Liquidators and the assets of former corporate trustees
Deppeler, in the matter of Old Port Road Pty Ltd (in liq) [2021] FCA 980 (17 August 2021)
Justice O’Bryan made orders permitting liquidators to deal with trust property.
This case is another demonstration of the circumstances that may allow liquidators to avoid having to be appointed as receivers of trust property – they may instead be empowered to deal with trust property under applicable trustee legislation.
A company (Company) was the trustee of a discretionary trust, pursuant to the terms of a trust deed made in 2002. Since 2003, the Company was the registered proprietor of a property in Victoria (Property), being its only asset.
Liquidators were appointed to the Company. By their investigations, they determined that the Company conducted no activity other than as trustee, existing exclusively to perform that role.
A clause in the trust deed provided that the Company would, ipso facto, cease as trustee if the Company entered into liquidation. No replacement trustee had been appointed.
The liquidators held the Property as bare trustees. They had exchanged a contract for the sale of the Property, completion of which was conditioned on obtaining orders that the liquidators were authorised to sell it.
The liquidators filed an originating process seeking directions under s 90-15 of the Insolvency Practice Schedule (Corporations) that they were justified and acting reasonably in treating the Property as trust property and that they could deal with it and distribute its proceeds in accordance with Parts 5.5 and 5.6 of the Corporations Act.
They also sought an order under s 63 of the Trustee Act 1958 (Vic), empowering the Company to carry on the business of the trust and also accordingly deal with and distribute the Property’s proceeds. The liquidators sought this order instead of seeking to be appointed as receivers of the Property.
The liquidators gave notice of the originating process to each beneficiary of the trust that they could reasonably identify. None of them sought to be heard on the application.
Justice O’Bryan reviewed the authorities and said that there was no “bright line” assisting the Court to determine whether it was preferable to appoint a receiver, but that relief to permit a former corporate trustee to sell assets under the Trustee Act would be appropriate where:
the company has become a bare trustee of the assets of the trust upon the appointment of the liquidator;
the company had acted only as trustee of the trust and in no other capacity;
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
no new trustee had been appointed.
His Honour was satisfied that such relief should be granted and that orders be made giving directions in the terms sought by the liquidator.
This also included a direction that the liquidators were entitled to be paid their remuneration, costs and expenses properly incurred in the liquidation, including of the originating process, from the proceeds of the trust Property. This direction was appropriate, where, save for its right of exoneration and the supporting lien, the Company had no assets of its own.
