FEDERAL COURT OF AUSTRALIA Bendigo and Adelaide Bank Limited, in the matter of Reborn Enterprises Pty Ltd (Trustee) v Reborn Enterprises Pty Ltd (Trustee) (No 2) [2018] FCA 856 File number: SAD 431 of 2015 Judge: WHITE J Date of judgment: 8 June 2018 Catchwords: TRUSTS AND TRUSTEES – application for orders by a liquidator and manager and receiver – application of Jones (Liquidator) v Matrix Partners Pty Ltd, in the matter of Killarnee Civil & Concrete Contractors Pty Ltd (in liq) [2018] FCAFC 40 – orders made. Legislation: Corporations Act 2001 (Cth) ss 425(8), 473, 1581 Federal Court of Australia Act 1976 (Cth) s 57(1) Insolvency Law Reform Act 2016 (Cth) item 144 of Sch 2 Federal Court Rules 2011 (Cth) r 14.24 Cases cited: Bendigo and Adelaide Bank Limited, in the matter of Reborn Enterprises Pty Ltd (Trustee) v Reborn Enterprises Pty Ltd (Trustee) [2016] FCA 1197 Commonwealth v Byrnes & Hewitt [2018] VSCA 41 Jones (Liquidator) v Matrix Partners Pty Ltd, in the matter of Killarnee Civil & Concrete Contractors Pty Ltd (in liq) [2018] FCAFC 40 Sanderson as liquidator of Sakar Nominees Pty Ltd (in liq) v Sakar [2017] NSWCA 38; (2017) 93 NSWLR 459 Date of hearing: 1 December 2017 Registry: South Australia Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Category: Catchwords Number of paragraphs: 23 Counsel for the Plaintiff: The Plaintiff did not appear Counsel for the Defendant: The Defendant did not appear Counsel for the Applicant: Mr M Douglas 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 OF 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 INTERLOUCTORY 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: 8 June 2018 THE COURT ORDERS THAT: 1. The Applicant in his capacity as Liquidator of Reborn Enterprises Pty Ltd (in Liquidation) (Reborn Enterprises) and as Receiver of the assets of The Reborn Enterprises Trust (Reborn Trust) is entitled to be paid from Reborn Enterprises' right of exoneration as trustee of the Reborn Trust his costs, expenses and remuneration in respect of work undertaken to render the Reborn Enterprises' right of exoneration available to meet the claims of creditors whose debts were incurred in the administration of the Reborn Trust. 2. The amounts which the Applicant in his capacity as Liquidator of Reborn Enterprises is entitled to from the right of indemnity are: (a) $34,305 exclusive of GST for the period from 17 February 2016 to 31 October 2017; (b) $5,475 exclusive of GST for the period from 1 November 2017 to the finalisation of the liquidation. 3. Pursuant to r 14.24 of the Federal Court Rules 2011, the Applicant in his capacity as Receiver of the assets of the Reborn Trust be entitled to be paid remuneration from those assets in accordance with the Order above as follows: (a) $32,217.50 exclusive of GST for the period from 23 September 2016 to 31 October 2017; (b) $7,115 exclusive of GST for the period from 1 November 2017 to the finalisation of the receivership. 4. The receivership is otherwise determined. 5. The Applicant's costs of this action be costs in the winding up. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT WHITE J: 1 On 17 February 2016, a Registrar of the 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 On 23 September 2016, in the exercise of the power contained in s 57(1) of the Federal Court of Australia Act 1976 (Cth) (the FCA Act), the Court appointed Mr Tonks as receiver and manager of the property of the Reborn Trust, and made orders that he be authorised to take possession of, preserve, maintain and sell the assets comprising the Trust property, as well as consequential orders: Bendigo and Adelaide Bank Limited, in the matter of Reborn Enterprises Pty Ltd (Trustee) v Reborn Enterprises Pty Ltd (Trustee) [2016] FCA 1197. The Court deferred for further consideration Mr Tonks' application with respect to payment of his remuneration as receiver together with his application for an order that the costs and expenses which he incurred in the receivership be paid out of the assets of the Reborn Trust. 4 Some time then elapsed during which it seems that Mr Tonks was negotiating with creditors and debtors and pursuing the realisation of assets of the Reborn Trust. In particular, he took action to recover a debt of $192,606 owed to the Trust by Mr Paquette, one of its directors. Mr Tonks describes this as having been "complicated and time consuming". 5 At a hearing on 1 December 2017, Mr Tonks sought orders as follows: (a) The Applicant in his capacity as Liquidator of Reborn Enterprises Pty Ltd (in Liquidation) (Reborn Enterprises) and as Receiver of the Trust Assets is entitled to be paid from Reborn Enterprises' right of exoneration as trustee of The Reborn Enterprises Trust (Reborn Trust) his costs, expenses and remuneration in respect of work undertaken to render the Reborn Enterprises' right of exoneration available to meet the claims of creditors whose debts were incurred in the administration of the Reborn Trust; (b) The amounts which the Applicant in his capacity as Liquidator of Reborn Enterprises is entitled to from the right of indemnity are: (i) $34,305 exclusive of GST for the period from 17 February 2016 to 31 October 2017; (ii) $5,475 exclusive of GST for the period from 1 November 2017 to the finalisation of the liquidation. (c) Pursuant to rule 14.24 of the Federal Court Rules 2011, the Applicant in his capacity as Receiver of the Trust Assets be entitled to be paid remuneration from the Trust Assets in accordance with the Order above as follows: (i) $32,217.50 exclusive of GST for the period from 23 September 2016 to 31 October 2017; (ii) $7,115 exclusive of GST for the period from 1 November 2017 to the finalisation of the receivership. (d) The receivership is otherwise determined. (e) The Applicant's costs of this action be costs in the winding up. 6 As can be seen, Mr Tonks sought orders (a) and (b) in his capacity as liquidator of Reborn Enterprises and orders (c) and (d) in his capacity as receiver and manager of the Reborn Trust. 7 At that time, both the Court of Appeal in Victoria and the Full Court of this Court had reserved on judgments concerning, amongst other things, the question of whether the assets of a trust were assets of the corporate trustee in the winding up of the corporate trustee and the entitlement of a liquidator of a corporate trustee to recover from the trust assets the costs and expenses incurred by the liquidator in dealing with those assets. I considered it appropriate therefore to defer a decision on Mr Tonks' application until judgment in those matters had been delivered. That has now occurred: Commonwealth v Byrnes & Hewitt [2018] VSCA 41 (on 28 February 2018) and Jones (Liquidator) v Matrix Partners Pty Ltd, in the matter of Killarnee Civil & Concrete Contractors Pty Ltd (in liq) [2018] FCAFC 40 (delivered on 21 March 2018). 8 I then invited Mr Tonks to make further submissions in writing in the light of those decisions. No further submissions have been received. 9 Mr Tonks' affidavit indicated that only two proofs of debt have been received in the liquidation of Reborn Enterprises. They were from Bendigo and Adelaide Bank Limited for a total of $470,660.21 and from ABL Custodian Services Pty Ltd (ABL Custodian) for $244,331.18. Other potential creditors had been identified but they have indicated that they do not wish to lodge proofs of debt, and have not done so. 10 Mr Tonks held a meeting of creditors on 29 November 2017. At that meeting, the creditors passed resolutions to the following effect: (a) approving Mr Tonks' remuneration as liquidator of Reborn Enterprises in the period 17 February 2016 to 31 October 2017 in the amount of $34,305, exclusive of GST; (b) approving Mr Tonks' future remuneration as liquidator at a capped amount of $5,475, exclusive of GST; (c) approving Mr Tonks' remuneration as receiver and manager of the Reborn Trust assets for the period 23 September 2016 to 31 October 2017 in the amount of $32,217.50, exclusive of GST; (d) approving Mr Tonks' future remuneration as receiver and manager of the Reborn Trust assets at a capped amount of $7,115, exclusive of GST; (e) approving Mr Tonks' internal disbursements as liquidator at a capped amount of $100; and (f) approving the compromise by Mr Tonks, in his capacity as liquidator and as receiver and manager of the debt to the company of its director, Mr Paquette, in the amount of $192,606. 11 Mr Tonks' affidavit also indicates that he proposed to execute a deed of settlement and release, to which the parties are Bendigo and Adelaide Bank Limited, ABL Custodian, Mr Paquette and himself on behalf of Reborn Enterprises, and the Reborn Trust. The Court has not been provided with a copy of the proposed deed. However, its subject matter appears principally to be a compromise of Reborn Trust's claim against Mr Paquette, the disposition to Mr Paquette of assets of uncertain value, and the agreement of Bendigo and Adelaide Bank Limited and ABL Custodian to withdraw their proofs of debt. Mr Tonks has deposed that, under the deed, Mr Paquette and/or related parties will pay $250,000, with that sum being disbursed as follows: Bendigo and Adelaide Bank Limited $230,000 Mr Tonks as receiver and manager $20,000 Total $250,000 12 As part of the consideration for the payment by Mr Paquette of $250,000, Mr Tonks will assign the interest of Reborn Enterprises in Almond Investments Limited, an almond growing project at Swan Hill in Victoria. 13 It is also a term that Bendigo and Adelaide Bank Limited, ABL Custodian and Reborn Enterprises' external accountant will not claim in the winding up. This will have the consequence that the $20,000 to be paid to Mr Tonks as receiver and manager can be applied to payment of his outstanding costs and disbursements as liquidator and as receiver and manager. 14 Apart from formal matters, both the liquidation of Reborn Enterprises and the receivership of the property of the Reborn Trust, have now been finalised. Mr Tonks' report to creditors of 14 November 2017 indicated that there had been receipts of $91,789.71 in the liquidation and payments of $44,193.43. Accordingly, the balance is $47,596.28. Together with the amount of $20,000 to be received from the settlement, Mr Tonks will hold $67,596.28. The costs and disbursements approved by the creditors and which are the subject of the proposed orders, exceed that amount. 15 Mr Tonks seeks remuneration in his capacity as liquidator from the Trust assets on the basis that that was work associated with the administration of the Trust. 16 Mr Tonks' report to creditors indicates that Reborn Enterprises did, for a short time, engage in an advisory business on its own account. As I understand it, none of the liabilities identified in the liquidation were incurred in relation to that business. 17 Mr Tonks' appointment as receiver and manager of the assets of the Reborn Trust was made pursuant to s 57(1) of the FCA Act. Neither the FCA Act nor r 14.24 of the Federal Court Rules 2011 (Cth) indicates a basis upon which the Court should assess the remuneration of an appointed receiver. In that circumstance, counsel for Mr Tonks submitted that the Court should take account of the considerations contained in the former s 473(10) of the Corporations Act 2001 (Cth) in assessing a liquidator's remuneration. He submitted that this was appropriate in the present case given that the Court had appointed Mr Tonks as receiver over the assets of the Reborn Trust and because Mr Tonks, as receiver, had undertaken a role and duty similar to that of a liquidator. 18 Section 473 of the Corporations Act was repealed by item 144 of Sch 2 of the Insolvency Law Reform Act 2016 (Cth). That item came into operation on 1 March 2017. However, despite its repeal, s 473 continues to apply to administrators appointed before 1 March 2017 (Corporations Act, s 1581). 19 Under s 473(10), the matters to which the Court could have regard were: (a) the extent to which the work performed was necessary (s 473(10)(a)); (b) the period during which the work was performed (s 473(10)(c)); (c) the quality of the work (s 473(10)(d)); (d) the complexity of the work (s 473(10)(e)); and (e) the value and nature of any property dealt with (s 473(10)(h)). 20 Section 425(8) of the Corporations Act now provides for these matters in respect of a receiver. 21 It is for a liquidator to establish that the remuneration claimed is reasonable. The Court is to determine the appropriateness of the remuneration on a consideration of all the material brought before it. Proportionality is one factor to which the Court should have regard: see Sanderson as liquidator of Sakar Nominees Pty Ltd (in liq) v Sakar [2017] NSWCA 38; (2017) 93 NSWLR 459 at [54]. 22 In the present case, Mr Tonks has deposed in some detail to the work which he performed in his capacity as liquidator and in his capacity as receiver and manager. I am satisfied that the work to which he has deposed is of a nature ordinarily to be expected to be undertaken by a liquidator or a receiver. Further, the rates at which Mr Tonks has charged do not, on their face, appear to be unreasonable. I note that the creditors, who are two well-resourced commercial institutions, have approved the remuneration. 23 I am not able to identify a basis upon which it would be inappropriate for the Court to approve the remuneration sought. Accordingly, I will make orders as sought by Mr Tonks. I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice White. Associate: Dated: 8 June 2018