FEDERAL COURT OF AUSTRALIA Arumainathan, in the matter of STJC Pty Ltd v STJC Pty Ltd [2017] FCA 1229 File number: NSD 1807 of 2017 Judge: MARKOVIC J Date of judgment: 17 October 2017 Catchwords: TRUSTS AND TRUSTEES – application for appointment of receiver to trust assets – where former corporate trustee automatically removed – where breakdown in relationship of trust unit holders – whether to appoint receiver – application allowed CORPORATIONS – application to appoint liquidator – where former corporate trustee has been removed as trustee – where appointment of liquidator would enliven power in lessor to cancel lease of trust business premises – application dismissed Legislation: Corporations Act 2001 (Cth) Federal Court of Australia Act 1976 (Cth) s 57 Cases cited: Hosking, in the matter of Business Aptitude Pty Ltd (in liquidation) [2016] FCA 1438 QBE Insurance (Australia) Limited v WA Metal Recycling Pty Ltd, in the matter of WA Metal Recycling Pty Ltd (in Liq) [2016] FCA 238 Date of hearing: 17 October 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: 13 Counsel for the Plaintiffs: Mr C D Freeman Solicitor for the Plaintiffs: Armstrong Law Partners Pty Ltd Counsel for the Second and Third Defendants: Mr T J Morahan Solicitor for the Second and Third Defendants: Emprise Legal ORDERS NSD 1807 of 2017 IN THE MATTER OF STJC PTY LTD ACN 169 808 655 BETWEEN: CHRISTINE ARUMAINATHAN First Plaintiff THAYALAN KANAGASABAPATHY Second Plaintiff AND: STJC PTY LTD ACN 169 808 655 First Defendant STANLEY SEBASTIAN Second Defendant JANINE SEBASTIAN Third Defendant JUDGE: MARKOVIC J DATE OF ORDER: 17 OCTOBER 2017 THE COURT ORDERS THAT: 1. Pursuant to s 57 of the Federal Court of Australia Act 1976 (Cth), Timothy James Cook of 3/26 Bronte Road, Waverly NSW 2024 be appointed as receiver without security (Receiver) over all of the assets and undertaking of the STJC Unit Trust (Trust). 2. The Receiver have, in respect of the Trust's assets and undertaking, all of the powers provided by s 420 of the Corporations Act 2001 (Cth) (Corporations Act) (other than those in ss 420(2)(s), (t), (u) and (w) of the Corporations Act) as if the references to "the corporation" therein were to the Trust. 3. The Receiver be remunerated at the rates attached to his consent filed in this proceeding on 16 October 2017. 4. The costs, expenses and remuneration of the Receiver be paid from the assets of the Trust and, if they be insufficient, the quantum of such costs, expenses and remuneration is to be approved by the Court. 5. To the extent necessary, the second and third defendants take all necessary steps to remove the block on the first defendant's National Australia Bank account, BSB number 083-004, account number 74-189-6414 within 24 hours of the date of this Order. 6. The plaintiffs' and the second and third defendants' costs of this application be paid from the assets of the Trust. 7. The proceeding, including the balance of the interlocutory process filed on 13 October 2017, be listed for case management hearing on 9 November 2017 at 9.30 am before a judge to be allocated. 8. Liberty to apply on 2 days' notice in relation to paragraph 5 of the plaintiffs' interlocutory process filed on 13 October 2017. 9. Liberty to any party or the Receiver to apply to the Court in respect of the implementation of any of these Orders on 3 hours' notice. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT (REVISED FROM TRANSCRIPT) MARKOVIC J: 1 By interlocutory process filed on 13 October 2017, the plaintiffs (Christine and Thayalan) seek the appointment of Timothy James Cook as receiver without security of the assets and undertaking of the STJC Unit Trust (Trust). The main asset of the Trust is a childcare centre known as the Kinderoo Early Learning Centre which is operated from 38 Eleanor Street, Rosehill. The second and third defendants to the proceeding (Janine and Stanley) oppose the appointment of a receiver to the assets of the Trust and, today, when the matter was before me, made an application for the appointment of a liquidator to STJC Pty Limited (STJC) which, for reasons that I will explain, was, until the commencement of this proceeding, the trustee of the Trust. 2 The background to the proceeding in which this application is made can be briefly stated. 3 On 10 November 2014 the Trust was created. The trustee was STJC. The unitholders in the Trust are Christine and Thayalan and Janine and Stanley, who hold units in equal shares. That is, Christine and Thayalan hold 60 units and Janine and Stanley hold 60 units. 4 Clause 92 of the trust deed establishing the Trust provides that a trustee will be automatically removed if the trustee, among other things, in the case of a corporate trustee, has a petition for its winding up presented to a court having appropriate jurisdiction, passes a resolution of its members for its winding up, or enters into a scheme or arrangement under the Corporations Act 2001 (Cth). 5 In 2014 STJC took a transfer of a lease of the premises from which the childcare centre is operated. The term of that lease ends on 19 January 2018 and there are three options of renewal of five years each. The lease provides for the annual rental which, I was informed by counsel appearing for the plaintiff, has increased since its commencement and also provides that the lessee is to pay 100% of rates, taxes and outgoings. Clause 19 of the lease, which is headed "Cancellation for breach", provides, among other things, that the lessor may cancel the lease if the lessee is a corporation and an order is made or a resolution is passed for its winding up, unless it is for reconstruction or amalgamation. It further provides that the lessor may cancel the lease if the lessee is a company that goes into liquidation, whether voluntary or not; is wound up; or is placed under the control of a liquidator or a receiver, in both cases, whether provisional or otherwise. 6 There is evidence before me that, leading up to the commencement of this proceeding, Christine and Thayalan, on the one hand, and Janine and Stanley, on the other, have experienced a breakdown in their working relationship. In particular, a block has been placed by Janine and Stanley on the childcare centre's bank account held with the National Australia Bank such that it has not been possible to pay the childcare centre's running expenses, including payroll and other expenses such as outgoings. As a result, Christine and Thayalan have had to pay some of those expenses from their own accounts rather than from the account of the childcare centre. 7 It is not necessary for me to consider that dispute and its cause on this application. It is sufficient to note that the evidence demonstrates that there has been a breakdown of the working relationship between the parties. So much is accepted by counsel appearing for Janine and Stanley and, indeed, in correspondence from the solicitors for Janine and Stanley, they accept, to use their description, that: [T]he relationship between our respective clients has broken down to a point where it is beyond repair. 8 This proceeding was commenced urgently by the lodgement for filing of an originating process on 12 October 2017. Among the prayers for relief sought in the originating process are a declaration that it is just and equitable that STJC be wound up and orders that it be wound up and that a liquidator be appointed to it. The very filing of the originating process means that there has been an automatic removal of STJC as trustee of the Trust. 9 Section 57 of the Federal Court of Australia Act 1976 (Cth) gives the Court a power to appoint a receiver. In Hosking, in the matter of Business Aptitude Pty Ltd (in liquidation) [2016] FCA 1438 at [17] Gleeson J noted that 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, citing QBE Insurance (Australia) Limited v WA Metal Recycling Pty Ltd, in the matter of WA Metal Recycling Pty Ltd (in Liq) [2016] FCA 238. 10 It seems to me that this is a case where, as submitted by counsel appearing for Christine and Thayalan, the protection or preservation of the property of the Trust is critical and that an order appointing a receiver should be made for that purpose and for the benefit of the beneficiaries of the Trust who have an interest in that property. On the evidence before me, given the breakdown in the relationship between the unit holders, there can be no prejudice suffered as a result of the appointment of what is, in effect, a neutral third party to run the business of the Trust and, if possible, to sell it for the benefit of all beneficiaries. A receiver, if appointed, would act in the interests of all beneficiaries. 11 The only alternative put to me this morning was the appointment of a liquidator. Although that is the final relief sought by Christine and Thayalan, they did not press that application today. That is because the appointment of a liquidator would give the lessor the right to terminate the lease, which could cause detriment to the business and its value. 12 There was, in my view, insufficient evidence before me to proceed on Janine and Stanley's application to appoint a liquidator and no consent from any appropriately qualified person to take on that role. Further, the appointment of a liquidator at this stage, possibly leading to the termination of the lease, could cause detriment to the business. 13 I am satisfied that the orders sought by Christine and Thayalan for the appointment of a receiver should be made and, accordingly, will make orders in the form proposed by Christine and Thayalan as amended during the course of argument. I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Markovic. Associate: Dated: 24 October 2017