Federal Court of Australia Hancock (Administrator), in the matter of Hay Queensland Pty Ltd (Administrator Appointed) [2022] FCA 226 File number(s): QUD 61 of 2022 Judgment of: GREENWOOD J Date of judgment: 8 March 2022 Catchwords: CORPORATIONS – consideration of an application under ss 90-15 and 90-20 of the Insolvency Practice Schedule to the Corporations Act 2001 (Cth) (the "Act") for orders conferring power on the voluntary administrator to deal in and sell assets of the relevant trust (and related orders) Legislation: Corporations Act 2001 (Cth), ss 90-15, 90-20 of the Insolvency Practice Schedule Cases cited: Re Urban Property Melbourne Pty Ltd [2021] VSC 847 Division: General Division Registry: Queensland National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 16 Date of hearing: 8 March 2022 Counsel for the Plaintiffs: Mr A Bulley Solicitors for the Plaintiffs: Piper Alderman ORDERS QUD 61 of 2022 IN THE MATTER OF HAY QUEENSLAND PTY LTD (ADMINISTRATOR APPOINTED) ACN 110 494 454) BETWEEN: GEOFFREY TRENT HANCOCK IN HIS CAPACITY AS VOLUNTARY ADMINISTRATOR OF HAY QUEENSLAND PTY LIMITED (ACN 110 494 454) First Plaintiff HAY QUEENSLAND PTY LIMITED (ADMINISTRATOR APPOINTED) ACN 110 494 454) Second Plaintiff order made by: GREENWOOD J DATE OF ORDER: 8 MARCH 2022 THE COURT ORDERS THAT: 1. The First Plaintiff is justified in conducting the voluntary administration and any winding up of the Second Plaintiff on the basis that the business conducted by the Second Plaintiff under ABN 71 545 989 273 and the property used in the business are held by the Second Plaintiff in its capacity as Trustee of The SFJ Family Trust (Trust). 2. The following powers are conferred on the First Plaintiff: (a) The power to take possession of and investigate the books and records of the Trust for the purposes of identifying the Trust's assets; (b) The power to sell the assets of the Trust; (c) The power to pay the creditors of the Second Plaintiff from the proceeds of sale in accordance with the priorities prescribed by the Corporations Act 2011 (Cth); and (d) The power to execute any contracts, tax returns, financial statements or other documents relating to the Trust. 3. The First Plaintiff is justified: (a) In relying on his statutory powers under section 437A(1) of the Corporations Act 2001 (Cth) to take all of the steps in Order 2 above; and (b) In paying from the Trust Property: (i) The costs and expenses of administering the Trust (including his remuneration); and (ii) The creditors of the Trust. 4. The costs, expenses and remuneration incurred by the First Plaintiff in relation to the Trust property, whether incurred as administrator or liquidator of the Second Plaintiff, be paid from the Trust property. 5. There be liberty to apply generally to the First Plaintiff and in addition to any person who can demonstrate sufficient interest to modify or discharge Orders 1 to 4 above. 6. The costs of this application be costs in the administration. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. EX TEMPORE REASONS FOR JUDGMENT GREENWOOD J: 1 On 20 February 2022, Mr Geoffrey Hancock was appointed voluntary administrator of Hay Queensland Pty Limited ("Hay") by a resolution of the sole director and shareholder of Hay pursuant to s 436A of the Corporations Act 2001 Cth (the "Act"). At that date, Hay was the trustee of the SFJ Family Trust otherwise described in these remarks as the "Trust". On 20 February 2022, Mr Hancock was appointed voluntary administrator of Jusdaboyz Pty Limited ("JPL") by resolution of the same sole director pursuant to s 436A of the Act. 2 At the time of Mr Hancock's appointment, the sole director of both entities was Mr Stephen Anthony Jones. Mr Jones is the sole shareholder of Hay and also holds 24 fully paid ordinary shares in JPL. Hay holds one fully paid redeemable preference share in JPL. 3 Hay conducts business as a wholesaler of livestock feed, produce and supplements and predominantly services feed barns, racehorse trainers, spelling studs, and farms in the areas from Bundaberg to the Gold Coast and from Toowoomba to Kingaroy. Until recently Hay had an annual turnover of approximately between $6 million and $7 million and employed 17 employees, including casual employees. Hay suffered a downturn in revenue due to the impact of COVID-19 and the widespread drought in Queensland having broken. Prior to this, the company was quite profitable during the drought as it was engaged in the business of providing livestock feed and produce to rural customers suffering the effects of the drought. 4 On 7 February 2022, certain events occurred in the life of Hay's sole director, Mr Jones, which was resulted in his being admitted to the intensive care unit of the Sunshine Coast University Hospital where he remains, having undergone a number of surgeries to treat his injuries. Unfortunately his prognosis is uncertain at the present time. 5 From Mr Hancock's investigations, the unsecured creditors of Hay at the date of his appointment totalled approximately $1.7 million. It is not necessary to recite the details of those matters. Mr Hancock received proofs of debts from creditors of Hay totalling approximately $855,000. From Mr Hancock's investigations to date, the assets currently owned by the trust and potentially realisable are cash at bank of $57,452.38, debtors to the value of $316,000, inventory to the value of $20,000, and a Scania truck to the value of $84,000. There are debts owed to the trust by JPL of approximately $2.4 million and by the director, Mr Stephen Jones, for director loans of approximately $384,000. 6 However, it is unlikely, in Mr Hancock's view, that these debts will be realised. 7 The business owns a number of trucks which are in very good condition and appear to be saleable. On 22 February 2022, Mr Hancock sought advice from a valuer of such equipment and was given advice that the trucks may be in the range of $950,000 to $1 million in value. Another valuation suggests that the realisable value might be $1.290 million for those vehicles. JPL has assets totalling approximately between $1.1 million and $1.4 million and owns the majority of the trucks and trailers used by Hay in the business. The only income JPL derives is from the hiring out of these trucks and trailers to Hay. Its major assets are trucks to the value of $950,000 to $1.2 million and feed storage cubes to a value of approximately $160,000. From Mr Hancock's investigations, it appears that JPL has estimated total liabilities of $633,000. 8 Mr Hancock says that Hay and JPL are insolvent and at present he is currently trading on the business of Hay in a limited way, with current stock at hand and receivables as collected. Mr Hancock says that it is expected that the companies will be voted into liquidation at the second creditors meeting in the absence of any deed of company arrangement proposal from the director. Mr Hancock says that in an attempt to obtain the best possible return for creditors, he would like to have the power to advertise the business for sale on an urgent basis as a number of parties have registered their interest in possibly purchasing the business as a going concern, including taking over the various vehicle hire purchase leases. Mr Hancock advises the court that at the present moment there are two to three parties who are interested in buying the business as a going concern. 9 Annexed to the affidavit of Mr Hancock in support of the application is a copy of the SFJ Family Trust deed of settlement dated 18 August 2004. The material shows that the appointors are Stephen Anthony Jones and Fiona Marie Jones, although the affidavit describes events which suggest that Mrs Fiona Jones relinquished her position as an appointor. As Mr Hancock sets out in his affidavit, he was appointed voluntary administrator of Hay and JPL on 20 February 2022 by Mr Jones, who signed the relevant appointment documents with his ICU doctor, Dr Peter Garrett, present, attesting to his competency. Since the date of Mr Hancock's appointment, various activities have been undertaken, and they are described extensively at para 23 of Mr Hancock's affidavit. It is not necessary to describe any of those matters. 10 The first meeting of creditors of Hay and JPL were convened and took place on 2 March 2022. Mr Hancock's appointment as voluntary administrator of Hay and JPL was confirmed as there was no challenge to the appointment. At the first meeting of creditors of the companies, Mr Hancock informed creditors of the circumstances surrounding his appointment and the results of his investigations into the affairs of the companies to date. Mr Hancock informed the creditors that he intends to seek orders giving him the power to deal with and sell the assets held by Hay as trustee of the trust. No responses were received by Mr Hancock from the creditors of this notification suggesting any objection to that course of action by the creditors. 11 Mr Hancock says that he is required to convene a second meeting of creditors at no later than 25 March 2022. The immediate difficulty, of course, is that the assets of any utility and relevance to the affairs of the company are assets held on trust. It is clear enough that Mr Hancock does not have the power to deal in or with the assets of the trust unless he is conferred expressly with those powers. A particular matter has been drawn to my attention in relation to the trust deed. The trust deed provides at cl 9(7)(c) that: The office of Trustee shall ipso facto be determined and vacated if: … c) if the Trustee being a company shall have a liquidator (not being an appointment for the purpose of amalgamation or reconstruction) controller or administrator (within the meaning of those terms as defined in the Corporations Act 2001) appointed to it or in respect of its assets, or make or enter into any composition or scheme of arrangement with its creditors. [emphasis added] 12 There is a provision in the trust deed at cl 8 which contemplates a mechanism for the appointment of a new trustee. Clause 8(1) provides that: (1) The power to appoint a new Trustee in place of an existing Trustee or in addition to and jointly with an existing Trustee and the power to remove a Trustee shall be subject to the following provisions of this clause be vested in: … [emphasis added] 13 The difficulty here of course is that by operation of cl 9(7) resulting in the ipso facto determination and vacation of the office of trustee there is no existing trustee which would suggest that the power contemplated by cl 8(1) is not engaged. Nevertheless, the position is that the application is supported by a further affidavit sworn by Mr Troy Ronald Schmidt. Mr Schmidt says that he is the trustee of the SFJ Family Trust having been appointed to that office as a consequence of the appointment of Mr Hancock on 20 February 2022. Mr Schmidt was appointed as the new trustee on 23 February 2022. 14 There may be questions about the efficacy of that appointment but in any event, Mr Schmidt says at para 11 of his affidavit that he fully supports the application made by Mr Hancock and the relief sought by Mr Hancock in these proceedings as he has no relevant experience in selling assets for that purpose or in dealing with a trust. He says that it is entirely appropriate and more cost effective that Mr Hancock be given the power to realise those assets of the trust for the benefit of creditors of Hay. 15 Notwithstanding the potential difficulties associated with the appointment of Mr Schmidt because the power to do so might not have been engaged, it is clear that the interests of the creditors are served by conferring power upon Mr Hancock to be able to deal with all of the assets the subject of the trust and be able to dispose of the business including trust assets as a going concern to those persons who are seriously interested in purchasing the business as a going concern. 16 I am satisfied that this approach is entirely consistent with the authorities and in particular I am satisfied that it is consistent with the observations of Osbourne J in Re Urban Property Melbourne Pty Ltd [2021] VSC 847 at para 30 of the reasons, for the very same reasons expressed by his Honour as supported by the authorities. Accordingly, the Court will make the orders as sought by Mr Hancock and does so under the provisions of ss 90-15 and 90-20 of the Insolvency Practice Schedule to the Act. I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Greenwood. Associate: Dated: 8 March 2022