Cameron
[2022] NZHC 2495
•29 September 2022
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2022-485-403
[2022] NZHC 2495
UNDER the Trusts Act 2019 AND
IN THE MATTER
of an application by ROBERT PERRY CAMERON AND MOIRA JEAN
ROBERTSON-BROWN
Applicants
Hearing: 29 August 2022 Appearances:
S E Barnes for the Applicants
Judgment:
29 September 2022
JUDGMENT OF COOKE J
(Appointing receiver)
[1] By application dated 28 July 2022 the applicants, who are the trustees of the Jakeman Trust (the Trust), apply for an order appointing John Marshall Scutter, accountant and licensed insolvency practitioner, as receiver of the Trust pursuant to s 138 of the Trusts Act 2019 (the Act).
[2] The application is supported by an affidavit of Moira Jean Robertson-Brown, the sole director and shareholder of Jakeman Trustee Ltd which is one of the trustees of the Trust, Robert Perry Cameron who is the original and other trustee of the Trust, and John Marshall Scutter, the intended receiver.
[3] The application was called before me in the Judge’s Chambers List on 29 August. At that stage I directed that submissions in support of the application should be filed and I would consider the application on the papers. Those submissions,
RE CAMERON AND ROBERTSON-BROWN [2022] NZHC 2495 [29 September 2022]
dated 29 August 2022 were duly filed. By minute dated 5 September 2022 I indicated that I saw a basis for the appointment of a receiver, but drew attention to the requirements of s 138(4) of the Act, and invited the applicants to provide further information addressed to these requirements.
[4] Further submissions were then provided by the applicants dated 12 September accompanied by a further affidavit of Mr Scutter. I then arranged for a telephone conference with counsel on 28 September at which I asked for certain matters to be clarified.
The circumstances
[5] The general circumstances are described in Mr Cameron’s affidavit. In 1991 Mr Cameron and his wife purchased 19 acres of farm land at Lake Ferry on the South Wairarapa coast. Mr Cameron’s marriage broke down in 1994 and some of the land was sub-divided off and sold as part of the arrangements for the separation of relationship property. The rest of the land was then put into the name of the Trust which was then established.
[6] A resource consent permitting the development of the land into lots was issued by the South Wairarapa District Council in January 2008. In late 2016 a plan was put together for this development. The Trust was to borrow money to finance the completion of the works and pre-sales. It was anticipated the Trust would make a profit from the sale of lots in the development. The development was to progress in stages. Lots were marketed for sale under the name of Onoke Lakeside Estate. Fourteen lots were sold off the plans between 2017 and 2020 for various prices up to just over $120,000. Deposits were held in the vendor’s solicitors nominated trust account.
[7] During 2020 and 2021 the development’s progress was impacted by COVID- 19 restrictions. Based on estimates received in March 2022 the cost of the required capital works have significantly increased with the result that it is expected that the sale of lots will no longer cover the costs of the physical infrastructure required of the development. Mr Cameron says in his affidavit:
I am now aged 80 years and I am worn out from trying to realise this Development. The project has become complex to manage in the current economic climate. I am conscious that I could expose myself to personal liability if I do not manage the sole asset of the Trust prudently. I also have liabilities under the Fair Trading Act 1986 to the purchasers of the Lots as developer. I would like to realise some value of the Trust asset in the near future, whether by capital or income, but I am at a loss as to how to do this with the complexities of the current economic environment.
[8] Mr Cameron goes on to provide information showing that the Trust may not be able to pay its debts as they fall due, and he raises concerns about actions being taken by one of the creditors. He suggests that the affairs of the Trust now need to be handled by an experienced insolvency practitioner who can do his or her best to obtain maximum value for the Trust’s assets, and deal with its liabilities most efficiently. As I understand it this will include continuing to dispose of the land in one way or another, although Mr Scutter explains in his affidavit that he wishes to consider alternative proposals for the development of land into sections, that he wishes to review the sale of the land either as one or multiple parcels in order to realise the assets for the benefit of credits and beneficiaries. He also wants to consider other options. He expresses the view that, if the land is sold for an amount similar to the assessment of its value, all creditors would be paid out in full.
[9]It is in this context that the application to appoint the receiver has been made.
Approach to the appointment of receivers
[10]Section 138 of the Act 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.
[11] Receivers are able to be appointed over a trust in the inherent jurisdiction. That jurisdiction is preserved by the Act although the statutory power to appoint a receiver likely eclipses it.1 An analysis of the requirements for the appointment of a receiver under s 138 was provided by Walker J in Armani v Armani.2 The inherent jurisdiction tended only to be used as a last resort where there was some peril to the trust property.3 However in Armani Walker J said:4
My view is that the ordinary meaning of “reasonable necessity” does not precisely equate with a measure of “last resort” but neither is it widely different. There is nothing in the Law Commission report pointing to an intention to alter the approach under the inherent jurisdiction but there is some flexibility in the express connection with the “circumstances of the trust”. In its context, reasonably necessary means something more than expedient or desirable, falling closer to “required” or essential to achieve a particular outcome or purpose, but is not necessarily restricted to measures of a last resort. Even so, the availability of alternative, less drastic remedies will be a factor going to the “just and equitable” requirement.
[12] I agree that the approach under the inherent jurisdiction does not set the required threshold for appointment under s 138. The applicant needs to show that appointment is reasonably necessary, not that it is needed as a last resort. This will involve consideration of what is sought to be achieved by the appointment of a receiver, and why this step is thought to be necessary to achieve that outcome in the circumstances.
[13] This is reflected in the matters the Court must determine under s 138(4). Those matters are directed toward the justification for the appointment of a receiver. They are relevant to showing why the receivership is necessary given what the receiver will
1 See Trusts Act 2019, s 8.
2 Armani v Armani [2021] NZHC 3145, [2022] 2 NZLR 547.
3 At [64]–[67]; see also Rea v Omana Ranch Ltd [2012] NZHC 2639, [2013] 1 NZLR 587 at [10].
4 At [86].
do and how the receivership will proceed, and the principles that will be applied when determining priorities. The establishment of those matters operate, at least to some extent, as a form of protection of others, particularly creditors, who may be affected by the appointment of a receiver. These are further reasons why it is not necessary to show that the appointment of a receiver is a last resort. It may more simply be reasonably necessary to take this step to achieve an orderly regularisation of trust affairs when things have gone wrong.
Assessment
[14] I am satisfied that the Trust is now essentially insolvent in the sense that it is not able to meet its debts as they fall due. A receiver may assist in addressing this position because it appears that the Trust’s assets may exceed its liabilities. The position needs to be carefully handled for the benefit of all creditors, and then the beneficiaries of the Trust. This is now beyond the capability of Mr Cameron and his co-trustee. If the present situation is to be managed efficiently, and most effectively for the creditors and then the beneficiaries of the Trust, a practitioner having experience in such matters should be appointed. If that appointment is not made I am satisfied the position could become materially worse. This provides the essential rationale for the appointment of Mr Scutter as receiver.
[15] As indicated above, the basis upon which the receivership is to proceed is important in determining whether the requirements of s 138 are satisfied. In its final report on the Law of Trusts which led to the 2019 Act the Law Commission said:5
In order for the provision to be useful to creditors and others dealing with Trusts, it will need to go beyond merely restating the availability of the Court’s jurisdiction to appoint a receiver and will need to include further detail about the process.
[16] This is reflected in the requirements of s 138(4). As I say these requirements are relevant to assessing why a receivership is reasonably necessary, and I address these below.
[17] The only apparent disadvantage of the appointment is that a receivership will involve the costs of the professional receiver. I note that the Court was not provided
5 Law Commission Review of the Law of Trusts Report (NZLC R130, 2013) at [16.32].
with an assessment of the likely costs of the receiver as part of the application, and how those anticipated costs impact on the proposal for regularisation of the development, and the position of creditors. Information of this kind is relevant to the Court’s assessment, as it goes to whether the appointment of a receiver is reasonably necessary and whether the appointment is just and equitable.
[18] I proceed notwithstanding that an estimate of those costs has not been provided because of the particular circumstances. If the cost of the receivership itself were anticipated to make a significant difference to the assessment Mr Scutter outlined in his affidavit it would no doubt have been bought to the Court’s attention. I am conscious there is a need to carefully manage the current situation, and that receivership is a sensible way forward.
[19] The lack of some information is perhaps understandable given that s 138 has not been considered in many cases and the information requirements have not been comprehensively outlined. But for the future it will be important for applications to provide full information explaining why the appointment of a receiver is reasonably necessary, why it is just and equitable, and addressing the matters set out in s 138(4) in that context.
[20] I address the more detailed aspects of the receivership as contemplated by s 138(4) against this background.
Extent of the duties and powers of the receiver
[21] It is first important that the Court specify what role and powers the receiver will have, and whether the trustees will retain any role or powers.
[22] It is appropriate that the receiver make all decisions in relation to the development and the management of the assets and liabilities of the Trust in relation to the development. With that objective I direct that all the trustees’ powers in relation to the decision-making associated with the development are to be exercised by the receiver. The trustees are to make no decisions in relation to the development other than to give effect to the receiver’s decisions as referred to in paragraphs [24] and [25] below.
[23] It was not apparent from the application, but following a further telephone conference with counsel it is apparent that the Trust has no other assets other than the assets associated with the development. It follows that the trustees’ role and decision- making in relation to the activities of the Trust other than in connection with the development are essentially notional. But the trustees role and decision-making in relation to Trust affairs other than the development nevertheless continue unaffected by the order and these directions.
[24] In his second affidavit Mr Scutter sought an order that the title in the Trust land be vested in him to enable the land to be realised for the benefit of the creditors. That seems to contemplate a form of vesting order. That order was not sought in the application. It is also not clear to me where a power to make such an order is to be found, although it may well be that it would arise under s 138 by necessary implication, or even under the inherent jurisdiction. But there are uncertainties. In any event I decline to make such an order as I do not think it is ultimately necessary. The receiver can make all relevant decisions concerning disposal of the lands, but the existing trustees can still execute the relevant transfer documents to give effect to the receiver’s decisions. It is appropriate for the existing trustees to retain an ongoing understanding of what is occurring during the receivership, particularly as it is anticipated that the receivership will at some point end with their role and powers fully restored.
[25] In Mr Scutter’s affidavit he indicated he seeks the power to borrow funds using Trust assets as security, as well as other powers necessary for resolution of the development, such as the engagement of consultants and agents. I accept that such steps are necessary. Ms Barnes explained that it might become helpful to be able to borrow funds if any part of the land was to be developed. I accordingly agree that he should have the power to take such steps. Again, however, the documentation required to provide Trust land as security will need to be executed by the existing trustees. This reflects the need for them to continue to understand what steps are being taken with the Trust assets.
The principles that the receiver is to apply in determining priorities
[26] This seems to me to be a critical aspect of the Court’s decision in relation to a proposed receivership. Unlike the liquidation of a company, or the bankruptcy of an individual, there is not a pre-existing regime that applies to determine how the assets are to be distributed once liabilities are accounted for. The Court will need to make it clear what rules are to be applied.
[27] In his affidavit Mr Scutter said that the Receiverships Act 1993 and Companies Act 1993 will be followed to assist in determining the priority of creditors. He says the seventh schedule in the Companies Act will be followed to determine the priority of preferential unsecured creditors and the pari passu principle will be applied for each class of creditor identified. Mr Scutter explains that creditors will be classed as secured creditors, preferential unsecured creditors and unsecured creditors.
[28] I agree with that approach. For the avoidance of doubt, the provisions regulating the priority of claims should not be applied simply as a guide, but are to be treated as governing how the priority of claims in the receivership are to be dealt with. In the event of uncertainty leave is reserved to apply to the Court for further directions. That leave is extended to any creditors who wish to apply for directions.
[29] I also record that as a consequence of a further telephone conference I had with counsel it is confirmed that any amounts still held in the solicitor’s trust account representing deposits that have been paid by creditors for purchases of lots are amounts duly held on trust for the benefit of those persons. Many deposits have been refunded, and in the case of the purchase of lot 37 the funds have been released to the Trust with the purchaser now a creditor of the Trust for the whole purchase price. The applicants no longer understand that any deposit for that lot is still held on trust.
[30] Mr Scutter also explains that all creditors will be asked to file a claim in the receivership and provide supporting documents and evidence of any security interests they hold. This also appears to me to be appropriate.
The duration of the receivership
[31] No specific time has been identified for the period of the receivership. Mr Scutter explains he would expect it to last for at least 12 months. He says that he agrees to update the Court if longer than 12 months is required. He indicates that he intends to seek the Court’s order that the receivership can be finalised once the land has been realised and the creditors paid. He also says that any balance held by the receiver will be returned to the trustees.
[32] I accept that this is an appropriate way forward. If the receivership is to last more than 12 months then the Court should be advised.
[33] There will be a need for a report of the receivers for the benefit of the Court, the creditors, the trustees and the beneficiaries. I direct the receiver to provide such a report within the 12 month period.
Whether the receivers be paid from the Trust assets
[34] As I have already addressed above it is appropriate for the receiver to be paid from Trust assets.
Conclusion
[35] Notwithstanding that there is more information that could have been helpfully made available I agree that a receiver should be appointed under s 138 of the Act, and that this should occur on the basis I have referred to above.
[36] The receiver, the trustees and any creditor of the Trust have leave to apply to the Court to seek further directions, or to modify the above directions. I direct that a copy of this judgment is to be made available to creditors of the Trust on request.
Cooke J