FEDERAL COURT OF AUSTRALIA Bendigo and Adelaide Bank Limited, in the matter of Reborn Enterprises Pty Ltd (Trustee) v Reborn Enterprises Pty Ltd (Trustee) [2016] FCA 1197 File number: SAD 431 of 2015 Judge: WHITE J Date of judgment: 23 September 2016 Catchwords: BANKRUPTCY AND INSOLVENCY – liquidator of Trustee Company brought an application under s 57(1) of the Federal Court of Australia Act 1976 (Cth) to be appointed as receiver and manager of the property of the Trust – held just and convenient to make such an order. Legislation: Corporations Act 2001 (Cth) s 556 Federal Court of Australia Act 1976 (Cth) s 57 Cases cited: Martyniuk v King [2000] VSC 319 Re Suco Gold Pty Ltd (in liq) (1983) 33 SASR 99 Rothmore Farms Pty Ltd v Belgravia Pty Ltd [1999] FCA 745 University of Western Australia v Gray (No. 6) [2006] FCA 1825 Date of hearing: 23 September 2016 Registry: South Australia Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Category: Catchwords Number of paragraphs: 21 Counsel for the Plaintiff: The Plaintiff did not appear Counsel for the Defendant: The Defendant did not appear Counsel for the Applicant: Mr K Ryder Solicitor for the Applicant: O'Loughlins Lawyers ORDERS SAD 431 of 2015 IN THE MATTER OF REBORN ENTERPRISES PTY LTD ACN 109 218 108 AS TRUSTEE FOR THE REBORN ENTERPRISES TRUST BETWEEN: BENDIGO AND ADELAIDE BANK LIMITED (ACN 068 049 178) Plaintiff AND: REBORN ENTERPRISES PTY LTD (ACN 109 218 108) AS TRUSTEE FOR THE REBORN ENTERPRISES TRUST Defendant IN THE INTERLOCUTORY APPLICATION: BRADLEY TONKS IN HIS CAPACITY AS OFFICIAL LIQUIDATOR OF REBORN ENTERPRISES PTY LTD (ACN 109 218 109) (IN LIQUIDATION) Applicant JUDGE: WHITE J DATE OF ORDER: 23 SEPTEMBER 2016 THE COURT ORDERS THAT: 1. Pursuant to s 57(1) of the Federal Court of Australia Act 1976 (Cth) Bradley Tonks, of PKF (NS) Pty Ltd of Level 8, 1 O'Connell Street Sydney in the State of New South Wales be appointed as receiver and manager of the property of the Reborn Enterprises Trust (Trust Property). 2. The receiver and manager (Receiver) be authorised to take possession of, preserve, maintain and sell the assets comprising the Trust Property. 3. The Receiver will have the following powers: (a) To do all things necessary or convenient to effect the sale or realisation of the assets of the Reborn Enterprises Trust, with the powers that a liquidator has in respect of property of a company pursuant to s 477(2) of the Corporations Act 2001 (Cth); (b) To apply the proceeds from the sale of the Trust Property to discharge the liabilities of the defendant (all of which were incurred by it in its capacity as trustee) in accordance with the priorities set out in s 556 of the Corporations Act 2001 (Cth); and (c) To distribute any surplus proceeds from the sale of the Trust Property (if any) to Mr Francois Paquette in his capacity as trustee of the Reborn Enterprises Trust. 4. Consideration of the orders sought by Mr Tonks in paragraphs 4 and 5 of the Interlocutory Process filed on 25 August 2016 be adjourned to 9 am Thursday 2 February 2017. 5. The Applicant's costs of and incidental to this application be costs and expenses in the winding up of the Defendant. 6. There be liberty to apply. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. EX TEMPORE REASONS FOR JUDGMENT WHITE J: 1 On 17 February 2016, this Court made an order for the winding up of Reborn Enterprises Pty Ltd (Reborn Enterprises). Mr Tonks was appointed as the liquidator. 2 Reborn Enterprises was the trustee of a discretionary trust known as The Reborn Enterprises Trust (Reborn Trust). 3 By an interlocutory process filed on 25 August 2016, Mr Tonks seeks an order that he be appointed as receiver and manager of the property of the Reborn Trust. The substantive orders which Mr Tonks seeks are as follows: 1. An order pursuant to section 57(1) of the Federal Court of Australia Act 1976 (Cth) that the liquidator of the defendant, Bradley Tonks, of PKF (NS) Pty Ltd of Level 8, 1 O'Connell Street Sydney in the State of New South Wales be appointed as receiver and manager of the property of the Reborn Enterprises Trust (Trust Property). 2. The receiver and manager (Receiver) be authorised to take possession of, preserve, maintain and sell the assets comprising the Trust Property. 3. The Receiver will have the following powers: 3.1 To do all things necessary or convenient to effect the sale or realisation of the assets of the Reborn Enterprises Trust, with the powers that a liquidator has in respect of property of a company pursuant to section 477(2) of the Corporations Act 2001 (Cth); 3.2 To apply the proceeds from the sale of the Trust Property to discharge the liabilities of the defendant (all of which were incurred by it in its capacity as trustee) in accordance with the priorities set out in section 556 of the Corporations Act 2001 (Cth); and 3.3 To distribute any surplus proceeds from the sale of the Trust Property (if any) to Mr Francois Paquette in his capacity as trustee of the Reborn Enterprises Trust. 4 The sole director, shareholder and secretary of Reborn Enterprises is Mr Francois Paquette. He has not appeared today on the hearing of the interlocutory process. Nor did he or his solicitor appear at the Directions Hearing held on 16 September 2016. I was satisfied that both Mr Paquette and his solicitors have been given adequate notice of today's hearing and accordingly directed that the hearing proceed in their absence. 5 The application for the appointment of a receiver is made pursuant to s 57 of the Federal Court of Australia Act 1976 (Cth). Section 57 provides: 57 Receivers (1) The Court may, at any stage of a proceeding on such terms and conditions as the Court thinks fit, appoint a receiver by interlocutory order in any case in which it appears to the Court to be just or convenient so to do. (2) A receiver of any property appointed by the Court may, without the previous leave of the Court, be sued in respect of an act or transaction done or entered into by him or her in carrying on the business connected with the property. (3) When in any cause pending in the Court a receiver appointed by the Court is in possession of property, the receiver shall manage and deal with the property according to the requirements of the laws of the State or Territory in which the property is situated, in the same manner as that in which the owner or possessor of the property would be bound to do if in possession of the property. 6 As can be seen, s 57 authorises the Court to appoint a receiver by interlocutory order in any case in which it appears to the Court to be "just or convenient so to do". The circumstances in which the Court may be satisfied that these conditions are met are various but, as was pointed out by Warren J in Martyniuk v King [2000] VSC 319 at [14] and by French J in University of Western Australia v Gray (No. 6) [2006] FCA 1825 at [71]-[72], the general ground upon which a court appoints a receiver is to protect or preserve property for the benefit of the persons who have an interest in it. 7 The affidavits of Mr Tonks and his solicitor establish a number of matters. It's convenient to refer first to matters bearing upon the identity of the trustee of the Reborn Trust and the nature of that trust. The trust was on 24 May 2004. Mr Paquette was the Appointor. It is a discretionary trust, the "General Beneficiaries" of which are the "Specified Beneficiaries" who are the children of Mr Paquette and some other persons who include Mr Paquette and his relatives and associates as defined in the Schedule to the Trust Deed. 8 By cl 21.1 of the Trust Deed, the office of trustee is immediately determined and vacated in the case of a corporate trustee if the company enters liquidation. Clause 21.2 provides that in that event the Appointor assumes the position of trustee as though the Appointor had been validly appointed as trustee pursuant to cl 17, until such time as the Appointor shall appoint a new trustee. By cl 17 any trustee who is a natural person may appoint an alternate trustee in his or her place. 9 The effect of these provisions is that, upon Reborn Enterprises commencing to be wound up, it ceased to hold the office of trustee and Mr Paquette as the Appointor became the trustee of the Reborn Trust in its place. There is no suggestion in any of the evidence that Mr Paquette has appointed an alternate trustee in his place. 10 The trustee of the Reborn Trust is entitled to be indemnified out of the assets for the time being of the Trust against liabilities incurred by it as trustee of the trust or in relation to the administration of the trust (cl 16.1). This express right of indemnity is in addition to the right of indemnity for which the general law provides. It is enforceable by way of an equitable lien over the assets of the trust: Rothmore Farms Pty Ltd v Belgravia Pty Ltd [1999] FCA 745. The right of indemnity and the equitable lien are not lost upon a trustee ceasing to occupy that position and vest in the liquidator in a winding up of a corporate trustee: Re Suco Gold Pty Ltd (in liq) (1983) 33 SASR 99 at 109. 11 Before it went into liquidation, Reborn Enterprises operated only as trustee for the Reborn Trust. Mr Paquette has confirmed that this was so to members of Mr Tonks' office. 12 The principal asset of the Reborn Trust identified by the liquidator to date is a loan totalling $192,606 made to Mr Paquette. He has acknowledged a liability to the Reborn Trust in the amount of this loan. Although there have been some communications between Mr Tonks' office and Mr Paquette or his solicitors, the loan has not yet been repaid. I note that there is some evidence that Mr Paquette has since revised his position and asserts that he is instead a creditor of the Reborn Trust in respect of amounts he has asserted that he paid on behalf of the Reborn Trust. That assertion is not supported by evidence which is presently before the Court. 13 The Reborn Trust has other assets, including an investment in an almond grove of unidentified value, cash at bank of $6,322.51, investment receipts of $5,911.14, the distribution from the Great Southern Finance Pty Ltd (in liq) Class Action of $50,030 and a dividend from "Great Southern" of $507.47. Subject to an identification of the value of the almond grove investment, Mr Tonks estimates the realisable value of these assets at $255,377.12. 14 Mr Tonks holds some of the assets identified above, being the proceeds from the Great Southern Finance Pty Ltd Class Action and other monies totalling $62,725.68. 15 Mr Tonks has received proofs of debts in the liquidation of Reborn Enterprises from ABL Custodian Services Pty Ltd in the sum of $244,331.18 and from Bendigo and Adelaide Bank Limited totalling $470,610.21. He is aware of two other possible creditors, the first being Mr Paquette himself in respect of amounts which he asserts that he paid on behalf of the Reborn Trust for legal costs and the second being Reborn's accountant. Neither, however, has yet lodged a proof of debt. 16 As things stand presently, Mr Tonks holds the funds of $62,725.68 in his capacity as liquidator of Reborn Enterprises and not as trustee of the Reborn Trust. The consequence is that Mr Tonks has limited powers to deal with the assets on behalf of the creditors of Reborn Enterprises, at least without a further Court order. 17 Mr Tonks relies on the following matters in support of the application that he be appointed receiver and manager of the property of the Reborn Trust: (a) it will ensure protection of the trust property and enable prompt distribution of the trust assets on behalf of creditors of the Reborn Trust; (b) there are no other creditors of Reborn Enterprises who are not creditors of the Reborn Trust; (c) it would empower him to take steps to recover the director's loan from Mr Paquette; (d) it would empower him to deal with the interest in the almond investment and recover any future distributions made in respect of investments held by the Reborn Trust; and (e) it would ensure that the trust assets are distributed in accordance with the priorities set out in s 556 of the Corporations Act 2001 (Cth). 18 Mr Tonks deposes in addition that he is not aware of any fact or matter which would give rise to a conflict of interest or to a risk to his independence in acting as both liquidator of Reborn Enterprises and receiver and manager of the assets of the Reborn Trust. I am satisfied that it is appropriate to act on the basis of the matters to which Mr Tonks deposes. 19 It is apparent that there is a conflict between Mr Paquette's interest as trustee of the Reborn Trust, on the one hand, and his interest as a person said to be a debtor of the Trust, on the other. That conflict may be alleviated if Mr Paquette was to appoint an alternate trustee but, given that Mr Paquette may have an interest in the alternate trustee he appoints not taking action against him, that could well be productive of further difficulties. The appointment of Mr Tonks as receiver and manager will avoid conflicts and difficulties of these kinds. 20 It is appropriate for the Court to take into account that the assets which may ultimately be realised and available to creditors may be modest. In that circumstance it is desirable that the Court facilitate steps which will enable enforcement of the trustee's right of indemnity at minimum cost. A course which would have Mr Paquette continuing to be the trustee of the trust is unlikely to have that effect. 21 In all these circumstances, I consider that it is just and convenient that a receivership order be made in order to ensure the protection of the trust property and will make orders of the kind sought by Mr Tonks. I certify that the preceding twenty-one (21) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice White. Associate: Dated: 7 October 2016