Federal Court of Australia Scott v Emancee Pty Limited (in liq) [2024] FCA 600 File number: NSD 254 of 2022 Judgment of: JACKMAN J Date of judgment: 24 May 2024 Catchwords: BANKRUPTCY AND INSOLVENCY – judicial advice and direction to trustee – where trustee in potential position of conflict – requested orders made Legislation: Bankruptcy Act 1966 (Cth) sch 2 ('Insolvency Practice Schedule') ss 60-10, 90-15 Trustee Act 1925 (NSW) ss 63, 93 Division: General Division Registry: New South Wales National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 24 Date of hearing: 24 May 2024 Counsel for the Applicant: Mr J Foley Solicitor for the Applicant: Cowell Clarke Commercial Lawyers ORDERS NSD 254 of 2022 BETWEEN: CATHERINE JANE ROSENA SCOTT Plaintiff AND: EMANCEE PTY LIMITED (IN LIQ) Defendant order made by: JACKMAN J DATE OF ORDER: 24 MAY 2024 THE COURT ORDERS THAT: 1. Pursuant to s 90-15 of the Insolvency Practice Schedule, John Maxwell Morgan in his capacity as liquidator of Emancee Pty Limited (in liq) is justified in admitting to proof in the winding up of Emancee Pty Limited (in liq) the proof of debt lodged on behalf of McUnits Pty Ltd as trustee for the Consolidation Trust dated 21 February 2024 in the amount of $3,838,414.00. 2. Pursuant to s 63 of the Trustee Act 1925 (NSW), John Maxwell Morgan in his capacity as trustee of the McIntyre Settlement Trust is justified in paying to Emancee Pty Limited (in liq), and specifically into the winding-up account he operates in his capacity as liquidator of Emancee Pty Limited (in liq), the following amounts from the assets of the McIntyre Settlement Trust: (a) the sum of $6,241,968.47; and (b) such further sum or sums necessary to satisfy the following obligations: (i) any future amount fixed by a remuneration determination made in the winding up of Emancee Pty Limited (in liq) pursuant to s 60-10 of the Insolvency Practice Schedule; (ii) any future amount fixed on account of internal disbursements by a resolution of creditors made in the winding up of Emancee Pty Limited (in liq) pursuant to s 60-20(4)(c)(ii) of the Insolvency Practice Schedule; (iii) any future amount he reasonably incurs in his capacity as liquidator of Emancee Pty Limited (in liq) on account of arm's length disbursements; and (iv) repayment of any amounts owed to any creditors which lodge claims in the liquidation which are admitted after the date of this order. 3. Pursuant to s 90-15 of the Insolvency Practice Schedule, John Maxwell Morgan in his capacity as liquidator of Emancee Pty Limited (in liq) is justified in drawing from the winding up account he operates in his capacity as liquidator of Emancee Pty Limited (in liq) any amount mentioned in order 2(b)(i) herein only upon: (a) providing all known creditors of Emancee Pty Limited (in liq) with 14 days written notice of his intention to do so; and (b) no application being made to review the relevant remuneration determination being made pursuant to s 60-11 of the Insolvency Practice Schedule or the final determination of any such application. 4. Pursuant to s 93 of the Trustee Act 1925 (NSW), the costs of John Maxwell Morgan of and incidental to this application be paid on an indemnity basis out of the assets of the McIntyre Settlement Trust. 5. There be liberty to apply. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT Delivered ex tempore, revised from transcript JACKMAN J: 1 By interlocutory process filed 1 May 2024 the applicant (Mr Morgan), in his capacity as liquidator of the first defendant, Emancee Pty Limited (in liq) (Company) and in his capacity as trustee of the McIntyre Settlement Trust (MS Trust), seeks certain orders and directions with respect to the liquidation of the Company and the administration of the trust. 2 With respect to the liquidation of the Company, Mr Morgan seeks: (a) an order, pursuant to s 90-15 of the Insolvency Practice Schedule set out in sch 2 to the Bankruptcy Act 1966 (Cth), that Mr Morgan as liquidator of the Company is justified in admitting a proof of debt in the liquidation lodged by McUnits Pty Limited (McUnits) in the sum of $3,838,414 (para 2); and (b) an order pursuant to s 90-15 of the insolvency practice schedule permitting Mr Morgan on notice to creditors to draw, from the winding up account of the Company, Mr Morgan's remuneration (fixed in accordance with s 60–10 of the Insolvency Practice Schedule) (para 4). 3 With respect to the MS Trust, Mr Morgan seeks: (a) a direction pursuant to s 63 of the Trustee Act 1925 (NSW) (Trustee Act) that Mr Morgan is justified in paying to the Company from the MS Trust the sum of $6,241,968.47 and such further amounts as are necessary to meet Mr Morgan's remuneration, disbursements and any debts admitted in the liquidation of the Company (para 3); and (b) an order pursuant to s 93 of the Trustee Act that the costs of the interlocutory application be paid on an indemnity basis out of the assets of the MS Trust (para 5). 4 The Court has jurisdiction to give judicial advice and direction pursuant to s 63 of the Trustee Act, and to make an order pursuant to s 93 of that Act in relation to costs, by reason of the accrued jurisdiction arising from the inseparable connection of those matters with the performance and completion of the orders made to resolve these proceedings. They are an aspect of the overall justiciable controversy before the Court. 5 The interlocutory process was served on all parties to the proceedings on 3 May 2024 and on the Australian Securities and Investments Commission on 9 May 2024. Catherine Scott (the plaintiff) and Marc McIntyre (one of the defendants) have indicated that they consent to the application, whilst the remaining defendant, John McIntyre, has indicated he does not oppose the application and does not wish to be heard. It has also been communicated by the solicitors acting for Marc McIntyre, John McIntyre and Catherine Scott that their consent and non-opposition to the application is given both in their personal capacities and in their capacities as the executors of the deceased estates of Malcolm McIntyre and Carol McIntyre. Accordingly, the application is unopposed. 6 By orders and notations of this court made on 15 March 2023: (a) the Company was wound up and Mr Morgan was appointed liquidator of the Company; (b) Mr Morgan was appointed as trustee of the MS Trust (in substitution for the Company); and (c) the Court noted that it was the intention of the parties that Mr Morgan would, among other things, appoint himself as a director of McUnits, the trustee of the 2004 Consolidation Trust. 7 On 29 June 2023, I made orders determining that: (a) Mr Morgan was justified in paying certain amounts from the MS Trust in priority to any claim by the Company as former trustee of the MS Trust; and (b) Mr Morgan was justified in not taking any steps to cause the Company to enforce its right of indemnity against the assets of the MS Trust until further order. 8 Based upon his review of the records of the Company, Mr Morgan has opined that it appears that the Company traded solely as the trustee of the MS Trust. I am not aware of any evidence which casts doubt on that proposition. 9 Malcolm McIntyre and Carol McIntyre were the owners of the property at 2 McIntyre Place, Castle Hill, New South Wales, being the whole of the land contained in lot 101 in deposited plan 708150 (Castle Hill Property). 10 Carol McIntyre passed away on 1 December 2018. Marc Daniel McIntyre, John Keith McIntyre and Catherine Jane Rosena Scott were executors of Carol McIntyre's estate. Malcolm McIntyre passed away on 27 April 2023. Marc Daniel McIntyre and John Keith McIntyre were executors of Malcolm McIntyre's deceased estate. 11 On 13 May 2023, a mortgage in favour of the Company as trustee of the MS Trust over the Castle Hill Property was transferred to Mr Morgan in his capacity as (replacement) trustee of the MS Trust. 12 On 30 October 2023, a contract for the sale of the Castle Hill Property was entered into by Marc Daniel McIntyre, John Keith McIntyre and Catherine Jane Rosena Scott in their capacities as executors of the deceased estates of Malcolm and Carol McIntyre, with a sale price of $24,999,999. At the time this contract for sale was entered into, probate had not yet been granted with respect to the deceased estate of Malcolm McIntyre. 13 On 3 November 2023, Mr Morgan, as trustee of the MS Trust, issued a default notice under s 57(2)(b) of the Real Property Act 1900 (NSW) for the amount then owing under the mortgage of $13,480,000. 14 On 14 November 2023, Marc Daniel McIntyre and John Keith McIntyre were granted probate of the estate of Malcolm McIntyre. 15 On 17 November 2023, Mr Morgan as trustee of the MS Trust issued demands on the deceased estates of Malcolm McIntyre and Carol McIntyre with respect to debts of $4,041,069 which were owed by each of the deceased estates to the MS Trust (totalling $8,082,138). 16 On 1 December 2023, the sale of the Castle Hill Property completed and the sum of $21,562,138 (being the total sum owing as set out in the notice of default and the demands) was paid to Mr Morgan as trustee of the MS Trust. 17 On 16 August 2023, Mr Morgan was appointed as the sole director of McUnits. Mr Morgan as liquidator of the Company has admitted proofs for debt totalling $2,291,159. Mr Morgan has also caused McUnits to lodge a proof of debt in the liquidation of the Company for debts totalling $3,838,414. 18 Mr Morgan recognises that he is in a potential position of conflict as both director of McUnits and liquidator of the Company, and accordingly has not adjudicated on the McUnits proof of debt. However, in Mr Morgan's opinion, were he not conflicted he would have admitted the McUnits proof of debt as it is consistent with records brought into existence before his appointment. 19 As former trustee of the MS Trust, the Company clearly has a right to claim an indemnity from the property of the trust to meet the debts it incurred in its capacity as trustee of the MS Trust. Given the Company's only function was to act as trustee of the MS Trust, each of the debts set out above would be able to be claimed by the Company from the assets of the MS Trust pursuant to its indemnity. 20 Paragraphs 2 and 3(a) of the interlocutory process seek orders and directions that Mr Morgan: (a) admit the proof of debt lodged in the liquidation of the Company by McUnits in the sum of $3,838,414; and (b) pay from the MS Trust to the Company the sum of $6,241,968.47, being the total of: (i) the McUnits proof of debt ($3,838,414); (ii) other proofs of debt lodged in the liquidation of the Company and admitted by Mr Morgan ($2,291,159); and (iii) approved remuneration and disbursements of Mr Morgan ($112,395.47 including GST). 21 I note Mr Morgan's position as both the liquidator of the Company and the director of McUnits, and I also note the absence of any opposition to the orders and directions which are sought. In my view, it is appropriate for the Court to make the orders and directions sought in paras 2 and 3(a) of the interlocutory process. 22 Mr Morgan anticipates that there will be further work required to complete the winding up of the Company. Mr Morgan seeks an order as set out in para 3(b) of the interlocutory process permitting Mr Morgan as trustee of the MS Trust to pay from the assets of the MS Trust to the Company such further amounts as are necessary to meet any further debt submitted in the winding up of the Company and Mr Morgan's remuneration and disbursements incurred as liquidator. Mr Morgan also seeks an order in the terms set out at para 4 of the interlocutory process permitting Mr Morgan to draw from the winding up of the Company his future remuneration, upon proper notice being given to creditors. 23 There is no opposition to these orders by any party. In my view, the orders set out at paras 3(b) and 4 of the interlocutory process will enable the liquidation of the Company to proceed expediently and are appropriate in the circumstances. 24 Accordingly, I make orders in accordance with the applicant's interlocutory process filed 1 May 2024. I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Jackman. Associate: Dated: 7 June 2024