Court hearing or objected to the application made by the Administrators. In those circumstances, there is no evidence of any, or any substantial, prejudice or injustice which may be suffered by another party as a result of the Court making the orders sought.

  1. The object of Part 5.3A of the Corporations Act is to provide for the business, property and affairs of an insolvent company to be administered in such a way that maximises the chances of the company (or as much as possible of its business) continuing in existence or, if it is not possible for the company or business to continue existing, results in a better return for the company’s creditors and members than would result from an immediate winding up of the company. In my view, the evidence supports the view that the Administrators acted in a way consistent with the objects of Part 5.3A.

  1. Therefore, I have made orders validating the appointment of the Administrators as joint and several voluntary administrators of the Company on 11 March 2025.

Did the Company act solely in its capacity as trustee of the Trust at all times?

  1. The Administrators seek a direction from the Court that they have acted reasonably in proceeding on the basis that:

(a)   the Company carried on business solely in its capacity as trustee of the Trust;

(b)  all assets and undertakings of the Company are properly characterised as property held by the Company in its capacity as trustee of the Trust; and

(c)   all of the creditors of the Company are creditors of the Trust.

  1. This direction is sought in circumstances where the Administrators are of the opinion that the Company operated solely in its capacity as trustee of the Trust at all times. The Administrators submit that this opinion is supported by the following matters:

·the relevant financial statements were produced for the “Trustee for C J Investment Trust”, and a tax return for the financial year ended 30 June 2023 (“FY23”) was submitted on that basis;

·while the Trust has an ABN, the Company’s ABN was cancelled in 2008;

·the registered business name “The Kingston Hotel Richmond” is held by “The Trustee for the CJ Investment Trust”;

·the Trust was established by a trust deed (“Trust Deed”) contemporaneously with the incorporation of the Company ­­— the Company was incorporated on 17 July 2001 and the Trust was established on 19 July 2001; and

·discussions the Administrators and their staff have had with Mrs De Fraga, Broadside Lawyers and the Company’s accountants.

  1. The Company’s lease of the premises from which the Kingston Hotel operates is the only document which the Administrators identified as potentially being inconsistent with the Company acting solely as trustee of the Trust. The lease does not explicitly state that the Company executed the lease in its capacity as trustee of the Trust. Despite this, the Administrators remain of the view that the Company acted solely as trustee of the Trust because: (a) rental payments are recorded as expenses in the Trust’s profit and loss statement and tax return for FY23, and (b) the Trust operates its business from the leased premises.

Legal principles

  1. Section 90-15(1) of the Insolvency Practice Schedule (Corporations)[5] (“IPS”) empowers the Court to make such orders as it thinks fit in relation to the external administration of a company. These include orders “determining any question arising in the external administration of the company”.[6] The Court’s supervisory powers under s 90-15(1) are very broad, and may be used to give directions to administrators. [7]

    [5]Corporations Act 2001 (Cth) sch 2.

    [6]Ibid s 90-15(3)(a).

    [7]Re Halifax Investment Services Pty Ltd (in liq) v Loo (No 8) (2020) 144 ACSR 292 at [50]–[51], quoting Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth (2019) 268 CLR 524 at [166]; Re Union Standard International Group Pty Ltd (admin apptd) (No 2) [2020] FCA 1111 at [8] (“Re Union Standard”).

  1. The prevailing principle is that it will generally only be appropriate for the Court to give a direction under s 90-15 of the IPS where there is a legal issue of substance or procedure in contest, or a question as to the propriety or reasonableness of the administrator’s conduct which calls for the exercise of legal judgment.[8] The Court is to refrain from giving directions relating to the making and implementation of business or commercial decisions “where there is no particular legal issue raised for consideration or attack on the propriety or reasonableness of the decision in respect of which the directions are sought”.[9] The function of such a direction is not to determine rights and liabilities arising out of a particular transaction, but to confer on the administrator protection against claims that they have acted unreasonably or inappropriately in undertaking certain conduct.[10]

    [8]Re Ansett Australia Ltd (No 3) (2002) 115 FCR 409 at [65] (“Ansett”).

    [9]Ibid.

    [10]Re Union Standard (n 7) at [9], quoting Ansett (n 8) at [44].

  1. Cases in which the Court gave a direction in similar terms to that presently being sought include Re Cloud Nine Melbourne Pty Ltd (in liq),[11] Re Old Port Road Pty Ltd (in liq),[12] Re Total Truss Systems Pty Ltd (in liq),[13] Re Pako Supermarkets Pty Ltd (in liq),[14] Re The Pizza Bar (Strathmore) Pty Ltd (admin apptd),[15] and Re Mystique Print Pty Ltd (in liq).[16] 

    [11][2024] VSC 357 at [15].

    [12][2021] FCA 980 at [20] (“Old Port Road”).

    [13](2021) 152 ACSR 323 at [83] (“Total Truss Systems”).

    [14][2020] VSC 487 at [36]–[42] (“Pako Supermarkets”).

    [15][2024] VSC 646 at [41] (“The Pizza Bar”).

    [16][2022] VSC 280 at [30] (“Mystique Print”).

Analysis

  1. I consider that it is appropriate in this case to issue a judicial direction as the direction sought does not relate to a business or commercial decision, but rather an issue requiring the exercise of legal judgment.

  1. Having regard to the matters identified in paragraphs 36 and 37 above, I am satisfied that the Company carried on business in its capacity as trustee of the Trust at all times, that all assets and undertakings of the Company are properly characterised as property held by the Company in its capacity as trustee of the Trust, and that all of the creditors of the Company are creditors of the Trust.

  1. In the overall context, I do not consider that the failure of the lease document to expressly refer to the Trust can overcome the weight of the other evidence and the inherent likelihood that the Company was acting as trustee at the time.

  1. Therefore, I have issued the direction sought in paragraph 35 above.

Conferral of powers on the Company under s 63 of the Trustee Act 1958 (Vic)

  1. The Administrators seek orders conferring on the Company power to deal with Trust assets. Specifically, the Administrators request:

(a) an order under s 63 of the Trustee Act 1958 (Vic) (“Trustee Act”) that there be conferred on the Company the power to do all things necessary and convenient to:

(i)         carry on the business of the Trust;

(ii)       sell the assets of the Trust;

(iii) pay the creditors of the Trust from the proceeds of sale, in accordance with the priorities prescribed under the Corporations Act; and

(iv)      execute any contracts, tax returns, financial statements or other documents relating to the Trust or its assets; and

(b) an order under ss 90-15 and 90-20 of the IPS that the Administrators are justified in relying on their statutory powers under s 437A(1) of the Corporations Act to take all the steps in paragraph (a) above.

Legal principles

  1. A voluntary administrator of a corporate trustee cannot sell trust property without an order of the Court or the appointment of receivers over the trust assets.[17] That is because the trust assets are not property of the trustee. The trustee only has a proprietary interest in the trust assets by way of lien or charge to secure its right of exoneration.[18]  In this case, an “ipso facto” clause in the Trust Deed operates so that, following the appointment of the Administrators, the Company now holds the assets of the trust as a bare trustee only.[19] As bare trustee, the Company holds the property of the Trust “without any interest therein, other than that existing by reason of the office and the legal title as trustee, and without any duty or further duty to perform, except to convey [trust assets] to the beneficiaries or other appropriate parties”.[20]

    [17]Re Brimson Pty Ltd (in liq) (2019) 136 ACSR 649 at [49] (“Re Brimson”); Jones v Matrix Partners Pty Ltd; Re Killarnee Civil & Concrete Contractors Pty Ltd(in liq) (2018) 260 FCR 310 at [44].

    [18]Re Brimson (n 17) at [50].

    [19]Clause 39.2.2.3 of the Trust Deed provides that the trustee is disqualified from holding office if “a receiver or receiver and manager of any of its assets or undertaking or a provisional liquidator administrator, controller or similar officer is appointed”.

    [20]Re Walker’s Brick & Block Pty Ltd (in liq) [2025] FCA 119 at [9].

  1. Additionally, the power of sale contained in s 437A(1)(c) of the Corporations Act does not authorise administrators to sell trust assets.[21]

    [21]As opposed to the trustee’s lien or charge over the asset. See Re Urban Property Melbourne Pty Ltd [2021] VSC 847 at [30] (“Urban Property”).

  1. Therefore, the question for the Court is whether powers should be conferred upon the Administrators pursuant to s 63(1) of the Trustee Act 1958 (Vic) (“Trustee Act”) or whether the Administrators should be appointed receivers pursuant to s 37(1) of the Supreme Court Act 1986 (Vic) (“Supreme Court Act”).

  1. Section 63(1) of the Trustee Act provides:

Where in the management or administration of any property vested in trustees, any sale, lease, mortgage, surrender, release or other disposition, or any purchase, investment, acquisition, expenditure or other transaction, 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 vested in the trustees by the trust instrument (if any) or by law, the Court may by order confer upon the trustees, either generally or in any particular instance, the necessary power for the purpose on such terms and subject to such provisions and conditions (if any) as the Court thinks fit and may direct in what manner any money authorized to be expended, and the costs of any transaction are to be paid or borne as between capital and income.

  1. Section 37(1) of the Supreme Court Act permits the Court to appoint a receiver “if it is just and convenient to do so”.

  1. In Re Urban Property Melbourne Pty Ltd, M Osborne J observed that “[t]here is no bright line about whether the preferable course is to confer power under the Trustee Act or to appoint a receiver under the Supreme Court Act”.[22]

    [22]Ibid at [34]. See also Re Waratah Group Pty Ltd (in liq) [2020] VSC 523 at [41].

  1. In Re Brimson Pty Ltd (in liq), Moshinsky J noted (in relation to liquidators) that the appointment of a receiver is the more common course.[23] However, it may be appropriate to give the liquidator a power of sale in situations where the property of the trust will be exhausted following its sale and subsequent distribution to creditors.[24]

    [23]Re Brimson (n 17) at [50].

    [24]Ibid.

  1. In Re Balsub Pty Ltd (in liq), Anastassiou J indicated that orders under s 63(1) of the Trustee Act would be appropriate where:

(a)   the company has become a bare trustee of the assets of the trust upon the appointment of the liquidator;

(b)  the company had acted only as trustee of the trust and in no other capacity;

(c)   all assets owned by the company were held by it as trustee and all liabilities incurred by it were incurred in its capacity as trustee; and

(d)  no new trustee had been appointed.[25]

[25](2020) 145 ACSR 342 at [25] (“Balsub”), citing Caterpillar Financial Australia Ltd v Ovens Nominees Pty Ltd [2011] FCA 677 at [35]–[36] (“Caterpillar”).

  1. In Caterpillar Financial Australia Ltd v Ovens Nominees Pty Ltd, Gordon J found that it was appropriate for the Court to confer upon the Company the power to sell assets of the Trust under s 63 of the Trustee Act where:

(a)   the Company became a bare trustee of the assets of the Trust immediately upon the winding up of the Company and the appointment of the Liquidator;

(b)  the Company only acted as trustee of the Trust and in no other capacity;

(c)   all assets owned by the Company are held by it as trustee of the Trust and all liabilities incurred by the Company were incurred by it in its capacity as trustee of the Trust; and

(d)  the appointor was unwilling to appoint a new trustee.[26] 

[26]Caterpillar (n 25) at [36].

  1. As a general principle, the purpose for which the Court would appoint a receiver would ultimately be “the protection or preservation of property for the benefit of persons who have an interest in it”.[27] For this reason, courts have considered it appropriate to make an appointment as receiver where, for example, there was a risk that the trustee of the trust might be replaced[28] or where the trustee was in fact replaced.[29]

    [27]Yunghanns v Candoora No 19 Pty Ltd (2000) 35 ACSR 34 at [65], citing Halsbury's Laws of England (4th ed, 1982) vol 39, [827].

    [28]Re Parkway One Pty Ltd (No 2) [2020] NSWSC 191 at [11]; Re Waratah Group Pty Ltd (in liq) [2020] VSC 523 at [49]–[57].

    [29]Michell (Liquidator) v Delltta Holdings Pty Ltd (in liq) [2019] FCA 2133 at [1], [8]–[11].

  1. The Administrators submit that it is generally more efficient for the Court to confer powers on the trustee company to deal with trust assets, and that almost all of the factors that commonly weigh in favour of making an order under the Trustee Act (as opposed to appointing the Administrators as receivers) are present in this case. These factors include:

·the property of the trust will be exhausted following its sale and subsequent distribution to creditors;

·the company has become a bare trustee. It acted only as trustee of the trust and all of its assets and liabilities were held in its capacity as trustee;

·no new trustee has been appointed or is likely to be appointed;[30]

·conferring a power of sale upon the Company is more convenient and cost efficient, including because a court-appointed receiver has obligations to account and must make an application to discharge his or her appointment at its conclusion; and

·there is no risk of confusion as to the capacity in which the relevant appointee acts.

[30]The Administrators note that it appears highly unlikely that any replacement trustee will be appointed and there is no evidence of any threat by any person or unitholder to replace the Company as trustee of the Trust.

  1. The Administrators therefore submit that, in the circumstances, it would be more efficient for the Court to confer powers on the Company to deal with trust assets.

Analysis

  1. Given the facts of this case, the Administrators need proper authority to deal with the trust assets for which they are now responsible. Having regard to the factors enumerated in paragraphs 52 to 56 above and the evidence before me, I am satisfied that it is more appropriate for the Court to make orders giving powers to the Administrators under s 63(1) of the Trustee Act, rather than appointing the Administrators as receivers. In particular, I note that there does not appear to be a risk of the Company being removed as trustee, which is often the predominant reason for appointing an administrator as receiver.

  1. The Administrators also seek an order under s 90-15 of the IPS concerning the exercise of the powers conferred under s 63(1) of the Trustee Act. As orders of this kind are commonly made,[31] I have no difficulty in making the order sought by the Administrators.

    [31]See, eg, Urban Property (n 21) at [46]; Re Montpac Pty Ltd(in liq) (2020) 149 ACSR 138 at [29]–[30] (“Montpac”); Old Port Road (n 12) at [22]–[23]; Total Truss Systems Pty Ltd (in liq) (n 13) at [85], [91]; Pako Supermarkets (n 14) at [57]–[59]; The Pizza Bar (n 15) at [40], [42]–[43]; Mystique Print (n 16) at [27]–[28], [30].

  1. Accordingly, I am content to make the orders sought in paragraph 45 above.

Payment of the Administrators’ costs and creditors of the Trust from the property of the Trust

  1. The Administrators seek an order under ss 90-15 and 90-20 of the IPS that they are justified in paying from the property of the Trust:

(a)   the cost and expenses of administering the Trust (including their remuneration); and

(b)  the creditors of the Trust.

  1. Ordinarily, an administrator’s costs and expenses of administering the trust should be paid out of the company’s non-trust property, where such property is available.[32] However, if non-trust property is not available, the costs of administering the trust, including the administrator’s reasonable remuneration, may be paid out of the trust’s assets.[33] The entitlement of the administrator to be paid out of trust property arises from the trustee’s equitable right of exoneration, which enables a trustee to use trust funds to pay creditors of the trust and discharge debts properly incurred by it in the course of trust business.[34] An administrator may directly claim payment and remuneration and expenses from trust property where the only business of the company is to carry on business as trustee of a trust.[35]

    [32]Montpac (n 31) at [30].

    [33]Ibid, citing Re Bell Hire Services Pty Ltd(in liq) [2016] FCA 1583 at [22]–[23] and Parker v Dengi Pty Ltd (in liq) [2018] FCA 444 at [36]–[37]. See also Balsub (n 25) at [33]–[34]; Re Sanitation Maintenance Services Pty Ltd (admin apptd) [2023] FCA 418 at [31]–[33].

    [34]Re PBS Building (Qld) Pty Ltd [2024] QSC 108 at [82] (“PBS”); Federal Commissioner of Taxation vLane (2020) 283 FCR 448 at [63]; Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth (2019) 268 CLR 524 at [95].

    [35]PBS (n 34) at [89]; Park v Whyte (No 2) (2018) 2 Qd R 413 at [84]–[93].

  1. Given that the Company does not hold any assets in its own right, I consider it appropriate to make the orders sought in paragraph 61 above. In practical terms, if no such order were made, the Administrators would be unable to proceed with the administration of the Company.[36] Additionally, as the only business of the Company is to carry on business as trustee of the Trust, the Administrators may claim payment from trust property directly.

    [36]Balsub (n 25) at [34].

Relief from liability

  1. The Administrators seek an order under s 1318(2) of the Corporations Act and/or s 67 of the Trustee Act that they have acted honestly and ought fairly be excused for any failures, breaches or omissions relating to the administration of the Company and in dealing with the property of the Trust in the period between their appointment and the making of that order.

Legal principles

  1. Pursuant to s 1318 of the Corporations Act, the Court has the power to excuse administrators who inadvertently sell trust assets when they do not have the power to do so.[37]

    [37]Re Simpkiss Pty Ltd (in liq) [2018] FCA 2121 at [46] (“Simpkiss”).

  1. Section 1318 of the Corporations Act provides:

(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.

(2)Where a person to whom this section applies has reason to apprehend that any claim will or might be made against the person in respect of any negligence, default, breach of trust or breach of duty in a capacity as such a person, the person may apply to the Court for relief, and the Court has the same power to relieve the person as it would have had under subsection (1) if it had been a court before which proceedings against the person for negligence, default, breach of trust or breach of duty had been brought.

  1. Section 67 of the Trustee Act provides:

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.

  1. In order for the Administrators to obtain relief under s 1318(2), they must establish that:

(a)   they have reason to apprehend that a claim would, or might, be made against them;

(b)  such a claim is in respect of any negligence, default, breach of trust or breach of duty in their capacity as administrators; and

(c)   they acted honestly in relation thereto.[38]

[38]Ibid at [47].

  1. An administrator will have “reason to apprehend” that a claim might be made against him or her if there is an “objective basis for believing that the claim will or might be made against that person”.[39] The word “might” also requires that “the claim in question is a real, not fanciful or remote possibility”.[40]

    [39]Re Suncoast Restoration Pty Ltd (in liq) (2013) 211 FCR 203 at [31] (“Suncoast”), quoting Re Vouris (2003) 177 FLR 289 at [116].

    [40]Suncoast (n 39) at [30], citing CGU Insurance Ltd v Porthouse (2008) 235 CLR 103 at [64].

  1. Secondly, the apprehended claim must be for “negligence, default, breach of trust or breach of duty”. These words refer to obligations under the general law and do not extend to statutory obligations.[41] A breach of trust under the general law “consists in nothing more nor less than an act by the trustee in contravention of the duties imposed upon him or her by the trust, or an act done in excess of his [or her] powers”.[42] It may be deliberate or inadvertent, and may consist of merely a dealing which is outside the trustee’s powers.[43]

    [41]Suncoast (n 39) at [33], quoting Deputy Commissioner of Taxation v Dick (2007) 242 ALR 152 at [11].

    [42]Suncoast (n 39) at [34], quoting Re Spedding (deceased) [1966] NZLR 447 at 463–4.

    [43]Suncoast (n 39) at [34], citing Armitage v Nurse [1998] Ch 241 at 251.

  1. In Re Suncoast Restoration Pty Ltd (in liq) (“Suncoast”), Reeves J held that the liquidators in that case had reason to apprehend that a claim for breach of trust might be made against them, despite the prospect of this occurring being unlikely.[44] His Honour’s reasoning was as follows:

32.In this case, the factors pertinent to the existence of that objective basis for belief do not all point in one direction. On the one hand, there appears to be a distinct lack of interest in the future of the Trust Fund evidenced by the absence of any move to appoint a replacement trustee to it. Furthermore, the evidence shows that all of the impugned asset sales were undertaken by the joint liquidators at, or above, their assessed market values. These facts tend to indicate that the prospect of a claim being made against the joint liquidators is unlikely. On the other hand, the absence of interest in the future management of the Trust Fund does not necessarily lead to the conclusion that the possibility that a beneficiary of the Fund may decide to pursue a claim against the joint liquidators at some time in the future is fanciful or remote. This conclusion is reinforced by the patent (albeit that adjective is applied after studied and informed hindsight) nature of the joint liquidators’ breach of trust, viz all of the assets sales were undertaken when Suncoast, as a bare trustee of the Trust Fund, had no power of sale. After weighing up these factors, I consider that, in all the circumstances of this case, there is an objective basis for concluding that there is a real, rather than a fanciful or a remote, possibility that a claim might be made against the joint liquidators for their breaches of trust. ...

35.I therefore consider the sales of the Trust Assets by the joint liquidators when Suncoast was a bare trustee, albeit they were done unwittingly and they have not apparently resulted in any loss to the Trust Fund, still constituted breaches of trust by the joint liquidators for the purposes of s 1318(2) of the Act. For these reasons, I consider that the joint liquidators have established that the claim they apprehend might be made against them includes one “in respect of … breach of trust”. This is not to indicate that their conduct may not also result in claims for “default”, or “breach of duty” under the general law.[45]

[44]Suncoast (n 39) at [32], [35].

[45]Ibid.

  1. Similarly, in Re Westside Group Pty Ltd (in liq) (“Westside”), O’Bryan J considered that in circumstances where the sale of assets has occurred in possible breach of trust (due to an absence of power), the prospect of a future claim by a beneficiary of the Trust cannot be ruled out.[46] Therefore, despite there being no evidence that any person had raised a question or concern over the sale of the Trust’s assets, his Honour was satisfied that the liquidator had sufficient reason to apprehend that a claim might be made against him.[47]

    [46][2020] FCA 1586 at [36].

    [47]Ibid. See also Simpkiss (n 37) at [50].

  1. Finally, the Administrators must establish that they acted honestly in the circumstances giving rise to the possible claim. The Administrators’ explanation for why they dealt with the Trust’s assets without holding the requisite power to do so is critical in determining whether this element is satisfied.[48]  

    [48]Ibid at [36].

  1. The above principles concerning s 1318 of the Corporations Act also apply equally to s 67 of the Trustee Act.

Analysis

  1. The Administrators submit that they have operated the Kingston Hotel business since their appointment on 11 March 2025. This has involved dealing with the Trust’s assets while the Company was only a bare trustee of the Trust and where there was a pending winding up application on foot. They acknowledge that while the prospect of a claim being made them is unlikely, that does not mean that a creditor or unitholder will not decide to pursue a claim against the Administrators in the future. Accordingly, they considered it prudent to seek an order under s 1318 of the Corporations Act.

  1. Given that the Administrators have exceeded their powers as a bare trustee by undertaking the sale of the Trust’s assets in the course of trading in the hotel business, there is a real possibility that a creditor or unitholder of the Trust might bring a claim for breach of trust against the Administrators. Following Suncoast and Westside, I consider that the absence of any evidence of a threat of a claim does not eliminate the possibility that such a claim could be brought in the future. Therefore, I am satisfied that the Administrators have an “objective basis” for apprehending that a claim might be made against them arising out of the circumstances of this case.

  1. As to whether the Administrators acted honestly, the Administrators’ evidence is that, at the time of their appointment, they continued trading in the Kingston Hotel business in order to preserve its value for the sale of the business on a “going concern” basis. The business has been trading at a profit since the Administrators’ appointment. In addition to maximising the proceeds of any sale, the continued operation of the business also assisted the Company in meeting all employee obligations during the administration.

  1. It is unclear when the Administrators became aware that they lacked the power to sell the Trust’s assets. The Administrators were appointed on 11 March 2025. On 17 March 2025, Pointon Partners was engaged to provide legal advice in relation to cl 39 of the Trust Deed, which rendered the Company a bare trustee once an administrator was appointed.[49] Presumably, it was at some point after this that the Administrators obtained legal advice and became aware that they lacked the power to sell the Trust’s assets. Evidence as to the Administrators’ knowledge and/or belief at any given time is lacking. However, although the state of knowledge of the administrator (or liquidator) is often a relevant factor,[50] I do not consider the absence of such information to be fatal in this case. That is because, upon discovering the true position, the Administrators acted quickly and diligently to make this application and notified the Company’s creditors of the same. Hence, I am satisfied that the Administrators acted both honestly and reasonably in selling assets of the Trust in the course of operating the Company’s hotel business.

    [49]See n 19 above.

    [50]See, eg, Simpkiss (n 37) at [49], [53]; Suncoast (n 39) at [36].

  1. For the reasons given, I deemed it appropriate to make the declaration sought in paragraph 64 above.

Extension of convening period

  1. The Administrators seek a three-month extension of the convening period. They do so in the following circumstances.

  1. First, the Administrators anticipate that it is in the interests of creditors first to explore a potential DOCA to be proposed by Mrs De Fraga. Given the illness of her husband, it is anticipated that it would take at least a month for her to consider the terms of the DOCA and engage with the process.

  1. Second, the Australian Taxation Office has informed the Administrators that, if a DOCA is to be proposed, it would require the Company to submit outstanding taxation lodgements. Those outstanding lodgements include:

·tax returns for the financial years 2002 to 2008; and

·business activity statements, income tax returns and single touch payroll finalisation declarations for the 2025 financial year.

  1. Third, in the event that Mrs De Fraga does not propose a DOCA, or its terms are unacceptable, the Administrators anticipate that it will be necessary to conduct a sale campaign. The Administrators submit that it is in the interests of creditors for the sale to occur during the administration because of the availability of a potential DOCA to structure any such sale. The Administrators estimate that the sale process would require at least 12 weeks.

  1. Fourth, the Administrators anticipate that they will also require further time to undertake their investigations into the affairs of the Company in order to produce a satisfactory report to creditors.

  1. Fifth, any extension is unlikely to prejudice employees because the Administrators are continuing to profitably operate the hotel business. They anticipate that all employee obligations will be met during the course of the administration, and that it will be in the interests of employees for a DOCA or sale of the business to occur in order to maximise the prospect of their employment continuing.

  1. Thus, the Administrators submit that a three-month extension of the convening period is in the interests of creditors and will maximise the chances of the Company, or as much as possible of its business, continuing in existence. It says that an extension of this length is modest, is appropriate given the complexity of the administration, and facilitates the objects of Part 5.3A of the Corporations Act.

Legal principles

  1. Section 439A(1) of the Corporations Act requires the Administrators to convene a meeting of the Company’s creditors within the convening period, as fixed by s 439(5). Under ss 439A(6) and 447A, the Court may extend the convening period.

  1. In deciding whether to extend the convening period, the Court must have regard to the objects of Part 5.3A, which seek to maximise the chance of the Company or as much as possible of its business continuing in existence, or if that is not possible, to achieve a better return for the Company’s creditors and members than would result from an immediate winding up.[51] At the same time, Part 5.3A was introduced by the legislature with “the objective of speed of administration” and the expectation that “the power to extend the period would be exercised infrequently”.[52] Thus, the function of the Court is to

balance the expectation that administration will be a relatively speedy and summary matter against the consideration that undue speed should not be allowed to prejudice constructive commercial actions directed to maximising the return for creditors and potential return to shareholders.[53]

[51]Re NewSat Ltd (admin apptd) (rec and mgr apptd) [2015] FCA 435 at [58] (“NewSat”).

[52]Re Austcorp Group Ltd (admin apptd) [2009] FCA 636 at [18(a)] (“Austcorp”).

[53]NewSat (n 51) at [59]. See also ibid at [18(b)]; Re B K Chemists Pty Ltd (admin apptd) [2020] FCA 418 at [26]; Re Virgin Australia Holdings Ltd (admin apptd) (No 2) (2020) 144 ACSR 347 at [64] (“Virgin Australia”).

  1. In the present case, the following factors are relevant for consideration:[54]

    [54]For a comprehensive list of the factors which have been considered by the courts, see NewSat (n 51) at [60]–[66]; Re Riviera Group Pty Ltd (admin apptd) (rec and mgr apptd) (2009) 72 ACSR 352 at [13] (“Riviera”); Virgin Australia (n 53) at [65]–[66]; Austcorp (n 52) at [18].

·where a DOCA has been proposed, whether an extension is necessary to give the administrator sufficient time to investigate the affairs of the company under administration and inform creditors adequately so that they can decide whether to the terminate the administration, execute a DOCA or place the company in liquidation;[55]

·more generally, whether additional time is likely to enhance the return for creditors;[56]

·the level of co-operation of the company’s officers or employees in providing useful and timely information to the administrator to facilitate their investigations;[57]

·the time needed for a thorough assessment of a proposal for a deed of company arrangement to enable the company to trade out or to restructure its affairs;[58]

·whether the extension will enhance the prospects of the sale of the business as a going concern;[59]

·whether there is evidence of any prejudice that might arise to any interested party were the extension to be granted;[60] and

·whether any interested party has objected to the extension.[61]

[55]NewSat (n 51) at [61]; Austcorp (n 52) at [18].

[56]NewSat (n 51) at [65].

[57]Ibid at [63].

[58]Ibid.

[59]Ibid.

[60]Ibid at [66].

[61]Ibid.

  1. The cases show that where a substantial issue arises in any one or more of these categories, courts are usually prepared to granted the extension sought.[62]

    [62]Ibid at [64]; Riviera (n 54) at [14].

Analysis

  1. In the circumstances, a three-month extension of the convening period would facilitate both the proper preparation and evaluation of any proposed DOCA, as well as the potential sale of the business as a going concern. Further, there is no evidence of prejudice to any interested party if the extension is granted, and no objection has been raised. Therefore, I am satisfied that the Court should grant the Administrators a three-month extension of the convening period.

Confidentiality order

  1. Given Mr De Fraga’s current situation, including his illness, I consider it appropriate to make a confidentiality order regarding his medical condition.

Orders

  1. On 3 April 2025, I made the following orders:

1.Pursuant to section 439A(6) of the Corporations Act 2001 (Cth) (“CorporationsAct”), the period within which the Administrators must convene the second meeting of creditors of the third plaintiff (“Company”) under section 439A of the Corporations Act be extended to 11:59 pm on 15 July 2025.

2.Pursuant to section 447A(1) of the Corporations Act, Part 5.3A of that Act is to operate in relation to the Company as if the second meeting of creditors under section 439A of that Act may be held at any time during the period up to, or within 5 business days after the end of, the convening period as extended by order 1 above.

  1. On 4 April 2025, I made the balance of the orders sought, as set out below:

1.Pursuant to section 447A(1) of the Corporations Act 2001 (Cth) (“Corporations Act”), Part 5.3A of that Act is to operate in relation to the third plaintiff (“Company”) as if the resolution purportedly passed on 11 March 2025 as a resolution of the Company’s director was valid for the purposes of section 436A of the Corporations Act with the effect that the first and second plaintiffs (“Administrators”) were validly appointed as joint and several voluntary administrators of the Company on 11 March 2025.

2.The Administrators are justified and acting reasonably in proceeding on the basis that:

(a)the Company carried on business solely in its capacity as trustee of the C J Investment Trust (ABN 41 010 083 196) (“Trust”);

(b)all assets and undertakings of the Company are properly characterised as property held by the Company in its capacity as trustee of the Trust; and

(c)all of the creditors of the Company are creditors of the Trust.

3.Pursuant to section 63 of the Trustee Act 1958 (Vic) (“Trustee Act”), there be conferred on the Company the power to do all things necessary and convenient to:

(a)carry on the business of the Trust;

(b)sell the assets of the Trust;

(c)pay the creditors of the Trust from the proceeds of sale, in accordance with the priorities prescribed under the Corporations Act; and

(d)execute any contracts, tax returns, financial statements or other documents relating to the Trust or its assets.

4.The Administrators are justified:

(a)in relying on their statutory powers under section 437A(1) of the Corporations Act to take all the steps in order 3 above; and

(b)in paying from the property of the Trust:

(i)the cost and expenses of administering the Trust (including their remuneration); and

(ii)the creditors of the Trust.

5.Pursuant to section 1318 of the Corporations Act and section 67 of the Trustee Act, the Administrators have acted honestly and ought fairly be excused for any breaches, failures or omissions relating to the administration of the Company and in dealing with the property of the Trust in the period between their appointment and the making of these orders.

6.The costs, expenses and remuneration incurred by the Administrators as voluntary administrators of the Company and in administering the Trust, including the costs of this application, be paid in priority from the property of the Trust.

7.Pursuant to rule 28.05(4) of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) and subject to further order of the Court, the document that is confidential exhibit DPJ-2 to the affidavit of Daniel Peter Juratowitch sworn on 31 March 2025 is confidential and must not be published or made available to any persons except to the parties in the proceeding, their legal representatives and any counsel briefed by them and to the Court.

8.There be liberty to apply generally to the plaintiffs and to any person who can demonstrate sufficient interest to apply, on not less than 48 hours’ written notice to the plaintiffs, to modify or discharge orders 1 to 7 above and the orders of the Honourable Justice Cosgrave made on 3 April 2025.

9.The costs of the application otherwise be costs in the administration of the Company.


Actions
Download as PDF Download as Word Document
Cases Citing This Decision

0