Federal Court of Australia Quin, in the matter of Harman Properties Pty Ltd (in liq) v Harman [2020] FCA 1671 File number(s): VID 278 of 2020 Judgment of: ANDERSON J Date of judgment: 17 November 2020 Date of publication of reasons: 18 November 2020 Catchwords: CORPORATIONS – insolvency – former trustee company – whether liquidator should be appointed receiver and manager over the assets of the relevant trust – appropriate that liquidator be appointed receiver of the trust assets CORPORATIONS – insolvency – whether the liquidator's remuneration, costs and expenses as liquidator and receiver be paid from trust assets – appropriate that such amounts be paid from trust assets CORPORATIONS – insolvency – whether appropriate to fix the remuneration, costs and expenses of the receivership – appropriate to make orders fixing costs of receivership Legislation: Corporations Act 2001 (Cth), Schedule 2, ss 60-10, 60-12, 90-15 and 90-20 Federal Court of Australia Act 1976 (Cth), s 57 Federal Court Rules 2011 (Cth), rr 14.21, 14.22, 14.24 Cases cited: Amirbeaggi, in the matter of Simpkiss Pty Ltd (in liq) [2018] FCA 2121 Application of Sutherland [2004] NSWSC 798 Apostolou v VA Corporation of Aust Pty Ltd [2011] FCAFC 103 Bailey (Liquidator) v Rock Solid Rendering Pty Ltd (in liquidation) as trustee of the Rock Solid Trust, in the matter of Rock Solid Rendering Pty Ltd (in liquidation) [2020] FCA 600 Cremin, in the matter of Brimson Pty Ltd (in liquidation) [2019] FCA 1023 Hillig (Liquidator), in the matter of SKC & Co Pty Ltd (in liquidation) [2020] FCA 454 Hosking, in the matter of Business Aptitude Pty Ltd (in liquidation) [2016] FCA 1438 In re Universal Distributing Co Ltd (In Liquidation) (1933) 48 CLR 171 Jones v Matrix Partner Pty Ltd; re Killarnee Civil & Concrete Contractors Pty Ltd (in liquidation) [2018] FCAFC 40 Michell (Liquidator) v Delltta Holdings Pty Ltd (in liq) atf The Brookhill Trust [2019] FCA 2133 Re Stansfield DIY Wealth Pty Ltd (in liq) [2014] NSWSC 1484 Re Suco Gold Pty Ltd (in liq) (1983) 33 SASR 99 Stewart v Atco Controls Pty Ltd (In Liquidation) (2014) 252 CLR 307 Division: General Division Registry: Victoria National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 32 Date of hearing: 17 November 2020 Counsel for the Plaintiffs: Mr Patrick Miller Solicitor for the Plaintiffs: Mills Oakley Counsel for the Defendant: The Defendant did not appear ORDERS VID 278 of 2020 IN THE MATTER OF HARMAN PROPERTIES PTY LTD (ACN 144 047 861) (IN LIQUIDATION) BETWEEN: DAVID CHARLES QUIN (AS LIQUIDATOR OF HARMAN PROPERTIES PTY LTD (ACN 144 047 861) (IN LIQUIDATION) First Plaintiff HARMAN PROPERTIES PTY LTD (ACN 144 047 861) (IN LIQUIDATION) Second Plaintiff AND: MICHAEL JOHN HARMAN (AS APPOINTOR OF THE HARMAN PROPERTY TRUST) (ABN 79 379 486 988) Defendant order made by: ANDERSON J DATE OF ORDER: 17 november 2020 THE COURT ORDERS THAT: 1. Pursuant to s 57(1) of the Federal Court of Australia Act 1976 (Cth), the First Plaintiff be appointed without security as receiver and manager over the assets of the Harman Property Trust including all of that land described in Certificate of Title Volume 10785 Folio 834 and situated at Unit 7, 157-161 Beresford Road, Lilydale, VIC 3140 (Property). 2. The need for the First Plaintiff to file a guarantee under r 14.21(b) and r 14.22 of the Federal Court Rules 2011 be dispensed with. 3. The First Plaintiff have in respect of the assets of the Harman Property Trust and the Property the powers that a receiver has in respect of the business and property of a company under s 420 of the Corporations Act 2001 (Cth) (Act) as if the reference in that section to "the corporation" were a reference to the Harman Property Trust including without limitation, the power to do all things necessary or convenient to: (a) investigate transactions made using funds derived from the assets of the Harman Property Trust and the Property; (b) demand the books and records of the Harman Property Trust from any person; (c) sell the assets of the Harman Property Trust, including the Property; (d) bring any claim against any party on behalf of the Harman Property Trust; (e) determine and make payment of claims against the assets of the Harman Property Trust, including the Property; (f) distribute the proceeds of sale of the assets of the Harman Property Trust, including the Property (after payment of the remuneration, costs and expenses of the First Plaintiff as liquidator of the Second Plaintiff and as receiver and manager of the Harman Property Trust) to pay the creditors of the Harman Property Trust pursuant to the priorities prescribed under the provisions of the Act; (g) distribute any surplus to the new trustee of the Harman Property Trust, or, if there is no trustee, to the beneficiaries of the Harman Property Trust; and (h) execute any documents relating to the Harman Property Trust. 4. The remuneration, costs and expenses of the First Plaintiff both as liquidator of the Second Plaintiff and as receiver and manager (including the costs of this application) be paid from the assets of the Harman Property Trust. 5. Pursuant to r 14.24 of the Federal Court Rules 2011, or alternatively in the inherent jurisdiction of the Court, the remuneration, costs and expenses of the First Plaintiff incurred in connection with the receivership is approved in the amount of $61,262 plus GST. 6. Liberty is granted to the First Plaintiff to apply to the Court for orders discharging and releasing him as receiver and manager on 7 business days' notice by sending an email to the Associate to the Judge. 7. There be liberty to apply to any person who can demonstrate sufficient interest to modify or discharge paragraphs 1 to 5 of these orders on not less than 48 hours written notice to the First Plaintiff. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT ANDERSON J: INTRODUCTION 1 This proceeding was commenced by way of an originating process dated 23 April 2020. The originating process sought the following relief: 1. Pursuant to s 57(1) of the Federal Court of Australia Act 1976 (Cth), the First Plaintiff be appointed without security as receiver and manager over the assets of the Harman Property Trust including all of that land described in Certificate of Title Volume 10785 Folio 834 and situated at Unit 7, 157-161 Beresford Road, Lilydale, VIC 3140 (Property). 2. The need for the First Plaintiff to file a guarantee under r 14.21(b) and r 14.22 of the Federal Court Rules 2011 be dispensed with. 3. The First Plaintiff have in respect of the assets of the Harman Property Trust and the Property the powers that a receiver has in respect of the business and property of a company under s 420 of the Act as if the reference in that section to "the corporation" were a reference to the Harman Property Trust including without limitation, the power to do all things necessary or convenient to: a. investigate transactions made using fund derived from the assets of the Harman Property Trust and the Property; b. demand the books and records of the Harman Property Trust form any person; c. sell the assets of the Harman Property Trust, including the Property; d. bring any claim against any party on behalf of the Harman Property Trust; e. determine and make payment of claims against the assets of the Harman Property Trust, including the Property; f. distribute the proceeds of sale of the assets of the Harman Property Trust, including the Property (after payment of the remuneration, costs and expenses of the First Plaintiff as liquidator of the Second Plaintiff and as receiver and manager of the Harman Property Trust) to pay the creditors of the Harman Property Trust pursuant to the priorities prescribed under the provisions of the Act; g. distribute any surplus to the new trustee of the Harman Property Trust, or, if there is no trustee, to the beneficiaries of the Harman Property Trust; and h. execute any documents relating to the Harman Property Trust. 4. The remuneration, costs and expenses of the First Plaintiff both as liquidator of the Second Plaintiff and as receiver and manager (including the costs of this application) be paid from the assets of the Harman Property Trust. 5. Pursuant to r 14.24 of the Federal Court Rules 2011, or alternatively in the inherent jurisdiction of the Court, the remuneration, costs and expenses of the First Plaintiff incurred in connection with the receivership is approved in the amount of $61,262 plus GST. 6. Liberty is granted to the First Plaintiff to apply to the Court for orders discharging and releasing him as receiver and manager on 7 business days' notice by sending an email to the Associate to the Judge. 7. There be liberty to apply to any person who can demonstrate sufficient interest to modify or discharge paragraphs 1 to 5 of these orders on not less than 48 hours written notice to the First Plaintiff. 8. Any other order this Honourable Court thinks fit. 2 The originating process was supported by an affidavit of the First Plaintiff (Liquidator) sworn 23 April 2020. 3 An affidavit of Robert Preac sworn 6 May 2020 records that the Defendant was, on 3 May 2020, served with the originating process and the affidavit of David Charles Quin sworn 23 April 2020 (Liquidator's 23 April 2020 affidavit) (among other documents). An affidavit of Jamie Cabuka sworn 20 May 2020 records that on 4 May 2020 the originating process and Liquidator's 23 April 2020 affidavit were sent to the Defendant by post. 4 On 21 May 2020, O'Bryan J made orders by consent that, by 4pm on 24 July 2020, the Defendant was to file and serve any application to terminate the winding up of the Second Plaintiff. 5 An affidavit of Amy Dawn Sheggerud-Woods sworn 14 August 2020 annexed email correspondence between the parties' solicitors dated between 20 July 2020 and 14 August 2020. That correspondence concerned the Liquidator's enquiries as to why the Defendant had not filed any application pursuant to O'Bryan J's Orders dated 21 May 2020. 6 On 13 August 2020, the Defendant's former solicitors filed a Notice of Ceasing to Act. 7 On 14 August 2020, O'Bryan J made the following orders: THE COURT NOTES THAT The defendant has failed to file and serve any application to terminate the winding up of the second plaintiff under s 482 of the Corporations Act 2001 (Cth) in accordance with the Orders of the Court made on 21 May 2020. THE COURT ORDERS THAT: 1. By 4 pm on 11 September 2020, the first plaintiff file and serve any further affidavits on which it intends to rely and a written submission in support of the originating process filed on 23 April 2020. 2. By 4 pm on 9 October 2020, the defendant file and serve any affidavits on which it intends to rely and a written submission in response to the originating process. 3. The originating process be listed for hearing on a date to be determined on an estimate of ½ - 1 day. 4. The defendant pay the plaintiffs' costs of the case management hearing today. 5. There be liberty to apply. 8 As will be apparent, the Defendant has failed to file any application to terminate the winding up of the Second Plaintiff (Company) in accordance with the orders made on 21 May 2020. Pursuant to the orders made on 14 August 2020, the Liquidator seeks to proceed with the application for the relief sought in the originating process filed on 23 April 2020. 9 By the originating process, the Liquidator and the Company seek orders (under s 57 of the Federal Court of Australia Act 1976 (Cth), r 14.24 of the Federal Court Rules 2011 (Cth) (Rules) and in the Court's inherent jurisdiction) that the Liquidator be appointed receiver and manager over the assets of the Harman Property Trust (Trust). The Liquidator and the Company also seek that the Liquidator's remuneration, costs and expenses in the liquidation of the Company and in the receivership of the Trust be paid from the assets of the Trust pursuant to the Court's inherent jurisdiction and ss 60-10, 60-12, 90-15 and 90-20 of Schedule 2 to the Corporations Act 2001 (Cth) (Act). 10 I heard this application on 17 November 2020. The Defendant did not appear at the hearing of the proceeding, or file any written submissions or affidavits. 11 At the hearing of this proceeding on 17 November 2020, I asked Counsel for the Liquidator whether there were any matters Counsel thought should be brought to my attention, particularly given the Defendant did not appear at the hearing. Counsel for the Liquidator did not identify any matters as to why the orders sought by the Liquidator should not be made. BACKGROUND 12 The Liquidator was appointed the liquidator of the Company pursuant to an order of the Federal Court of Australia in proceeding VID 812 of 2019 made on 6 September 2019. The Defendant is the sole director, secretary and shareholder of the Company. 13 The Company is the sole registered proprietor of the property located at Unit 7, 157-161 Beresford Road, Lilydale, VIC 3140 (more particularly described as Certificate of Title Volume 10785 Folio 834) (Property). The Property is unencumbered. 14 Between about 2010 and 5 September 2019, the Company acted as trustee of the Trust. The Defendant and Olivia Andrade Harman are the income beneficiaries of the Trust to whom the Company distributes the Trust's income. The Defendant is the Appointor of the Trust with power to appoint a new trustee. The Property is an asset of the Trust. The only activity of the Company was to lease the Property (in its capacity as trustee of the Trust). 15 The Company was automatically removed as trustee of the Trust upon the liquidation on 6 September 2019. 16 The Property is presently occupied by Harman Industries Pty Ltd (ACN 079 849 559) pursuant to a lease. The Defendant and Olivia Andrade Harman are the directors and shareholders of Harman Industries Pty Ltd. 17 The Company's only creditor is Owners Corporation 1 Plan No. PS509216Q. Liability to that creditor was incurred by the Company in its capacity as trustee of the Trust. 18 The Liquidator has incurred remuneration, costs and expenses in the liquidation, for which he has a lien over the assets of the Company: In re Universal Distributing Co Ltd (In Liquidation) (1933) 48 CLR 171; Stewart v Atco Controls Pty Ltd (In Liquidation) [2014] HCA 15; 252 CLR 307. 19 The Company's creditors have provided approval for the Liquidator's remuneration and expenses as required up to a maximum of $36,989.50 plus GST for remuneration, and $2,000 plus GST for disbursements for which creditor approval is required: Jones v Matrix Partner Pty Ltd; re Killarnee Civil & Concrete Contractors Pty Ltd (in liquidation) [2018] FCAFC 40; 260 FCR 310 (Jones v Matrix). CONSIDERATION Appointment as receiver and manager 20 The Company has a right of indemnity from the assets of the Trust for all liabilities properly incurred in acting in the role as trustee of the Trust. The Company's right of indemnity for liabilities incurred in acting as trustee of the Trust is secured by an equitable charge over the assets of the Trust: Cremin, in the matter of Brimson Pty Ltd (in liquidation) [2019] FCA 1023; Michell (Liquidator) v Delltta Holdings Pty Ltd (in liq) atf The Brookhill Trust [2019] FCA 2133; Hillig (Liquidator), in the matter of SKC & Co Pty Ltd (in liquidation) [2020] FCA 454; Bailey (Liquidator) v Rock Solid Rendering Pty Ltd (in liquidation) as trustee of the Rock Solid Trust, in the matter of Rock Solid Rendering Pty Ltd (in liquidation) [2020] FCA 600. 21 The Liquidator is unable to realise the Company's right of indemnity from the assets of the Trust (including the Property) without an order of the Court or by appointment as receiver: Jones v Matrix. 22 Section 57 of the Federal Court of Australia Act 1976 (Cth) provides: (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. 23 Rule 14.21 of the Rules empowers the Court to appoint a receiver with the powers of a receiver and manager, and r 14.23 empowers the Court to authorise the receiver to do any act or thing. 24 The general ground for the Court to appoint a receiver is the protection or preservation of property for the benefit of the persons who have an interest in it, which includes the securing of a former trustee's right of indemnity from the assets of a trust. In Hosking, in the matter of Business Aptitude Pty Ltd (in liquidation) [2016] FCA 1438, Besanko J stated at [15]-[19]: 15. The power of this Court to appoint a receiver is contained in s 57 of the Federal Court of Australia Act 1976 (Cth) … and is conditioned on whether it appears to the Court to be just or convenient to do so. The power is not confined to a closed class of circumstances. Ultimately, the general ground upon which a Court appoints a receiver is, as has been said in many cases, the protection or preservation of property for the benefit of persons who have an interest in it … 16. The liquidators of the defendant wish to preserve the property of the trust, … and, at an appropriate time, to realise the assets of the trust so that the liabilities incurred by the [relevant trustee] in the performance of the trust can be met, or met as far as possible. The evidence establishes that it is likely that all of the trust assets will have to be realised in this process. … 19. [Another] course of action is that the liquidators be appointed as joint and several receivers and managers of the property of the [relevant trust] and it seems to me that that is the appropriate course in the circumstances. It is just and convenient that such an order be made because it will ensure the protection of the trust property. There is nothing to suggest that there is any potential for conflict if the liquidators are also appointed receivers and managers of the trust property … (Citations omitted.) Application to the facts of this proceeding 25 In the circumstances of this proceeding, I am satisfied that it is appropriate for the Liquidator to be appointed receiver over the assets of the Trust (including the Property) with the powers of a receiver and manager to realise the Trust assets to satisfy the Company's right of indemnity for liabilities it incurred in acting as trustee of the Trust: see Re Stansfield DIY Wealth Pty Ltd (in liq) [2014] NSWSC 1484; Apostolou v VA Corporation of Aust Pty Ltd [2011] FCAFC 103. This will ensure the protection of the Trust property. There is also nothing to suggest that there is any potential for conflict if the Liquidator is also appointed receiver and manager of the Trust property. Remuneration, costs and expenses of liquidation 26 The Liquidator filed submissions concerning the remuneration, costs and expenses in respect of the liquidation. 27 Remuneration, costs and expenses of liquidation are liabilities incurred by the Company in discharging the duties imposed by the Trust (in circumstances where the Company only acted in its capacity as trustee): Cremin, in the matter of Brimson Pty Ltd (in liq) [2019] FCA 1023 at [51]; Re Suco Gold Pty Ltd (in liq) (1983) 33 SASR 99 at 110 per King CJ; Jones v Matrix at [105]-[106]. It is within the Court's inherent jurisdiction to approve that the Liquidator's remuneration, costs and expenses of liquidation be paid from the assets of the Trust: Application of Sutherland [2004] NSWSC 798; Amirbeaggi, in the matter of Simpkiss Pty Ltd (in liq) [2018] FCA 2121. 28 The Liquidator submits that it is appropriate to order that the Liquidator's remuneration, costs and expenses of the liquidation be paid out of the assets of the Trust, in circumstances where the Company only acted in its capacity as trustee of the Trust. 29 The Court has power to fix amounts for remuneration, costs and disbursements pursuant to r 14.24 of the Rules. 30 I will order that the remuneration, costs and expenses of the First Plaintiff both as Liquidator of the Second Plaintiff and as receiver and manager (including the costs of this application) be paid from the assets of the Harman Property Trust. Remuneration, costs and expenses of receivership 31 The Liquidator has estimated his remuneration, costs and expenses, in acting as receiver and manager of the Trust assets, as being in the amount of $29,918 plus GST for remuneration, $1,426 plus GST for costs not including legal expenses, and legal expenses in the range of $21,000 to $31,000 plus GST. There is no reason to suspect that these amounts are inappropriate or unreasonable. I am satisfied that it is appropriate to fix the amount of remuneration, costs and expenses of the receivership in the sum of $61,262 plus GST. DISPOSITION 32 For the reasons given, I will make the orders sought by the Liquidator. I certify that the preceding thirty-two (32) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Anderson. Associate: Dated: 18 November 2020