Zhuo & Ji (No 3)
[2024] FedCFamC1F 159
•15 March 2024
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1)
Zhuo & Ji (No 3) [2024] FedCFamC1F 159
File number: SYC 3409 of 2022 Judgment of: HARPER J Date of judgment: 15 March 2024 Catchwords: FAMILY LAW – PROPERTY – PRACTICE AND PROCEDURE – APPOINTMENT OF RECEIVER – Where the property proceedings had been listed to proceed as if undefended on the basis of the husband’s non‑compliance – Where shortly before the final hearing the husband placed a number of companies into voluntary liquidation – Where the liquidator was served with the wife’s Further Amended Initiating Application just prior to the commencement of the hearing – Where the companies in liquidation were corporate trustees for a number of trusts – Where assets were beneficially owned by the trusts –
Where the final relief sought by the wife would vest real property held by the companies in liquidation in the wife or cause her to receive the net proceeds of the sale of the properties – Where the corporate trustees cannot act as trustee for sale upon being placed in liquidation – Liquidator seeking to protect the equitable lien of trustee companies over trust assets – The liquidator does not have the power to sell trust assets – Where the liquidator brought an application to be appointed receiver in order to effect the sale of the properties – Where the net proceeds of the sale are to be held by the liquidator pending the determination of these proceedings – Where no prejudice will be caused to the rights of the spouse parties – Orders made appointing the liquidator as the receiver.Legislation: Corporations Act 2000 (Cth) s 420 and s 477(2)(c)
Family Law Act 1975 (Cth) Pt VIII, s 79 and s 80(1)(k)
Cases cited: Bruton Holdings Pty Ltd (in liq) v Federal Commissioner of Taxation (2009) 239 CLR 346; [2009] HCA 32
Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth (2019) 268 CLR 524; [2019] HCA 20
D Pty Ltd and Ors & Sadler and Ors FLC ¶93–736; [2016] FamCAFC 187
Gramarker Pty Ltd; Clifford Sanderson (as liquidator of Gramarker Pty Ltd) v Kerr [2014] NSWSC 243
Jones v Matrix Partners Pty Ltd; Re Killarnee Civil & Concrete Contractors Pty Ltd (in liq) (2018) 260 FCR 310; [2018] FCAFC 40
Malloy and Ors & Stopford Malloy (2017) FLC ¶93–804; [2017] FamCAFC 204
Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360; [1979] HCA 61
R v Ross-Jones, Ex Parte Beaumont (1979) 141 CLR 504; [1979] HCA 5
Re Crest Realty Pty Ltd (No 2) (in liq) (1977) 2 ACLR 502; [1977] 1 NSWLR 664
Re Stansfield DIY Wealth Pty Ltd (in liq) (2014) 291 FLR 17; [2014] NSWSC 1484
Zhuo & Ji (No 2) [2023] FedCFamC1F 640
Zhuo & Ji [2023] FedCFamC1F 357
Division: Division 1 First Instance Number of paragraphs: 22 Date of last submission: 26 February 2024 Date of hearing: Determined on the papers in chambers Counsel for the Applicant: Mr Spencer Solicitor for the Applicant: Cornwalls (NSW) Pty Ltd The Respondents: Did not participate ORDERS
SYC 3409 of 2022 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN: MR CARUANA IN HIS CAPACITY AS LIQUIDATOR AND RECEIVER
Applicant
AND: MS ZHUO
First Respondent
MR JI
Second Respondent
MS R (and others named in the Schedule)
Third Respondent
ORDER MADE BY:
HARPER J
DATE OF ORDER:
15 MARCH 2024
THE COURT ORDERS, PENDING FURTHER ORDER OF THE COURT, THAT:
1.Mr Caruana of RR Accountants be appointed without security as receiver and manager (“the Receiver”) of the assets and undertakings of each of:
(a)the HH Trust;
(b)the SS Trust;
(c)the V Trust;
(d)the L Trust; and
(e)the DD Trust.
2.In each case, the Receiver have the powers that a receiver of a corporation’s property would have pursuant to s 420 of the Corporations Act 2001 (Cth).
3.In addition, the Receiver has the following powers:
(a)to do all things necessary or convenient to be done for or in connection with or as incidental to the attainment of the objectives noted in these orders; and
(b)to the extent necessary to discharge and perform his duties and functions as receiver, to discontinue, terminate or wind up any business, enterprise or venture, in whole or in part.
4.In each case, upon completion of the realisation of property and payment of costs and expenses and creditors, the Receiver is to:
(a)file with the Court a statement of receipts and payments in relation to the realisation of property and payments made by the Receiver in the administration of that trust, verified by affidavit; and
(b)retain, pending further order, any balance in an appropriate account held with a reputable financial institution.
5.The costs, expenses and renumeration of the Receiver incurred in:
(a)acting as the Receiver of the assets and undertaking of the trust;
(b)acting as the liquidator of the trustee company (unless it is established that the particular company engaged in any business other than as trustee of the trust); and
(c)calculated in accordance with the schedule of charge out rates as set out in Exhibit MC-1 (Affidavit of Mr Caruana filed 26 February 2024, p.27) be paid from the trust property.
6.Mr Caruana henceforth in all filed documents be referred to as Fourth Respondent to the proceedings “in his capacity as liquidator and receiver”.
7.Mr Caruana in his capacity as liquidator and receiver may apply to the Court for directions by filing the appropriate application supported by evidence to be returnable on no less than 72 hours’ notice on a date nominated by the chambers of Justice Harper.
8.Notwithstanding the orders made on 31 March 2023, or any other order of the Court, the Respondent husband (“the husband”) is to sign all documents and do all things reasonably necessary as directed by the Receiver to cause the sale of N Street, Suburb P (folio …).
9.For the purposes of Order 8 the net proceeds of sale of Suburb P, including any share claimed by the husband, shall be deposited directly into an account nominated by the Receiver in writing.
THE COURT NOTES THAT:
A.The object of the appointment of the Receiver in Order 1 is to:
(a)enable the Receiver to identify and realise the assets and undertaking of each trust, to enforce the indemnities of the Fifth to Ninth Respondents, as trustees of the respective trusts, and to apply the proceeds to discharge the liabilities of each of those trustees which were incurred by them in their capacity as trustee;
(b)report to the Court on his findings as to the financial position of each of the trusts; and
(c)enable the Receiver to recover the costs of the receivership and, if it be that each of the Fifth to Ninth Respondents sole function was to act as trustee of its relevant discretionary trust, the general costs of the liquidation.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
Section 121 of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Zhuo & Ji has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
HARPER J:
INTRODUCTION
These are property proceedings between the applicant wife in the substantive proceedings (“the wife”) and the respondent husband (“the husband”) pursuant to Pt VIII of the Family Law Act 1975 (Cth) (“the Act”).
The applicant for the purposes of this judgment is Mr Caruana in his capacity as liquidator (“the liquidator”), the fourth respondent in the substantive proceedings.
The second and third respondents are the parents of the husband who claim an interest in a number of properties in contention in the proceedings.
I have delivered earlier judgments in these proceedings which set out relevant background (Zhuo & Ji [2023] FedCFamC1F 357; Zhuo & Ji (No 2) [2023] FedCFamC1F 640 (“Zhuo & Ji (No 2)”)). I will not repeat this except to the extent necessary for this judgment.
The following companies were placed in voluntary liquidation in late 2023 and the fourth respondent was appointed as liquidator:
(a)G Pty Ltd;
(b)G Holdings Pty Ltd;
(c)V Pty Ltd;
(d)L Pty Ltd;
(e)KK Pty Ltd: and
(f)DD Pty Ltd
(“the companies”).
The proceedings were listed for hearing as if undefended on 19 February 2024. The husband’s Response filed 29 September 2022 was dismissed on 10 May 2023 by reason of non‑compliance (Zhuo & Ji (No 2)).
The liquidator was served with the wife’s Further Amended Initiating Application filed on 12 September 2023 (“the FAIA”) on 15 February 2024. Consequently, on that date he first became aware that the final relief sought by the wife in these proceedings would vest control of the real property held by the companies in the wife and cause the net proceeds of sale of those properties to be paid to her.
The liquidator’s preliminary investigations into the affairs of the companies discloses that they, other than KK Pty Ltd, are registered proprietors of a number of properties as trustees of discretionary trusts. Currently the husband alone is the director of these trustee companies. The companies and properties in question have been the subject of consideration in my earlier judgments.
In summary, at present, the liquidator estimates the value of the properties to be $15,300,000 in total with secured liabilities of $13,900,038, and an estimated capital gains tax liability of $489,000, which he calculated without information of the base rate. This would leave equity of about $805,920. However, the companies have no cash reserves. The liquidator has formed the view that, in addition to secured facilities, the companies owe council rates, land tax and water rates, which attach a statutory charge, and outstanding strata levies. The liquidator is of the view that the companies are likely to be insolvent when all these matters are taken into account.
Part of the relief claimed by the wife in the FAIA seeks control of those properties, their sale and distribution of the net proceeds, or a proportion of them, to her.
The final hearing did not proceed on 19 February 2024. The liquidator appeared and made submissions. Ultimately, certain orders were made by consent for the sale of a number of properties by the liquidator, who was added as a party to the proceedings. A notation was made that the liquidator proposed to apply for orders appointing him as receiver and manager of the following trusts:
(a)the HH Trust;
(b)the SS Trust;
(c)the V Trust;
(d)the L Trust; and
(e)the DD Trust
(“the trusts”).
Further orders were made by consent on 20 February 2024 joining the companies as parties to the proceedings.
APPLICATION IN A PROCEEDING FILED 26 FEBRUARY 2024
Although the evidence was not clear it may be that the companies could no longer act as trustees by reason of their liquidation. However, the liquidator submitted the companies were now bare trustees by reason of their liquidation. The liquidator of a company that is trustee of a trust has the power to administer the trust (Re Crest Realty Pty Ltd (No 2) (in liq) (1977) 2 ACLR 502). But in the case of trust property held by a bare trustee, the only “property” that the company has is the bare legal interest. “Theoretically at least, a liquidator could sell the bare legal interest of the trustee, but not the beneficial interest in trust property” (Re Stansfield DIY Wealth Pty Ltd (in liq) (2014) 291 FLR 17 at [17]). I accept there is considerable doubt that the liquidator can sell property of the relevant trusts.
The liquidator filed an Application in a Proceeding on 26 February 2024, seeking orders that he be appointed receiver and manager of the assets of the trusts, pending further order, with the powers set forth in s 420 of the Corporations Act 2000 (Cth) in addition to a number of ancillary orders. The orders made on 19 February 2024 provided for the liquidator’s application to be dealt with in chambers. The liquidator relied upon his affidavits filed on 19 February and 26 February 2024. He also filed written submissions. No other party filed any affidavit material or made any submissions. This judgment deals with the liquidator’s application.
As the liquidator pointed out, once a trustee company ceases to be a trustee, it can no longer exercise the trustee’s power of sale. The powers of a liquidator pursuant to s 477(2)(c) of the Corporations Act 2000 (Cth), to sell company assets do not extend to assets held on trust. Accordingly, the liquidator qua liquidator cannot act to sell the trust assets. The liquidator also pointed out that the trustee companies enjoy a right of exoneration of their liabilities and indemnity for expenses secured by an equitable lien over the trust assets which creates a proprietary interest in those assets (Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 at 367; Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth (2019) 268 CLR 524 at [32] (“Carter Holt”). A trustee’s accrued right of indemnity, including the right of exoneration, and the equitable lien, survives removal as trustee or the appointment of a new trustee (Bruton Holdings Pty Ltd (in liq) v Federal Commissioner of Taxation (2009) 239 CLR 346 at [43]).
Where a corporate trustee is placed into liquidation, the right of indemnity passes to the liquidator (Carter Holt at [34]; Jones v Matrix Partners Pty Ltd; Re Killarnee Civil & Concrete Contractors Pty Ltd (in liq) (2018) 260 FCR 310 at [78]–[79], [197] (“Matrix Partners”)). The liabilities of the trust to which the right of exoneration exists include the cost of the liquidation and the liquidator’s remuneration as they are to be regarded as debts incurred by the company in discharging trust obligations (Matrix Partners at [105]–[107]).
Consequently, it has been held the appointment of a receiver in such circumstances protects trust assets, protects the company in liquidation and protects the position of the liquidator (Gramarker Pty Ltd; Clifford Sanderson (as liquidator of Gramarker Pty Ltd) v Kerr [2014] NSWSC 243).
Disposition
Turning to the Pt VIII proceedings, it is settled that this Court has the power to appoint a receiver of property of the parties to the marriage, where such appointment is appropriate and made in aid of the exercise of its jurisdiction (R v Ross-Jones, Ex Parte Beaumont (1979) 141 CLR 504 at 509). Section 80(1)(k) of the Act empowers the Court to make any order which it thinks necessary to make “to do justice”, which includes appointing a receiver on an interlocutory basis, if satisfied it was “necessary” as required by s 80(1)(k), as opposed to “proper” (D Pty Ltd and Ors & Sadler and Ors FLC ¶93–736 at [23] (“Sadler”); Malloy and Ors & Stopford Malloy (2017) FLC ¶93–804 at [86]). In Sadler receivers were appointed to realise interests in trust property for the purposes of property adjustment proceedings under Pt VIII of the Act.
There is no dispute that the spouse parties make claims in respect of the trust assets, including the claim that trust assets are property of the husband. The Court will also be required to determine the interests, if any, of the second and third respondents.
The liquidator submitted that his appointment as receiver to the trust property would not have the effect of disturbing the proprietary interests in that property. He argued that upon realisation of the trust assets and their conversion into liquid funds, he would hold the fund pending the outcome of the s 79 proceedings. This would have the effect of preserving the property pool and placing it into a form which is more easily divided once the entitlements of all parties have been determined. The rights of the spouse parties in the relation to the property pool would not be prejudiced, nor would the position of the other respondents.
I note that no party claimed a transfer in specie of any trust property to them on a final basis.
I am satisfied the appointment of the liquidator as the receiver of the assets and undertakings of the trusts is necessary to do justice in this case. I will make the orders sought by the liquidator.
I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Harper. Associate:
Dated: 15 March 2024
SCHEDULE OF PARTIES
SYC 3409 of 2022 Respondents
Fourth Respondent:
MR AA JI
Fifth Respondent:
G PTY LTD (IN LIQUIDATION)
Sixth Respondent:
G HOLDINGS PTY LTD (IN LIQUIDATION)
Seventh Respondent:
V PTY LTD (IN LIQUIDATION)
Eighth Respondent:
L PTY LTD (IN LIQUIDATION)
Ninth Respondent:
KK PTY LTD (IN LIQUIDATION)
Tenth Respondent:
DD PTY LTD (IN LIQUIDATION)
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