FEDERAL COURT OF AUSTRALIA Griffiths (Administrator) v The Trustee for Chrisamanda Trust trading as Chrisamanda Trust [2017] FCA 1222 File number: NSD 1612 of 2017 Judge: GLEESON J Date of judgment: 15 September 2017 Date of publication of reasons: 18 October 2017 Catchwords: CORPORATIONS – application for appointment of receiver and manager under s 57(1) of Federal Court of Australia Act 1976 (Cth) Legislation: Corporations Act 2001 (Cth) s 439A Federal Court of Australia Act 1976 (Cth) s 57(1) Cases cited: Hosking, re Business Aptitude Pty Ltd (in liquidation) [2016] FCA 1438 Re Mecfab Holdings Pty Ltd [2015] NSWSC 46 Date of hearing: 15 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: 12 Counsel for the Plaintiffs: Mr N Simpson Solicitor for the Plaintiffs: Piper Alderman ORDERS NSD 1612 of 2017 BETWEEN: MITCHELL GRIFFITHS IN HIS CAPACITY AS ADMINISTRATOR OF SAMANDAC PTY LTD (ADMINISTRATOR APPOINTED) First Plaintiff SAMANDAC PTY LTD (ADMINISTRATOR APPOINTED) ACN 010 433 922 Second Plaintiff AND: THE TRUSTEE FOR CHRISAMANDA TRUST TRADING AS CHRISAMANDA TRUST (ABN 14 340 541 26) Respondent JUDGE: GLEESON J DATE OF ORDER: 15 September 2017 THE COURT ORDERS THAT: 1. Pursuant to section 57(1) of the Federal Court Act 1976 (Cth), the first plaintiff, Mitchell Richmond Griffiths, be appointed without security as receiver and manager of the business and property of the Chrisamanda Trust (ABN 14 340 541 260). 2. The receiver has in respect of the trust business and property the powers that an administrator has in respect of the business and property of a company under s 437A of the Corporations Act 2001 (Cth). 3. The receiver not distribute the assets of the trust without the direction of the Court. 4. The first plaintiff's costs of these proceedings be costs and expenses in the administration of the second plaintiff. 5. The receiver have liberty to apply for the approval of his remuneration. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT GLEESON J: 1 On 15 September 2017, following an urgent ex parte application by the plaintiffs, I made orders pursuant to s 57(1) of the Federal Court of Australia Act 1976 (Cth) for the appointment of the first plaintiff ("Mr Griffiths") as receiver and manager of the business and property of the Chrisamanda Trust ("Trust") and ancillary orders. These are my reasons for making the orders. Background to application 2 On 30 August 2017, Mr Griffiths was appointed as administrator of the second plaintiff ("Samandac"). 3 At the time of the application, Samandac was the subject of a winding up application by the Deputy Commissioner of Taxation ("DCT") in Federal Court proceeding QUD411/2017 which was listed for hearing on 22 September 2017. 4 Prior to Mr Griffiths' appointment as administrator, Samandac acted as trustee of the Trust and its sole purpose was to act as trustee for the Trust. The Trust is a discretionary trust which operates an accounting practice known as Concord TBS in Townsville, Queensland. 5 Following Mr Griffiths' appointment as administrator, Samandac automatically vacated its position as trustee under the terms of the Trust's trust deed. Accordingly, the Trust is currently a bare trust. 6 The principal beneficiaries of the Trust are Christopher Byrne and Amanda Jane Byrne, who are also the shareholders of Samandac. They gave their written consent to Mr Griffiths' application. 7 Mr Griffiths' stated purposes of seeking appointment as receiver and manager of the business and property of the Trust are: (1) to secure and protect Samandac's right of indemnity out of the assets of the Trust; (2) to secure the assets of the Trust and to take steps to recover the Trust's debtors; (3) to facilitate the administration of the Trust in parallel with the administration of Samandac; and (4) to facilitate a potential sale of the Trust's business being the accounting practice. 8 Mr Griffiths anticipated that the further work to be undertaken in respect of the administration included: (1) continuing the trading on of the Trust's business, being the accounting practice; (2) continuing to liaise with the employees of the accounting practice and other parties in relation to proposals for a deed of company arrangement or the sale of the practice; (3) issuing his report to creditors in accordance with s 439A of the Corporations Act 2001 (Cth); (4) liaising with the DCT in relation to the administration of Samandac and the winding up application; and (5) conducting the major meeting of creditors. 9 A balance sheet for "Concord TBS" as at 30 August 2017 discloses a substantial excess of current liabilities over current assets including significant tax liabilities. However, a profit and loss statement for the 12 months ended 30 June 2017 shows net profits over the previous three years, including net profit of $159,265 for the year ended 30 June 2017. Legal framework 10 In Hosking, re Business Aptitude Pty Ltd (in liq) [2016] FCA 1438, I set out the following principles which are relevant to this application at [17]-[22]: [17] The general ground upon which the Court appoints a receiver is the protection or preservation of property for the benefit of persons who have an interest in it: QBE Insurance (Australia) Ltd v WA Metal Recycling Pty Ltd, in the matter of WA Metal Recycling Pty Ltd (in Liq) [2016] FCA 238 ("QBE Insurance") at [13], citing Sapphire (SA) Pty Ltd v Ewens Glen Pty Ltd [2011] FCA 600 at [15]. [18] Where a trustee is removed, it retains a right of indemnity from the trust assets secured by an equitable charge over them for its liabilities incurred by reason of acting as trustee: In the matter of Stansfield DIY Wealth Pty Ltd (in liquidation) [2014] NSWSC 1484; (2014) 291 FLR 17 ("Re Stansfield") at [10]. [19] There is a conflict of authority as to whether the liquidator of a corporate trustee, which has ceased to be trustee, has the power to sell trust assets to enforce the (former) trustee's right of indemnity. In Apostolou v VA Corporation of Aust Pty Ltd [2010] FCA 64; (2010) 77 ACSR 84, Finkelstein J held, at [48]-[50], that the liquidator of a corporate trustee which held legal title to trust property in which it also had an equitable interest could sell the subject property pursuant to the power of sale conferred by s 477 of the Act and that this survived the removal of the corporate trustee. [20] However, in Re Stansfield, Brereton J disagreed with the decision of Finkelstein J and held (at [10],[16]-[20],[30],[33]) that, if a trustee company ceases to be trustee of a trust it can no longer exercise the trustee's power of sale under the trust instrument or general law and that s 477(2)(c) of the Act does not empower the liquidator to sell property held by the trustee company on trust, even if the trustee company has an equitable charge over it, because the property is not in itself "property of the company". [21] Notwithstanding this conflict of authority, it is well-established that a receiver and manager can be appointed over trust property to secure the trustee's right of indemnity out of the assets of the trust: SMP Consolidated Pty Ltd (in liquidation) v Posmot Pty Limited [2014] FCA 1382 ("SMP Consolidated") at [7] citing Re Indopal Pty Ltd (1987) 12 ACLR 54 at 57; Kerr, in the matter of Angel's Castle Pre-School Pty Ltd (In Liquidation) [2010] FCA 786 ("Angel's Castle Pre-School") at [25]; In the matter of Gramarker Pty Ltd; Clifford Sanderson (as liquidator of Gramarker Pty Ltd) v Kerr [2014] NSWSC 243 at [6]–[7]; Re Stansfield at [31], [33], [45]. [22] This Court has exercised its power under s 57(1) of the FCA Act for the purpose of appointing a liquidator of a former trustee company as receiver and manager of the trust, for example, in QBE Insurance and in Kite v Mooney, in the matter of Mooney's Contractors Pty Ltd (in liq) [2016] FCA 886. 11 Counsel for the plaintiffs, Mr Simpson, referred to Re Mecfab Holdings Pty Ltd [2015] NSWSC 46 ("Mecfab"), a decision in which Brereton J made orders similar to the kind sought by the plaintiffs. In that case, Brereton J was satisfied that it was expedient to appoint a receiver and manager of the trust business and assets to protect the interests of the company in administration, saying (at [9]): Doing so will facilitate and simplify the administration of the company by providing for the trust business and assets to be under the same control as the company while it is in administration, and enable the plaintiff, as receiver, to secure and preserve the trust assets in aid of enforcement of the first defendant's indemnity in respect of the liabilities it incurred in its capacity as trustee of the Trust, and in aid of recovery of the plaintiff's costs of the receivership (and, because the first defendant's sole function was to act as trustee of the Trust, the general costs of the administration). CONSIDERATION 12 For the reasons given by Brereton J in Mecfab, I was satisfied that I should make the orders sought. Additionally, I made an order that the receiver not distribute the assets of the trust without the direction of the Court because the evidence did not address the position of all of the Trust's beneficiaries and, as Brereton J observed in Mecfab, the outcome of the administration will influence, if not determine, the future of the Trust. I certify that the preceding twelve (12) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gleeson. Associate: Dated: 18 October 2017