Booth v Rahal
[2025] NZHC 613
•21 March 2025
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2024-404-2960
[2025] NZHC 613
UNDER Section 138 of the Trusts Act 2019 and Part 19 of the High Court Rules IN THE MATTER
of First Trust Limited (in liquidation)
BETWEEN
JARED WAIATA BOOTH and TONY
LEONARD MAGINNESS as liquidators of First Trust Limited (in liquidation) Applicants
AND
DAVINDER SINGH RAHAL and JIVAN JYOTI RAHAL
Respondents
Hearing: On the papers Counsel:
K R Lydiard for the Applicants
Judgment:
21 March 2025
JUDGMENT OF GAULT J
This judgment was delivered by me on 21 March 2024 at 4:00 pm pursuant to r 11.5 of the High Court Rules 2016.
Registrar/Deputy Registrar
……………………………………
Solicitors / Counsel:
Ms K R Lydiard, Barrister, Auckland
Mr T Cooley (applicants’ instructing solicitor), Brookfields, Auckland
BOOTH and MAGINNESS v RAHAL [2025] NZHC 613 [21 March 2025]
[1] The applicants, liquidators of First Trust Ltd (the Company), seek by way of originating application the following orders under the Trusts Act 2019:
(a)appointing the applicants as joint and several receivers and managers of all of the property of the First Trust (the Trust) upon specified terms and conditions;
(b)that all steps taken to date by the applicants as liquidators of First Trust Limited (the Company) to secure and protect the assets of the Trust were proper and approved;
(c)directing that costs of this application on a solicitor/client basis and costs incurred to date by the applicants as liquidators of the Company (in liquidation) are expenses incurred by the applicants in the receivership of the Trust; and
(d)granting leave to the parties and any creditors to apply to the Court for further directions.
[2] Following service on the respondents and the known creditors, there was no opposition to the originating application. Once the applicants’ submissions were filed following a call of the application in the Duty Judge list, I indicated that I would deal with the application on the papers.
Factual background
[3] On 28 April 2017, the Company was incorporated. The respondents, Mr and Mrs Rahal, were its directors and shareholders. The sole purpose of the Company was to be a corporate trustee. Further, the constitution of the Company states that all incomings and outgoings of the Company must be accounted for as the incomings and outgoings of the trust, that the Company was to have no financial dealings of its own and that the Company would not operate a bank account other than as a trustee for the trust.
[4] On 1 May 2017, the Trust was settled by trust deed and the Company was named as the sole trustee. The settlors and appointers of new trustees were Mr and Mrs Rahal.
[5] On 26 May 2017, the Company became the registered proprietor of the property at 609-611 Great South Road, Papatoetoe, Auckland described as unique identifier NA82B/25 (the Property).
[6] On 29 March 2022, under a deed of retirement and appointment of new trustees the Company was replaced as trustee of the Trust by Athena 2021 Ltd (Athena). The directors and shareholders of Athena were Moheet Rahal and Roshni Rahal, the respondents’ children. They no longer reside in New Zealand.
[7] Despite being removed as trustee, the Company remains the registered proprietor of the Property. After retiring as trustee, the Company continued to enter obligations on behalf of the Trust, notably including, but not limited to:
(a)entering into a loan agreement on behalf of the Trust with ASB Bank Limited dated 14 April 2022;
(b)obtaining insurance for property held under the name of the Company on behalf of the Trust; and
(c)entering lease agreements as the landlord, as trustee of the Trust.
[8] Further, the Company’s signed financial statements for the Trust for the year ended 31 March 2023 record the Company as the sole trustee of the Trust. IRD was not notified of the change in trustees.
[9] On 20 March 2024, Athena was removed from the Companies Register. However, no replacement trustee was appointed. This left the Trust without a trustee.
[10] On 22 August 2024, the Company was placed into liquidation and on 3 September 2024 the applicants were confirmed as the liquidators.
[11] As at the date of Mr Booth’s affidavit in support, the creditors of the Company and/or the Trust include:
(a)preferential claims totalling $18,233;
(b)secured claims totalling $2,844,684; and
(c)unsecured claims totalling $986,775, including a claim for $960,521 by Armeet Bhargav and Renu Khajuria (the amount of a judgment of this Court relating to the sale of a property by the Company in its capacity as trustee of the Trust).
[12] The Property is the only asset available to meet the obligations incurred by the former trustees of the Trust. The current rateable valuation of the Property is
$7,050,000. The interests registered against the Property include, but are not limited to:
(a)a registered mortgage in favour of ASB securing borrowing by the Company as trustee of the Trust;
(b)a caveat in favour of GHHK Investments Ltd registered on 16 November 2020 relating to an agreement for sale and purchase for part of the Property; and
(c)a charging order dated 22 August 2024 between the Company and Armeet Bhargav and Renu Khajuria registered on 16 September 2024.
[13] Mr Rahal advised the liquidators during his examination that he wants the Property sold to pay off the creditors.
[14] The liquidators’ initial investigations revealed that the Company’s debts have been incurred as trustee of the Trust. The full extent of amounts owed by the Company in its capacity as trustee of the Trust will not be known until the end of the liquidation of the Company.
Applicable legal principles
[15]Section 138 of the Trusts Act 2019 provides:
138 Court may appoint receiver for trust
(1)The court may, on an application by an interested person or on its own motion, appoint a receiver to administer a trust.
(2)The court must be satisfied that the appointment of a receiver to administer the trust is—
(a)reasonably necessary in the circumstances of the trust; and
(b)just and equitable.
(3)Only a person qualified to be a trustee may be appointed under subsection (1).
(4)When appointing a receiver under this section, the court (having regard to the terms of the trust and the interests of justice) must determine—
(a)the extent of the duties and powers of the receiver; and
(b)the duration of the receivership; and
(c)the principles that the receiver is to apply in determining priorities; and
(d)whether the receiver is to be paid from the trust assets.
(5)If a court determines under subsection (4) that a receiver has a power in relation to a trust, the trustee of the trust cannot exercise that power for the duration of the receivership.
[16] The Court also has the power to appoint a receiver to administer a trust in its inherent jurisdiction. Such appointments have historically occurred where there was a need for interim protection of property or to facilitate execution of judgments.1 But such appointments are a matter of last resort where there is no other adequate legal or equitable remedy available or when the Court is satisfied that the existing contractual arrangements are such that no other means of achieving the desired object can be obtained.2
1 Rea v Omana Ranch Ltd [2012] NZHC 2639 at [10]; Armani v Armani [2021] NZHC 3145 at [64].
2 Lockhart Trustee Services No 56 Ltd v Ryan (as Trustee of Lothbury Trust) [2020] NZHC 1823 at [34]; Re Cameron [2021] NZHC 2495 at [11].
[17] The approach under the inherent jurisdiction does not set the required threshold for appointment under s 138.3 In context, “reasonably necessary” in s 138 means something more than expedient or desirable, falling closer to required or essential to achieve a particular purpose, but not that it is needed as a last resort.4
Discussion
[18] The Trust has continued to operate without a trustee. The Company had the sole purpose of being a corporate trustee, but it is no longer trustee of the Trust. The liquidators are unable to take steps in relation to the Property to have recourse to the Trust’s assets for the benefit of the creditors of the Company and the beneficiaries of the Trust, despite the Company being the registered proprietor of the Property. There is no trustee to deal with trust matters such as assets, debts and obligations of the former trustees, including the Company. The Company is entitled to be indemnified from Trust assets in respect of debts and obligations incurred as trustee of the Trust.
[19] In these circumstances, and in the absence of proper steps by those with power of appointment to appoint a new trustee or trustees, I am satisfied that it is reasonably necessary, and just and equitable, to appoint a receiver to administer the Trust under s 138 of the Trusts Act. I am also satisfied that it is appropriate to appoint the liquidators of the Company as receivers. The liquidators of the Company are qualified interested persons and are best placed to administer the Trust efficiently and avoid conflict. Appointment will enable the liquidators to have recourse to the Property (and any other Trust assets) for the benefit of the creditors of the Company and beneficiaries of the Trust. This will include dealing with GHHK in relation to its caveat.
[20] The matters to be determined under s 138(4) are appropriately addressed in the terms and conditions of the receivership sought in the originating application except that provision should be made to determine the duration of the receivership.
3 Re Cameron [2021] NZHC 2495 at [12].
4 Armani v Armani [2021] NZHC 3145, [2022] 2 NZLR 547 at [84]-[86]; Re Cameron at [12]-[13].
Result
[21] I make the following orders as sought (together with (a)(x) below relating to the duration of the receivership):
(a)Appointing the applicants as joint and several receivers and managers of all of the property of the First Trust (Trust) pursuant to s 138 of the Trusts Act 2019 upon the following terms and conditions:
(i)the receivers shall be allowed remuneration as a first charge on the assets of the Trust at the rates to be approved by the Court on a monthly or bi-monthly basis in a form as approved by the Court pursuant to High Court Rule 7.62;
(ii)the receivers shall be indemnified to the extent of the assets of the Trust in respect of all liabilities properly incurred by them in the course of the receivership;
(iii)the receivers shall have no personal liability for any debt or liability of the Trust or its trustees that is incurred following their appointment as receivers in relation to the following:
(1)any interest or loan principal payable to the secured and unsecured creditors of the Trust;
(2)any other payments becoming due under any other agreement subsisting at the date of the appointment of the receivers; and
(3)any contracts for sale or lease entered into for the disposition of the property of the Trust;
(iv)the receivers shall file reports and accounts as required by the Receiverships Act 1993;
(v)the receivers are jointly and severally:
(1)authorised to do any act or thing that the trustees of the Trust might do, including but not limited to:
(a) identifying, taking immediate possession of, and protecting, all property of the Trust, including but not limited to rental income and the records of the Trust;
(b) selling or otherwise realising sufficient property of the Trust to recover all costs of the receivership and all of the proven creditor claims that are indemnified and charged against the assets of the Trust;
(c) accounting to the Inland Revenue in relation to the tax obligations of the Trust provided that the receivers are not appointed as trustees for the benefit of the Trust’s beneficiaries and the receivers’ obligations are limited to those of Court appointed receivers; and
(2)are empowered to exercise in respect of the Trust the powers conferred upon liquidators pursuant to ss 261 and 267 inclusive, s 269, and ss 273 to 274 inclusive of the Companies Act 1993 as if:
(a) the Trust were a company in liquidation;
(b) the settlor and the trustees of the Trust (past and present) were the directors of the Company; and
(c) the beneficiaries of the Trust were the shareholders of a company in liquidation;
(vi)in respect of creditors of the Trust:
(1)the proven creditors of the Trust are conferred rights of review to the Court against the decisions or acts of the receivers, including in respect of the acceptance of other creditor claims; and
(2)any claimant whose creditor claim has not been accepted as a liability of the Trust has a right of review to the Court in respect of the rejection of its claim;
(vii)the receivers shall assess and document the Trust’s financial position;
(viii)section 248(1)(c) of the Companies Act 1993 applies to the receivership of the Trust such that unless the receivers agree or the Court orders otherwise:
(1)all proceedings by or against the Trust (in the name of the trustees) are stayed for the period the receivers are appointed; and
(2)in the case of proceedings against the Trust, any such claimant shall submit a creditor claim in the receivership;
provided that this order shall not prevent either First Trust Limited (in liquidation) or the applicants as liquidators of First Trust Limited (in liquidation) from making an application to the High Court in the liquidation proceeding for the approval of remuneration and/or expenses that are payable by, and charged against the assets of, the Trust;
(ix)the step taken by the receivers to issue a notice that creditor claims were to be filed by 15 October 2024 was proper and, for the avoidance of doubt, regulations 12 and 13 of the
Companies Act 1993 Liquidation Regulations 1994 apply in the receivership; and
(x)once the Property has been realised, and the creditors paid, the receivers are to apply to the Court promptly for an order that the receivership be finalised.
(b)All steps taken to date by the applicants as liquidators of First Trust Limited (in liquidation) to secure and protect the assets of the Trust were proper and approved.
(c)Directing that costs of this application on a solicitor/client basis and costs incurred to date by the applicants as liquidators of First Trust Limited (in liquidation) are expenses incurred by the applicants in the receivership of the Trust.
(d)Granting leave to the parties and any creditors to apply to the Court for further directions.
Gault J
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