Simpson v Tropical Hire Pty Ltd (in liq)

[2017] QCA 274

SUPREME COURT OF QUEENSLAND

CITATION:

Simpson & Anor v Tropical Hire Pty Ltd (in liq) [2017] QCA 274

PARTIES:

SANDE PALGRAVE SIMPSON
(first appellant)
KAREN SIMPSON
(second appellant)
v
TROPICAL HIRE PTY LTD (in liquidation)
(respondent)

FILE NO/S:

Appeal No 397 of 2017
DC No 216 of 2016

DIVISION:

Court of Appeal

PROCEEDING:

General Civil Appeal

ORIGINATING COURT:

District Court at Townsville – Unreported, 2 December 2016 (Baulch SC DCJ)

DELIVERED ON:

10 November 2017

DELIVERED AT:

Brisbane

HEARING DATE:

17 August 2017

JUDGES:

Sofronoff P and McMurdo JA and Boddice J

ORDERS:

1.   Allow the appeal.

2.   Set aside the orders made by the trial judge on 2 December 2016.

3.   Declare that any entitlement of the company to be paid money by Investors Central Pty Ltd was an entitlement held by the company solely as a trustee.

4.   Order the respondent to pay to the appellants their costs of the proceeding in the District Court and of this appeal.

CATCHWORDS:

CORPORATIONS – WINDING UP – CONDUCT AND INCIDENTS OF WINDING UP – AVOIDANCE OF DISPOSITIONS OF PROPERTY – TERMINOLOGY – OTHER TERMS – where the appellants caused to be paid, from a bank account in their names, $250,000 to an investment company by way of unsecured loan – where the transaction document recorded the lender as the respondent company – where the respondent company was ordered to be wound up in insolvency – where, subsequent to the winding up, the first appellant directed the investment company to pay out the funds to the second appellant – where the liquidator claimed that the payout was a void disposition according to s 468(1) of the Corporations Act 2001 (Cth) – where the appellants claimed that the investment was made by the respondent company as trustee of their family trust – whether a trust existed – where a trust was found to exist – whether the disposition of the legal title in trust property is a disposition of property for the purposes of s 468(1) – whether the disposition of a trustee’s lien over trust assets is a disposition of property for the purposes of s 468(1) – where, for the purposes of this judgment, it was assumed that the disposition of legal title in trust property is void by the operation of s 468(1) – where there was no basis for a claim that the trust property should be available in the winding up, and consequently there could be no basis for the company resisting an order that it hand over the property – whether there was any basis for requiring the appellants to restore the trust property to the company

Corporations Act 2001 (Cth), s 468

Ng v Van Der Welde [2011] FCAFC 35, considered
Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360; [1979] HCA 61, considered
Palette Shoes Pty Ltd v Krohn (1937) 58 CLR 1; [1937] HCA 37, considered
Re Androma Pty Ltd [1987] 2 Qd R 134, considered
Re Margart Pty Ltd (in liq); Hamilton v Westpac Banking Corporation (1984) 79 FLR 330, considered
Wiley v Commonwealth of Australia (1995) 131 ALR 712; [1995] FCA 1575, considered
Wily v Commonwealth (1996) 66 FCR 206; [1996] FCA 1435, considered

COUNSEL:

L D Bowden for the appellants
K C Fleming QC for the respondent

SOLICITORS:

1Legal for the appellants
Connolly Suthers Lawyers for the respondent

1. SOFRONOFF P:  I agree with the reasons of McMurdo JA and with the orders his Honour proposes.

2. McMURDO JA:  In May 2013, the appellants caused to be paid, from a bank account in their names, an amount of $250,000 to a company called Investors Central Pty Ltd.  The payment was an unsecured loan to the payee, to be repaid after three years with monthly interest.  The transaction was recorded by a document called an Application Form.  It recorded the lender as the respondent company, which is now in liquidation, but which was then under the control of the first appellant, Mr Simpson, as its only director and shareholder.

3. On 28 February 2014, the company was ordered to be wound up on the insolvency ground.  On 27 February 2015, Mr Simpson directed Investors Central to “cancel” the investment and to “transfer” the funds invested to a bank account in the name of the second appellant, Ms Simpson.  On the same day, Investor Central made the payment as requested.

4. The company, by its liquidator, claimed that the payment to Ms Simpson was a disposition of property of the company which was made after the commencement of the winding up, so that it was a void disposition according to s 468(1) of the Corporations Act 2001 (Cth). The appellants’ response was that this had been an investment made by the company in 2013 as the trustee of their family trust. They said that the company having been only a trustee for the investment, and having ceased to be the trustee, had no entitlement to the funds from the appellants.

5. Section 468(1) is as follows:

   “Any disposition of property of the company, other than an exempt disposition, made after the commencement of the winding up by the Court is, unless the Court otherwise orders, void.”

6. In July 2016, the company filed an originating application in the trial division, to which the respondents were Mr and Ms Simpson.  There was a claim for a declaration that the payment of $250,000 made by Investors Central was void by the operation of s 468(1).  There was a further claim for a mandatory injunction requiring them to pay to the company that amount together with interest.  On the return date (28 July 2016), North J considered that the case should be remitted to the District Court and so ordered.

7. The case then came before Wall QC DCJ.  It soon emerged that there was a substantial issue of fact, or perhaps of fact and law, as to whether the investment had been made by the company as a trustee.  For the company, it was then argued that regardless of the answer to that question, there had been a void disposition according to s 468(1) and the Court should make the orders sought by the originating application, leaving it for the liquidator to determine whether there was a trust and to deal with the monies accordingly.  After hearing submissions but not evidence, Wall QC DCJ made these orders:

   “1.It is declared that the investment of the Applicant with Investors Central Pty Ltd in the amount of $250,000 made in or about May 2013 was “property” of the Applicant within the meaning of Section 468 of the Corporations Act 2001 (“the Act”).

   2.It is declared that the payment of $250,000 on 27 February 2015 by Investors Central Pty Ltd to the second named Respondent KAREN SIMPSON is void by virtue of the provisions of Section 468 of the Act.

   3.There is to be a trial of the issue as to whether or not the Applicant held that property as trustee for the Simpson Family Trust.”

8. On 18 November last, there was the trial of that issue as ordered by Wall QC DCJ.  In an unreported judgment, given on 2 December, Baulch SC DCJ held that the investment had not been made by the company as a trustee.  He ordered that both appellants pay to the company the sum of $250,000 together with $56,643.77 for interest.  He further ordered that they pay the costs of and incidental to the proceeding, to be assessed on the indemnity basis.

9. This is an appeal against those orders.  The principal ground of the appeal is that the property in question was owned by the company as a trustee and that, on that basis, they should not have been ordered to pay any sum to the company.  For the reasons that follow, those grounds are established.  I would allow the appeal and set aside the orders which were made.

   The facts

10. On 17 November 2016 (which was the day before the trial of this case), the same judge tried a related proceeding, in which the company claimed equitable compensation from Mr Simpson for alleged breaches of his duties as a director of the company.  The judgment in that case was given at the same time as the judgment in the present case.  The facts of that case are relevant also to the present one.[1]

    [1]They are detailed in the judgment of Boddice J, with which I agree, in the dismissal of Mr Simpson’s appeal in that other case.

11. The company was incorporated in 2006.  The company conducted a successful business until it was sold in May 2009.  The company received the sale proceeds, totalling in excess of $900,000, over three payments in 2009, 2010 and 2011.  The proceeds were distributed by payments by the company to Mr and Ms Simpson in 2012 and 2013.

12. Unfortunately, when those payments were made to Mr and Ms Simpson, the company had not complied with its responsibilities under the revenue laws.  In particular, it had not lodged business activity statements.  By distributing the proceeds of sale, the company was left without sufficient funds to pay its likely debts to the Australian Taxation Office (ATO).  Ultimately, the ATO issued a statutory demand, which was not met, and on its application, the company was wound up.

13. In that other case, Baulch SC DCJ found that Mr Simpson had breached his duties which he owed under the general law to the company as its director, by paying away the proceeds of sale when he knew or ought to have known that they might be required to discharge liabilities to the ATO.  He gave judgment for the company against Mr Simpson in the sum of $291,661.82 together with interest of $66,083.29.  He dismissed Mr Simpson’s third party claim against his accountants, against whom he had claimed that by their fault, he had been unaware of the extent of the company’s likely debts to the ATO.  One of those third parties was Mr O’Connor, who was a material witness in the case which is the subject of the present appeal.

14. After its business was sold, the company did not trade.  As the company pleaded in that other case, the business which the company had sold had been its only significant asset.[2]  That allegation was not substantially disputed.  But Mr Simpson alleged that he was always willing and able to support the company, so that it was not insolvent and he had not breached his duties by causing the company to distribute the sale proceeds.  Importantly, in that other case, there was no claim for a tracing remedy against the sale proceeds in the hands of Mr Simpson.  Instead, the claim was for equitable compensation.

    [2]Third Amended Statement of Claim filed 17 November 2016, paragraphs 9, 13 and 15.

15. In his reasons for judgment in the present case, the trial judge listed the affidavits upon which the parties relied.  The appellants relied upon two affidavits by Mr Simpson[3] and an affidavit of Mr O’Connor.[4]

    [3]Filed on 27 July and 30 September 2016.

    [4]Filed on 30 September 2016.

16. In Mr Simpson’s second affidavit, he gave this evidence.  In April or May of 2013, he asked Mr O’Connor, the company’s accountant and also his personal accountant, for investment advice.  He and Ms Simpson then had more than $400,000 in a mortgage offset account which could be used for an investment.  Mr O’Connor gave him a prospectus issued by Investors Central.  The appellants decided to invest $250,000 with Investors Central and asked Mr O’Connor to help them to do so.  Mr O’Connor advised that the investment should not be in their names “because of the tax consequences”.  He recommended that they establish a family trust.  He said that as the company was no longer trading, the company could be used as the trustee and they would not have to establish a new company.  Mr O’Connor prepared documents to establish the trust, including a trust deed which was signed by Mr Simpson and Mr O’Connor on 1 May 2013.  A copy of that trust deed was exhibited to Mr Simpson’s affidavit.  Another copy was exhibited to Mr O’Connor’s affidavit.  At the trial, there was no challenge to the fact that the trust deed was then executed.[5]  Rather, the issue was whether the subject investment was an asset of that trust.

    [5]Transcript 1 – 47 l9.

17. In the same affidavit, Mr Simpson said that with Mr O’Connor, he completed the application form for the investment.  He was content to insert the account number of the company’s bank account because the company was no longer trading.  He said that the funds used in the investment were not the funds of the company.  In that respect, he exhibited to his affidavit copies of the company’s bank statements, which showed that the company did not have monies from which this investment could have been made.  He said that the money for the investment came from a mortgage offset account in the names of the appellants.  He recalled going to his bank and arranging for an electronic transfer of an amount of $250,000 from this account to Investors Central.  Exhibited to his affidavit was a copy of the bank statement for that offset account, showing a debit to the account on 15 May 2013 in the sum of $250,028.  (There was a bank fee of $28 for the transaction.)

18. Mr O’Connor’s affidavit evidence was as follows.  In early 2013, Mr Simpson told him that the appellants had decided to invest $250,000 with that entity.  Mr O’Connor advised him against making the investment in their names and suggested that the company be used as the trustee of a trust, through which the investment would be made.  Mr O’Connor recommended that the company’s bank account be used for the trust, because the company was no longer trading.  Mr O’Connor prepared a trust deed for what became named as the Simpson Family Trust.  He recalled that Mr Simpson came to his office on or about 1 May 2013, to sign the trust deed, and that he then gave Mr Simpson a $10 note as payment for the settlement sum.  In or about May 2013, Mr Simpson completed the application form for Investors Central in Mr O’Connor’s presence at his office.  Mr O’Connor also signed the application as the company’s accountant.

19. Plainly, the application form recorded an investment by the company.  Mr O’Connor signed a section of the Application Form, in which he stated that the Applicant was known to him and had “either personally or in conjunction with a company or trust controlled by the Applicant … a gross income for each of the last two financial years of at least $250,000 a year.”  In another section, signed by Mr Simpson, a similar statement was made about the company’s earnings over the last two financial years.

20. In January 2015, Mr Simpson inquired of Investors Central as to whether the investment could be redeemed.  He was told that it could be redeemed before the expiry of the three year term and the funds could be paid to a bank account nominated by the company.  On 27 February 2015, Mr Simpson emailed an employee of Investors Central, directing it to pay the funds invested to an account in the name of Ms Simpson.  He said to that person that he proposed to make a re-investment “under another entity”.  He said that there would in fact be two investments, one to be made by his superannuation fund and “one as individuals”.  On the same day, the sum of $250,000 was electronically transferred by Investors Central to an account of Ms Simpson.

21. In the company’s case, there was an affidavit by the liquidator, Mr Offermans.  The affidavit exhibited a copy of the investment application and pointed out that it contained a specification of the company’s bank account details.  Mr Offermans said only this about the origin of the funds which were invested:

    “7.I believe that the Investment was made with funds of the Applicant company.

    8.The Investment was property of the Applicant company.”

    The judgment of the trial judge

22. His Honour rejected the evidence of Mr Simpson and Mr O’Connor.  He said that their evidence was unsupported by a single document.  He said that it was notable that Ms Simpson had not given evidence, which was “a significant obstacle to the making of findings that the respondent (sic) wishes me to make, that the property was in fact trust property.”  He noted that Ms Simpson had provided some written submissions, but said that “[i]t was obvious that she was quite out of her depth and did not understand what the difference is between property that is personal property and property that is the property of the trust.”

23. The judge accepted the evidence of Mr Offermans and also that of a Ms Hennessey, an employee of Mr Offermans’s firm,  “that they encountered significant difficulty obtaining detail of the investment from Mr Simpson and Mr O’Connor” and that “in the early stages of the liquidation”, Mr Simpson and Mr O’Connor did not suggest that the funds were trust funds.  The judge inferred that they had attempted to hide the investment from the liquidator.

24. His Honour noted that there was no tax file number or an ABN number for “this alleged trust”, and that there was never a bank account which was opened for it.

25. His Honour concluded as follows:

    “What is not demonstrated is that the property, the subject of this application was ever held on trust …. [A]bsent any mention of a trust in respect of the making of the investment within Investors Central Proprietary Limited or the payment out of the funds to Mrs Simpson, I cannot be satisfied that the funds were trust funds.

    My conclusion on this matter does not really depend upon the onus of proof.  If it were necessary to do so, I would conclude affirmatively that it has been proved that the funds the subject of this application were not at any time trust funds.”

26. Although the funds had been paid only to Ms Simpson, both appellants were ordered to restore that amount (with interest) to the company.

27. In my respectful opinion, the judge was wrong to say that there was not a single document that independently supported the evidence of Mr Simpson and Mr O’Connor.  There was the trust deed itself, the authenticity of which was not challenged in the cross examination of either of those witnesses.  Of course, it was another thing to say that this investment was an asset of that trust; but the existence of the trust, and its creation at effectively the same time as the investment was made, was independent support for their evidence.

28. Further and most importantly, there was the documentary evidence of the source of the funds which were paid to Investors Central.  There was the bank statement for the appellants’ offset account, showing the debit of $250,028 on 15 May 2013.  On the face of that document, this was not the company’s money.  And there was nothing to indicate that the appellants had lent this sum to the company, so that the company might invest it.  The company’s case was built only upon the liquidator’s evidence that he believed that the investment was made with company funds.  But the basis for that belief was not revealed.

29. In the cross-examination of Mr Simpson, it was suggested that the money in the offset account of the appellants “was actually money owned by the company which [Mr Simpson] had taken out of the company’s account.”  The basis for that suggestion was not explained by the cross-examiner.  The trial judge made no finding about that suggestion.  The suggestion needed to be seen in the context of the two cases which the company had brought.  In the other case, the company’s claim was that Mr Simpson, in breach of his duty as a director, had paid away the company’s cash to himself.  There was no allegation in that case that he had stolen the funds or that in some other way, they had remained the company’s funds in his hands.  The claim in the other case was not for the return of monies as the property of the company.  Rather the claim was that the company was worse off, because it no longer had any property, so it should be compensated for its loss.

30. Therefore, consistently with the other case which was brought by the liquidator for the company, the funds in the bank account of the appellants, from which this investment was made, were not the property of the company.  And that was the position, even without regard to the other case.  The theoretical possibilities were that the funds had been distributed to him as dividends or that they had been lent to him by the company.  Only the former was indicated by the evidence.  But either way, the funds, once paid by the company, were not its property.

1. Therefore, there was ample documentary support for the evidence of Mr Simpson and Mr O’Connor.  Against that evidence was the fact that the Application Form was completed without identifying the Simpson Family Trust, or any other trust, upon which the investment would be held.  That was relevant, but it was insufficient to displace the effect of the contemporaneous constitution of the Simpson Family Trust and the fact that it was not the company’s money which was used for the investment.  The trial judge ought to have concluded that this was an investment made by the company as a trustee.

2. In this Court, it is submitted that the trust instrument was not duly executed as a deed and that this precluded a finding of the existence of a trust. It may be accepted that the deed was not executed according to the requirements of s 45 of the Property Law Act 1974 (Qld), because the signatures of Mr O’Connor (as the settlor) and Mr Simpson (on behalf of the trustee) were not witnessed. But that did not preclude the existence of a trust. A deed, or even any writing, was unnecessary for the creation of a trust: a declaration of trust in personalty may be made orally.[6]

   [6]Jacobs’ Law of Trusts in Australia (8^th Edition) [7-05].

3. Consequently, the declaration that “the funds invested by Mr Simpson with Investors Central and subsequently paid out by that company to Mrs Simpson, were not trust funds”, should not have been made.  Instead, it should be declared that any entitlement of the company to be paid by Investors Central was held by the company only as a trustee.

4. The question then is whether the order that the respondents pay to the company the sum of $250,000 (and interest) should be set aside.  For the company, it is argued that the order should stand, to the end that the liquidator would then apply those funds according to law.  The Court has received extensive supplementary written submissions in support of that contention, where it is suggested that if the company did hold this investment as a trustee, it may have incurred debts in that capacity, for which it would be entitled to indemnification from the trust assets to discharge those debts.  Therefore, it is said, the company ought to have the protection which is provided by having the trust funds in its hands.  There is no contention, this being trust property, that it can be applied for the payment of creditors other than those whose debts were incurred by the company as a trustee.

   Section 468(1)

5. In Wiley v Commonwealth of Australia,[7] the question was whether payments made by a receiver, who had been appointed by the holder of a fixed charge, were dispositions of property of the company under s 468 of the Corporations Law, which was in relevantly identical terms to s 468 of the Corporations Act.  According to the terms of the deeds of charge, the receiver acted as the agent of the company, not of the chargees.  Because the charge had already fixed, the property from which the payments had been made was property in which the chargee had the beneficial interest.  At first instance, Lockhart J held that:[8]

   “[S]ection 468 is directed to dispositions of property of the company in which it has a beneficial interest and to the extent of that interest.”

   Therefore, he held, the payments did not constitute dispositions of property within the meaning of s 468(1) of the Corporations Law.

   [7](1995) 131 ALR 712.

   [8](1995) 131 ALR 712 at 719.

6. An appeal against that judgment was dismissed in Wily v Commonwealth.[9]  The principal judgment was given by Lindgren J, who agreed with the proposition from Lockhart J’s judgment which I have just set out.[10]

   [9]Wily v Commonwealth (1996) 66 FCR 206 (Sheppard, Lindgren JJ agreeing, Sackville J dissenting).

   [10](1996) 66 FCR 206 at 223.

7. Lindgren J and, in a concurring judgment, Sheppard J, referred to the judgment of Helsham CJ in Eq in Re Margart Pty Ltd (in liq); Hamilton v Westpac Banking Corporation,[11] and in particular with this statement:[12]

   “I take the view that the phrase ‘any disposition of the property of the company’ in the context of s 368[13] relates to something done with property that the company is free to deal with.  I do not think that there is a disposal of the property of the company when there is a dealing by someone who is really someone other than the company and who has the right to say how it is to be dealt with, and whatever interest the company has in the property gives it no control of management over the property nor power to interfere.”

   [11](1984) 79 FLR 330.

   [12](1984) 79 FLR 330 at 336.

   [13]Section 368 of the Companies (NSW) Code, which was the corresponding provision to s 468 of the Corporations Act.

8. In the present case, it is submitted for the company that the position of a secured creditor is relevantly different from that of a beneficiary under a trust, because the beneficiary has no right to say how trust property is to be dealt with by the trustee.  In reliance upon the above passage in Re Margart Pty Ltd (in liq), the submission is that Mr Simpson had no “right to say how [the trust property] is to be dealt with”, with the consequence that the case is not within exception to the operation of the section which Helsham J identified.  However, in Wily Lindgren J preferred the proposition expressed by Lockhart J to what he described as the “broader proposition of Helsham J in Margart”, which he noted “was not expressed by reference to a notion of ‘beneficial proprietary interests’ of the company …”[14].  In Lindgren J’s view, it was the fact that the chargee, and not the company, held the beneficial interest of the relevant property which precluded the operation of s 468(1).  Lindgren J expressed his conclusion in this way:[15]

   “In my view, because no beneficial interest of [the company] in the sense of an interest which would have been available in the winding up of [the company], was disposed of, s 468(1) does not apply.”

   [14](1996) 66 FCR 206 at 223.

   [15](1996) 66 FCR 206 at 225.

9. For the company, it is argued that trust property is nevertheless property of the company.  The submission cites a passage from the judgment of the Full Court of the Federal Court in Ng v Van Der Welde.[16]In that case, the primary judge found that there had been a disposition of the property of the company, which was void under s 468(1) of the Corporations Act, by a transfer of property as a distribution of trust property to a beneficiary by the trustee in accordance with the trust deed.  The Full Court (Dowsett, Edmonds and Gordon JJ) said that:[17]

   “[Section] 468 strikes at all dispositions, even if they are otherwise lawful.  His Honour proceeded on the basis that the transfer lodged and registered … was a disposition for the purposes of s 468.  The registration of the transfer undoubtedly effected a disposition of [the company’s] legal title and of the benefit of the trustee’s lien.  As such disposition occurred after the commencement of the winding up, it was void.  That finding does not necessarily exclude persons having claims against [the company] as trustee from asserting them in the winding up.  Despite her assertions to the contrary, prior to the alleged distribution to her, Ms Ng was not presently entitled to any benefit under the trust deed other than in the discretion of the trustee.”

   [16][2011] FCAFC 35.

   [17][2011] FCAFC 35 [51].

10. The expression “property of the company” in s 468(1) is not defined. In s 9 of the Corporations Act, the word “property” is defined to mean “any legal or equitable estate of interest (whether present or future and whether vested or contingent) in real or personal property of any description and includes a thing in action...”.  That definition would apply to s 468(1) unless a contrary intention appears.  In Wily, Lockhart J and a majority of the Full Court discerned a contrary intention; but the more recent decision of that court in Ng v Van der Welde seems to suggest otherwise, a view which has some support in the judgment of McPherson J (as he then was) in Re Androma Pty Ltd.[18]McPherson J, referring to the then s 368(1) of the Companies Code (Qld),[19] said that:

    “It may be not literally correct to regard s 368(1) as operating only upon dispositions of beneficial interests in company property.  The word “property” in this sub-section is not qualified.”

    [18][1987] 2 Qd R 134 at 146.

    [19]Which read: “Any disposition of property of the company, other than a disposition made by the liquidator pursuant to a power conferred on him by this Code or by an order of the Court made after the commencement of the winding up by the Court is, unless the Court otherwise orders, void.”

11. However McPherson J continued:[20]

    “But if upon winding up the beneficial ownership of an asset is vested not in the company but elsewhere, the company is to that extent a trustee and the liquidator cannot, other than perhaps in exceptional cases, insist upon retaining legal title to that asset for the purpose of the winding up…In those circumstances, if the liquidator proved unco-operative, an order under s 368(2) validating any necessary disposition of legal title in favour of the beneficial owner would follow almost as a matter of course. If to achieve that result litigation became necessary, leave to proceed might confidently be expected. The prohibition imposed by s 371(2) of the Code upon proceedings against a company in liquidation has in practice consistently been waived in favour of claims by beneficial owners of a property where no more than a legal title remains in the company…”

    (footnotes omitted)

    [20][1987] 2 Qd R 134 at 146-147.

12. McPherson J then cited Palette Shoes Pty Ltd v Krohn,[21] where Latham CJ said that monies held by a company in trust cannot be dealt with by the liquidator as assets of the company.  McPherson J said that in a case where the liquidator cannot insist upon retaining legal title to an asset which it held as trustee, an order “validating any necessary disposition of legal title in favour of the beneficial owner would follow almost as a matter of course.”[22]  He concluded as follows:[23]

    “In a practical sense, therefore, s 368(1) may be regarded as affecting only a disposition of a beneficial interest in company property.”

    [21](1937) 58 CLR 1, 12.

    [22][1987] 2 Qd R 134, 146-147.

    [23][1987] 2 Qd R 134, 147.

13. For the purposes of this appeal I will assume, without deciding the matter, that s 468(1) did apply so as to make void the disposition of the company’s legal property in the investment, which was effected by the debt being repaid by Investors Central to Ms Simpson.  Nevertheless, that was property which, subject to the matter about to be discussed, could not have been used by the liquidator as an asset for the purpose of the winding up.  It was property which the company could have been compelled to hand over in favour of, or at the direction of, a new trustee, if not the beneficiaries.  The question then is whether there was anything which could have justified the retention of the property by the company and which, in turn, could justify the order for the payment to the company which the trial judge made.

14. The position of an insolvent trustee was considered by the High Court in Octavo Investments Pty Ltd v Knight,[24] in which the principles were stated by Stephen, Mason, Aicken and Wilson JJ.[25]  A trustee is personally liable for any debts incurred as a trustee.  The trustee is entitled to be indemnified, from the trust assets, against liabilities which are so incurred.  In the case of an insolvent trustee, there are two classes of persons having a beneficial interest in the trust assets: the beneficiaries under the trust, for whom the trust business was carried on and the trustee in respect of his right to be indemnified out of the trust assets against personal liabilities incurred in the performance of the trust.  The latter interest will be preferred to the former, so that the beneficiaries under the trust are not entitled to call for a distribution of trust assets which are subject to the trustee’s charge or lien over the trust funds, to secure that right of indemnity, until that charge has been satisfied.

    [24](1979) 144 CLR 360.

    [25](1979) 144 CLR 360 at 367.

15. Consequently, in theory, in this case the company could have had a beneficial interest in the investment to the extent that the company was entitled to be indemnified against undischarged liabilities which it had incurred from this trusteeship.  Such a beneficial interest would have made this property, consistently with Wily v Commonwealth, property of the company within s 468(1).  But there is no evidence that the company incurred any debts as a trustee and therefore there is no evidence that it held any beneficial interest, of the kind described in Octavo Investments, in the trust property.  The company’s argument in this Court is that somehow it may emerge that the company did incur debts, and they remain outstanding, as the trustee.  That theoretical possibility is not a justification for requiring the trust funds to be paid to the company, as the trial judge ordered.

16. Wall QC DCJ declined to order the present appellants to pay the sum claimed to the company, because, he held, there should be a trial of the question of whether the company held this investment as a trustee.  The trial, from which this appeal comes, was intended to resolve the question of whether the appellant should pay this sum to the company.  If the liquidator intended to argue that the sum should be paid, notwithstanding that the investment was held by the company as a trustee, the liquidator was obliged to provide some evidentiary basis for that argument.  The liquidator ought to have known of the company’s creditors by that time.  Yet, the company’s case, as conducted by the liquidator, contained no suggestion that there were creditors whose debts were incurred by the company as a trustee.

17. Absent any basis for a claim that this money, or any part of it, should be available in the winding up of the company, there could have been no basis for the company resisting an order that it hand over the property, if that property was still held by it.  In the same way, there was no basis for requiring the appellants to restore that property to the company.  The order for payment was an injunction, a discretionary remedy.  There was no basis for that discretionary order once it is seen that the company had no entitlement, as against the appellants, to the money which Ms Simpson had received.  Consequently, the order for payment should be set aside.

18. I would order as follows:

    1.Allow the appeal.

    2.Set aside the orders made by the trial judge on 2 December 2016.

    3.Declare that any entitlement of the company to be paid money by Investors Central Pty Ltd was an entitlement held by the company solely as a trustee.

    4.Order the respondent to pay to the appellants their costs of the proceeding in the District Court and of this appeal.

19. BODDICE J:  I agree with McMurdo JA.