FEDERAL COURT OF AUSTRALIA Deputy Commissioner of Taxation, in the matter of Australian Managed Print Services (Vic) Pty Ltd (in liq) v Australian Managed Print Services (Vic) Pty Ltd (in liq) [2017] FCA 1172 File number: NSD 1303 of 2015 Judge: LEE J Date of judgment: 7 September 2017 Catchwords: CORPORATIONS – application for directions pursuant to s 479(3) of the Corporations Act 2001 (Cth) – where a company is the trustee of a trust and carries on no commercial activity other than being trustee – where liquidator appointed – where no trustee appointed in place of the company – where directions are appropriate PRACTICE AND PROCEDURE – where company is a trustee of a trust and carries on no commercial activity other than being trustee – where liquidator appointed to the company – where appropriate to appoint liquidator as receiver and manager of the trust pursuant to s 57 of the Federal Court of Australia Act 1976 (Cth) Legislation: Corporations Act 2001 (Cth), ss 420, 420(2)(s), 420(2)(t), 420(2)(u), 420(2)(w), 479, 479(3), 596A, 1617 Federal Court of Australia Act 1976 (Cth), s 57 Insolvency Law Reform Act 2016 (Cth), Sch 2 Corporations and Other Legislation Amendment Act (Law Reform) Regulation 2016 (Cth), Sch 1 Corporations Regulations 2001 (Cth), Pt 10.25, regs 10.25.01(1), 10.25.02(3)(h) Cases cited: Australian Securities and Investments Commission v Rowena Nominees Pty Ltd [2003] WASC 112; (2003) 45 ACSR 424 Hosking, in the matter of Business Aptitude Pty Ltd (in liq) [2016] FCA 1438 Re Aced Kang Investments Pty Ltd (in liq) [2017] FCA 476 Re Amerind Pty Ltd (receivers and managers appointed) (in liq) [2017] VSC 127 Re G B Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674 Re Glengrant Civil Pty Ltd (in liq) [2017] NSWSC 843 Re MF Global Australia Ltd (in liq) (No 2) [2012] NSWSC 1426 Re North Food Catering Pty Ltd [2014] NSWSC 77 Re Suco Gold Pty Ltd (in liq) (1983) 33 SASR 99 Sanderson v Classic Car Insurances Pty Ltd (1985) 10 ACLR 115 Date of hearing: 7 September 2017 Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Category: Catchwords Number of paragraphs: 27 Counsel for the Applicant: Mr S Golledge Solicitor for the Applicant: Maddocks Lawyers ORDERS NSD 1303 of 2015 IN THE MATTER OF AUSTRALIAN MANAGED PRINT SERVICES (VIC) PTY LTD (IN LIQUIDATION) ACN 121 011 863 BETWEEN: DEPUTY COMMISSIONER OF TAXATION Plaintiff AND: AUSTRALIAN MANAGED PRINT SERVICES (VIC) PTY LTD (IN LIQUIDATION) ACN 121 011 863 Defendant IN THE INTERLOCUTORY APPLICATION: BETWEEN: MARK DAMIAN CHARLES ROUFEIL IN HIS CAPACITY AS LIQUIDATOR OF AUSTRALIAN MANAGED PRINT SERVICES (VIC) PTY LTD (IN LIQUIDATION) ACN 121 011 863 Applicant JUDGE: LEE J DATE OF ORDER: 7 september 2017 THE COURT: 1. Directs pursuant to s 479(3) of the Corporations Act 2001 (Cth) (Act) that the applicant, Mark Roufeil as liquidator of Australian Managed Print Services (VIC) Pty Ltd (Company), would be justified in treating: (a) all of the Company's business and assets as assets of the Converge888 Trust (Trust); (b) all of the debts and liabilities which are provable in the winding up of the Company as having been incurred in the conduct of the business of the Trust; and (c) the assets of the Trust as being subject to an indemnity in relation to all of the liabilities of the Company. 2. Orders pursuant to s 57 of the Federal Court of Australia Act 1976 (Cth), that the applicant be appointed without security as the receiver (Receiver) of all of the assets and undertaking of the Trust. 3. Orders that the Receiver have, in respect of the Trust's assets and undertaking, all the powers provided by s 420 of the Act (other than those in ss 420(2)(s),(t),(u) and (w)) as if the references to "the corporation" therein were to the Trust. 4. Directs pursuant to s 479(3) of the Act that the applicant is justified in: (a) applying for a summons for, and conducting, an examination of the director of the Company under s 596A of the Act in relation to liabilities of the director or third parties to the Company; (b) thereafter, obtaining legal advice as to the legal merits of potential claims against the director or any other party and the prospects of any recovery upon enforcement of any judgment or orders obtained; (c) providing a report to creditors containing the applicant's recommendations as to the further conduct of the winding up. 5. Orders that the applicant is entitled to be paid remuneration as approved by the creditors of the Company at the meeting of creditors held on 30 November 2016 in the amount of $81,667.50 exclusive of GST from the proceeds of the assets and undertakings of the Trust. 6. Orders that the future remuneration and expenses of the applicant of acting as liquidator of the Company and/or Receiver of the assets of the Trust from 1 December 2016 be payable from the assets of the Trust. 7. The costs of this interlocutory application be costs of the applicant in the winding up of the Company. 8. The matter be listed at 9.30 am on 23 February 2018 for a case management hearing and the balance of the relief sought in the interlocutory application. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT (Revised from the transcript) Lee J: A introduction 1 By order of this Court dated 16 March 2016, Australian Managed Print Services (Vic) Pty Ltd (Company) was wound up in insolvency and Mr Mark Roufeil was appointed the official liquidator of the Company. 2 By amended interlocutory process filed 10 August 2017 (Application), the liquidator seeks relief, which can be divided into three broad categories: (a) directions pursuant to s 479(3) of the Corporations Act 2001 (Cth) (Act) as to the future conduct of the winding up of the Company (prayers 1, 1A and 5); (b) orders appointing the liquidator as receiver of the assets of the Converge888 Trust (Trust) of which the Company (which was previously named Evolve.com Pty Ltd) was appointed trustee pursuant to a written trust deed, and as to the conduct of that receivership (prayers 2, 3 and 4); and (c) orders confirming the manner in which funds available for payment for creditor claims are to be distributed (prayers 4A and 4B). 3 Before coming to the background to the Application and its disposition, it is convenient to deal with two preliminary matters. 4 The first is that by order dated 1 September 2017, the third category of the orders sought by the liquidator, identified at [2(c)] above, has been deferred for later determination. This is because there is nothing about this issue which is presently urgent and there is, at present, a reserved decision of the Court of Appeal of Victoria (being an appeal against the decision of Robson J in Re Amerind Pty Ltd (Receivers and Managers Appointed) (in liq) [2017] VSC 127), and a further matter set down for determination of separate questions (by a Full Court of this Court by orders of Siopis J on 12 May 2017 and Allsop CJ on 21 June 2017), both of which are potentially of significance in relation to the determination of the third category of relief sought by the liquidator. It follows from this that the only relief sought at hearing on 7 September 2017, was the relief set out in the first two categories in the Application, identified at [2(a)] and [2(b)] above. 5 The second preliminary matter relates to the legislative basis for the relief sought. Other judges have already made reference to the legislative 'porridge' which is the transitional arrangements occasioned by the repeal of relevant provisions of the Act by operation of the Insolvency Law Reform Act 2016 (Cth) (Reform Act). Robb J in Re Glengrant Civil Pty Ltd (in liq) [2017] NSWSC 843 at [11]-[30] dealt with these complexities and described the transitional arrangements, with some understatement, as "an exceptionally opaque process in changing important aspects of company law" (at [27]). 6 At the commencement of the hearing, Mr Golledge, who appeared for the liquidator, helpfully took me through the relevant provisions as they apply to the Application. Section 479 of the Act was repealed by Item 151 of Schedule 2 of the Reform Act. As is now well-known, however, the repeal was deferred by the Corporations and Other Legislation Amendment Act (Law Reform) Regulation 2016 (Cth) which introduced Part 10.25 into the Corporations Regulations 2001 (Cth). 7 Regulation 10.25.02(3)(h) provides that amendments made by certain items of Part 2 of Schedule 2 of the Reform Act, including, relevantly, Item 151, apply in relation to External Administrations on and after 1 September 2017. However, by virtue of s 1617 of the Act, s 479 continues to apply in this proceeding because it was commenced before the Commencement Day, which by virtue of reg 10.25.01(1), is a reference to 1 September 2017. Accordingly, s 479(3) of the Act continues to apply to this proceeding. B Factual Background 8 The Company was incorporated on 1 August 2006. 9 The sole director was Mr Les Yong (director), and he remained the sole director and company secretary until the liquidator was appointed. The evidence reveals that there are approximately 46 creditors, with claims totalling the relatively modest sum of $843,327. By far the largest single creditor is Flexirent Capital Pty Ltd (Flexirent), with an admitted claim of $528,005.49. The entirety of the amount owing to Flexirent is, as I understand it, secured by way of a personal guarantee of the Company's debts given by the director. Relevantly, for present purposes, the Trust, to which reference has already been made at [2(b)] above, is a standard form discretionary trust, with the objects of the Trust being the director and members of his family. The evidence establishes that the business (being the sale and servicing of photocopiers and printers within the printing industry) was conducted by the Company, but as trustee on behalf of the Trust. 10 There is a good deal of material in the evidence, including information provided to the liquidator by the director, which supports this conclusion, as submitted on behalf of the liquidator, that the Company did not conduct any trading activity on its own account and that all business was being conducted by it as trustee on behalf of the Trust. One of the features of the Trust Deed (cl 17.2(c)), provided that the Company automatically ceased being the trustee upon the making of the winding-up order. The evidence discloses that there has been no communication with the liquidator suggesting that a replacement trustee has been appointed. The liquidator has identified a claim that appears to be available to the Company, being the recovery of an amount of $662,536.28, which is shown to be owing on a loan account in the name of the director as at the date of the winding-up order. 11 An initial demand for recovery of that money was not met by the director, apparently on the basis that the relevant entry in the loan account was incorrect and that amounts said to be owing to the Company by way of a loan were, in truth, drawings provided by the Company to the director in his capacity as a beneficiary of the Trust. The circumstances surrounding the apparent discrepancy between the books and records of the Company and the contentions of the director, is of a relatively narrow compass. Not surprisingly, in these circumstances, the liquidator recommended to creditors that further investigation of the claim be carried out, including by way of public examination and, if the liquidator then thought it appropriate, the commencement of legal proceedings against the director. 12 Needless to say, this is precisely the sort of narrow factual controversy which is amenable to further clarification through the use of a public examination. In addition to this potential chose in action, the liquidator has recovered an amount of $236,000 as a result of proceedings against the director's wife, from which he has retained $206,640.14 after payment of the legal costs of those proceedings. Additionally, the liquidator received approximately $14,000 from the Company's bank account and the sale of plant and equipment. Further, during the course of the liquidation, the liquidator has uncovered payments made by the Company in an amount of $478,900 which, at least at this stage, are not explained by the books and records of the Company and may well be the subject of claims for the benefit of creditors. 13 Notwithstanding that around 46 creditors were identified, at a meeting of creditors held on 2 March 2017, four creditors attended. Three were represented by persons present at the meeting and another attended by appointing the liquidator as proxy. At that meeting, the creditors approved past remuneration of the liquidator in the amount of $81,667.50 (GST exclusive). A further resolution was also approved that the future remuneration of the liquidator from 1 December 2016 to the next report to creditors was to be determined at a sum equal to the cost of time spent by the liquidator, his partners and staff up to a capped amount of $60,000 (GST exclusive) and that the liquidator could draw the remuneration as required. 14 At the same meeting, after the chairperson called for any questions or comments regarding the liquidation and the report to creditors, there was general discussion regarding the investigation of transactions between the Company and related parties, and other potential examinations and recovery action. Following that discussion, the minutes record the following: The Chairperson noted that: • The Australian Taxation Office ... confirmed that they want the Liquidator to utilise funds recovered during the liquidation to conduct further investigations to identify further recoverable assets or claims. • However, [Flexirent] ... confirmed that it does not want the Liquidator to utilise funds currently in the liquidation account to conduct any further investigations and it would prefer to receive a distribution. [Flexirent] has also disclosed that it holds a personal guarantee from the director in relation to their claim against the [Company]. The Liquidator stated that he would convey the creditors' feedback to the court when filing an application for court directions, and he would provide creditors with an update once the court directions have been received. 15 As foreshadowed at the meeting, the application for directions has been made and the evidence establishes that notice has been given to all known creditors, none of whom have appeared on the Application. C consideration Directions Generally 16 As is well-known, an application for directions under s 479(3) is an administrative non-adversarial proceeding: Australian Securities and Investments Commission v Rowena Nominees Pty Ltd [2003] WASC 112; (2003) 45 ACSR 424 at 441 [79] per Pullin J. There is some debate in the authorities as to whether or not the Court's power under s 479(3) extends to granting binding orders. However, the predominant view is that, provided all necessary parties to any dispute are joined, there is no reason why a court, having jurisdiction to hear a dispute, as well as an application for directions, cannot deal with both in the one proceeding. I mention this because at least at one stage there was a suggestion that binding declarations of right were to be sought by the liquidator. 17 It is unnecessary for the purposes of this judgment to traverse the well-trodden ground as to the hesitation that the Court has in making declarations in the absence of a contradictor, and in circumstances where it is not readily apparent that there is an extant justiciable controversy requiring quelling by an exercise of Chapter III judicial power. Having said that, these issues fall away here, because the only relief sought (other than the substantive orders appointing the liquidator as receiver of the assets of the Trust and as to the conduct of the receivership) are directions. There is, of course, no fixed minimum standard or threshold which an application for directions must meet and it is usually proper to exercise the power under s 479(3) where the matter involves giving guidance to a liquidator to protect them against accusations of acting unreasonably: see Sanderson v Classic Car Insurances Pty Ltd (1985) 10 ACLR 115 at 117 per Young J. Directions as to Public Examination 18 As I have already indicated, the circumstances surrounding the proposed public examination of the director are far from novel. While a decision as to whether or not it would be appropriate for the liquidator to undertake a public examination in such common circumstances may well be said to involve no more than an exercise of commercial judgment, the Application is entirely appropriate, given what was raised by Flexirent, the largest creditor of the Company, in seeking to forestall further investigations and proceed immediately to distribution. The prudence of seeking directions is given further support by the fact that the minutes reveal that the Australian Taxation Office had a different view and confirmed that they wished the liquidator to utilise the funds already recovered to conduct further investigations. 19 I do not consider that there is any reason why I should not make the declarations sought. The liquidator has identified a claim which, according to the books and records of the Company, appears to be potentially viable and is a claim, by reason of its nature, apt to be the subject of clarification by way of the discipline imposed by the conduct of the public examination. Moreover, given the size of the potential claim (as compared to the amount owed to creditors generally), if the claim was able to be successfully prosecuted and recovery was able to be achieved (the issue of recovery being a further matter which would be an appropriate subject of examination), it is at least conceivable that the creditors could receive a very substantial dividend, based on the known claims. 20 I accept the conduct of an examination of the director (in which both the merits of the potential claim as well as its value can be investigated), constitutes a sensible and measured approach to the investigation and pursuit of that claim. It is further relevant to note that it may well be that Flexirent stands in a different position to other creditors not only because of the size of its claim, but also by reason of the fact that it appears to have the benefit of a guarantee (which may mean that there is an ability to recover a large part of the amount owed to it by the Company by the pursuit of its own proceedings against the director). For all these reasons, a direction in the terms sought should be granted. The Receivership Issue 21 Brereton J observed that a difficulty can arise where there has been work done in a statutory liquidation which is not directly or specifically referable to the administration of trust assets, but there is no property owned beneficially by the company in liquidation, as distinct from assets held by that company on trust for the trading trust: see Re North Food Catering Pty Ltd [2014] NSWSC 77 at [10]. After a review of the relevant authorities, his Honour observed, at [17], that the cases: ... appear to me to establish clearly enough that in the present case the liquidators are entitled to be paid their remuneration, whether for administering the trust assets or for general liquidation work, out of the trust assets, since the company has no assets other than trust assets. 22 Black J summarised the principles regarding payment of a liquidator's remuneration out of the assets of a trust of which the company in liquidation was the trustee in Re MF Global Australia Ltd (in liq) (No 2) [2012] NSWSC 1426 at [55], which can be distilled as follows: (a) the court has an inherent equitable jurisdiction to allow a trustee remuneration, costs and expenses out of trust assets, and this extends to a person such as a liquidator who is, for practical purposes, controlling the trustee; (b) the court may decline to exercise that jurisdiction where the company does not solely act as trustee and has sufficient beneficial assets to meet the liquidator's remuneration costs and expenses and where the work done by the liquidator in relation to trust assets may properly be treated as done for the purposes of winding up the company's affairs. Thus, generally where a company has assets which are not held on trust, the liquidator's costs should usually fall on its non-trust assets; (c) where the company has both trust assets and assets held beneficially by the company, the costs can be apportioned such that part of the remuneration attributable to the statutory liquidation work would fall on the assets beneficially owned by the company, whereas that part which related to administering the trust property might fall on the trust assets. 23 Here, of course, the position is the same as applied in Re North Food Catering where there are no non-trust assets. In Re G B Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674, McLelland J (as he then was) held that where work done by a liquidator in relation to trust assets may properly be considered as having been done for the purpose of winding up the affairs of the company, any remuneration and expenses attributable to that work should be paid out of the non-trust property of the company to the extent that there was such property available, but to the extent that there was not sufficient available property, allowance should normally be made to the liquidator from trust assets. 24 Similarly, in Re Suco Gold Pty Ltd (in liq) (1983) 33 SASR 99, the Full Court (per King CJ, Jacobs and Matheson JJ agreeing) concluded that where a company which carries on no activities other than being a trustee of a trading trust is in liquidation, the proper costs and expenses of the liquidator can be met from the assets of the trust. 25 It is also clear that where a liquidator is appointed to a company which held assets or conducted business as a trustee of a trust, it will often be appropriate, particularly in the absence of any identifiable reason to proceed otherwise, to appoint the liquidator as receiver and manager of the trust assets so as to better secure the right of indemnity over the trust assets to meet debts and liabilities incurred, and to overcome any uncertainties which may exist in relation to the liquidator's power to deal with and distribute property, and to overcome the difficulty, present in this case, of the vacancy of the office of trustee: see Re Aced Kang Investments Pty Ltd (in liq) [2017] FCA 476 at [12]-[15] per Moshinsky J; Hosking, in the matter of Business Aptitude Pty Ltd (in liq) [2016] FCA 1438 at [21] per Gleeson J. 26 In circumstances, as referred to above, where the Company carried on no business or activity other than being trustee of the Trust, and the fact that the evidence appears to disclose that a replacement trustee has not been appointed, there is no reason why an order ought not be made along the lines sought by the liquidator, for the appointment of the liquidator as a receiver of the assets and undertaking of the Trust, without security, pursuant to s 57 of the Federal Court of Australia Act 1976 (Cth). D conclusion & orders 27 It follows from the above that I am disposed to make the orders sought by the liquidator. For reasons I have explained, this does not dispose of the third category of relief sought in the Application. In these circumstances, and given the fact that the liquidator proposes to conduct public examinations, the best course is for the balance of the Application to be adjourned to a convenient date in February 2018. If, for some reason, the liquidator wishes to bring that date forward, the liquidator has liberty to contact my Associate for the purpose of obtaining an alternative date. I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lee. Associate: Dated: 4 October 2017