Supreme Court New South Wales Medium Neutral Citation: In the matter of Stansfield DIY Wealth Pty Limited (in liquidation) [2014] NSWSC 1484 Hearing dates: Friday, 26 September 2014 Decision date: 30 October 2014 Jurisdiction: Equity Division - Corporations List Before: Brereton J Decision: Application for directions that liquidator be permitted to sell trust assets refused. Advice given that liquidator would be justified in causing company to resign as trustee of super fund, and in applying to the court to be appointed as receiver of the assets of the super fund, with the powers that a liquidator has in respect of the property of a company under Corporations Act, s 477(2), for the purposes of enforcing the company's right of indemnity as trustee of the fund. Catchwords: CORPORATIONS - External administration - winding up - liquidator's applications - for directions permitting liquidator to sell trust assets - where company is trustee of self-managed superannuation fund - whether liquidator's statutory power of sale extends to trust assets - held, it does not - whether company ought to remain as trustee when by doing so it commits an offence against superannuation law - held, it should not - whether directions sought can be made under s 479(3) - held, they cannot - advice given that liquidator would be justified in applying to be appointed receiver of trust assets to enforce right of indemnity. Legislation Cited: (CTH) Corporations Act 2001, s 9, 474, 477, 479(3), 501, 1318 (CTH) Bankruptcy Act 1966, s 116(2)(a) (CTH) Superannuation Industry (Supervision) Act 1993, s 120(2)(e), 126K, 127, 133, 310, 312 (NSW) Trustee Act 1925, s 63, 81 (NSW) Conveyancing Act 1919, s 66G, 81 (VIC) Trustees Act 1958, s 63 (WA) Trustees Act 1962, s 75 Cases Cited: 13 Coromandel Place Pty Ltd v C L Custodians Pty Ltd (in liq) (1999) 30 ACSR 377 In the matter of AAA Financial Intelligence Ltd (in liq) [2014] NSWSC 1004 Apostolou v VA Corporation of Australia Pty Ltd [2010] FCA 64; (2010) 77 ACSR 84 Apostolou v VA Corporation of Aust Pty Ltd [2011] FCAFC 103 Bastion v Gideon Investments Pty Ltd (in liq) (2000) 35 ACSR 466 Bagshaw v Scott [2002] FCAFC 362; (2002) 126 FCR 27 Belar Pty Ltd (in liq) v Mahaffey [2000] 1 Qd R 477 Caterpillar Financial Australia Limited v Ovens Nominees Pty Ltd [2011] FCA 677 Chief Commissioner of Stamp Duties for New South Wales v Buckle (1998) 192 CLR 226 Re Crest Realty Pty Ltd (No 2) (in liq) [1977] 1 NSWLR 664; (1977) 2 ACLR 502 Dayroll Pty Ltd (in liq) v Dayroll NSW Pty Ltd [2009] NSWSC 895 Re Exhall Coal Co Ltd (1866) 55 ER 970 Fletcher, in the matter of Starrit Pty Ltd (in liq) [2012] FCA 803 In the matter of Gramarker Pty Ltd; Clifford Sanderson (as liquidator of Gramarker Pty Limited) v Simon Kerr [2014] NSWSC 243 Grime Carter & Co Pty Limited v Whytes Furniture (Dubbo) Pty Limited [1983] 1 NSWLR 158 Re Indopal Pty Ltd (1987) 12 ACLR 54 Jennings v Mather [1901] 1 KB 108 Kerr, in the matter of Angel's Castle Pre-School Pty Ltd (In Liquidation) [2010] FCA 786 Kitay, in the matter of South West Kitchens (WA) Pty Ltd [2014] FCA 670 Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd [2008] NSWSC 1344; (2008) 74 NSWLR 550 Morgan v Swansea Authority (1878) 9 Ch D 582 Neeeat Holdings (in liq) (2013) 299 ALR 744 In the matter of North Food Catering Pty Ltd [2014] NSWSC 77 Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 Official Assignee of O'Neill v O'Neill (1898) 16 NZLR 628 Pleash, in the matter of Suncoast Restoration Pty Ltd (in liq) [2013] FCA 355; (2013) 211 FCR 203; (2013) 93 ACSR 606 Savage & Whitelaw v Union Bank of Australia Ltd (1906) 3 CLR 1170 Scott v Surman (1743) Willes 400 St Thomas's Hospital v Richardson [1910] 1 KB 271 Stott v Milne (1884) 25 Ch D 710 Re Suco Gold Pty Ltd (In Liq) (1983) 33 SASR 99; (1983) 7 ACLR 873 Re Sutherland; Re French Caledonia Travel Service Pty Ltd (in liq) [2003] NSWSC 1008; (2003) 59 NSWLR 361; 48 ACSR 97 Theobald, in the matter of Finplas Pty Ltd [2014] FCA 31 Category: Principal judgment Parties: Michael John Morris Smith in his capacity as liquidator of Stansfield DIY Wealth Pty Limited (in liquidation) (first plaintiff) Stansfield DIY Wealth Pty Limited (in liquidation) (second plaintiff) Elliott Stansfield (defendant) Representation: Counsel: J T Johnson (plaintiffs) Solicitors: Watson Mangioni Lawyers (plaintiffs) File Number(s): 2014/237151 Judgment 1By originating process filed on 12 August 2014, Michael John Morris Smith as official liquidator of Stansfield DIY Wealth Pty Ltd (in liquidation) applies pursuant to (CTH) Corporations Act 2001, s 479(3); (CTH) Superannuation Industry (Supervision) Act 1993, s 312, and (NSW) Trustee Act 1925, s 63, for directions to the effect that the company in liquidation be permitted to sell or otherwise deal with the property of the Elliott Stansfield Super Fund, a regulated self-managed superannuation fund of which it is the trustee, in the course of winding up the company, for the purpose of satisfying creditors of the Super Fund for which the company is liable and the liquidator's remuneration and expenses incurred in connection with the realisation of such property, the satisfaction of creditors and dealing with any surplus property of the trust. 2The company was wound up, and the liquidator appointed, by order of this Court made on 4 February 2013. At that time, the only function of the company was acting as the trustee of the Super Fund, the only member of which was the defendant Mr Elliott Stansfield. Mr Stansfield was also the only director of the company. The company has no assets or liabilities save in its capacity as trustee of the super fund. The fund appears to have net assets of about $10,000 (before liquidator's remuneration and expenses), represented as follows: Assets AGW Funds Management Limited 0 Quantum Investments 36,412 Macquarie Investments 30,829 Macquarie Cash Management Trust 41,675 AGW Walnut Plantation Lots 0 Total 108,916 Less, liabilities AGW Funds Management Ltd 58,572 Quantum Loan 23,237 Macquarie Loan 13,854 ATO 3,278 Total 98,941 3There are two relevant potential scenarios: that the company (in liquidation) remains trustee of the super fund, or that it does not (either automatically upon becoming a disqualified person, or under some provision of the trust deed or rules, or by resigning). Where the company in liquidation remains trustee 4If the company remains trustee, the position is reasonably clear. 5The liquidator of a company that is trustee of a trust has the power to administer the trust [Re Crest Realty Pty Ltd (No 2) (in liq) [1977] 1 NSWLR 664; (1977) 2 ACLR 502]. 6A trustee is entitled to be indemnified out of the trust assets for all liabilities incurred in its capacity as trustee. In this case, there is an express right of indemnity in clause 172 of the trust deed. A liquidator of a trustee company acquires the trustee's rights of indemnity and exoneration [Official Assignee of O'Neill v O'Neill (1898) 16 NZLR 628; Jennings v Mather [1901] 1 KB 108, 117; Savage & Whitelaw v Union Bank of Australia Ltd (1906) 3 CLR 1170, 1188, 1196; Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360; Re Suco Gold Pty Ltd (In Liq) (1983) 33 SASR 99, 109; (1983) 7 ACLR 873, 882; Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd [2008] NSWSC 1344; (2008) 74 NSWLR 550, [20]; Apostolou v VA Corporation of Australia Pty Ltd [2010] FCA 64; (2010) 77 ACSR 84, [48]; Caterpillar Financial Australia Limited v Ovens Nominees Pty Ltd [2011] FCA 677, [14]; Pleash, in the matter of Suncoast Restoration Pty Ltd (in liq) [2013] FCA 355; (2013) 211 FCR 203; (2013) 93 ACSR 606, [27]; Theobald, in the matter of Finplas Pty Ltd [2014] FCA 31, [23(g)]; Kitay, in the matter of South West Kitchens (WA) Pty Ltd [2014] FCA 670, [13]]. 7The liquidator of a company the only function of which is to act as a trustee is entitled to be paid his or her remuneration and expenses, whether for administering the trust assets or for "general liquidation work", out of the trust assets [Re Suco Gold; Grime Carter & Co Pty Limited v Whytes Furniture (Dubbo) Pty Limited [1983] 1 NSWLR 158; Re Sutherland; Re French Caledonia Travel Service Pty Ltd (in liq) [2003] NSWSC 1008; (2003) 59 NSWLR 361; 48 ACSR 97, [201]; Bastion v Gideon Investments Pty Ltd (in liq) (2000) 35 ACSR 466, 480 [70]; In the matter of North Food Catering Pty Ltd [2014] NSWSC 77; In the matter of AAA Financial Intelligence Ltd (in in liq) [2014] NSWSC 1004, [13]]. Where the company has other functions, however, only such remuneration and expenses as are referable to administration of the trust are payable out of the trust assets [Re Crest Realty; 13 Coromandel Place Pty Ltd v C L Custodians Pty Ltd (in liq) (1999) 30 ACSR 377, 385; Re Sutherland, 426 [209]-[213]; Dayroll Pty Ltd (in liq) v Dayroll NSW Pty Ltd [2009] NSWSC 895, [5]; Caterpillar Financial Australia, [17]; AAA Financial Intelligence, [13]]. 8Under clause 63 of the trust deed, the trustee is empowered to "sell, transfer or vary any investment at the trustee's absolute discretion", but only in accordance with the deed and in the interests of members and beneficiaries. Under clause 129, the trustee has "all the powers in relation to the assets of the fund that the trustee would have if the trustee were the legal and beneficial owner of those assets", and all the powers that a trustee has at law and those specifically conferred by the deed. In addition, under clause 178, the trustee is empowered to elect to wind up the fund, inter alia if it decides to do so, in which case after deducting from the assets the costs of administering and winding up the fund, it must pay the benefits (under clause 180) to members and beneficiaries in a specified order and priority. 9Accordingly, so long as the company in liquidation remains trustee of the super fund, the liquidator can (subject to the impact of superannuation laws, to which I shall come): (1) administer the trust assets, (2) pay trust creditors, (3) wind up the trust, and (4) because acting as trustee was the only function of the company and it has no other assets, recover all his remuneration and expenses from the trust assets. Where the company in liquidation has ceased to trustee 10Where the trustee is removed and replaced, the outgoing trustee retains a right of indemnity from the trust assets, secured by an equitable charge over them, for its liabilities incurred by reason of acting as trustee [Re Exhall Coal Co Ltd (1866) 55 ER 970; Octavo Investments, 370; Chief Commissioner of Stamp Duties for New South Wales v Buckle (1998) 192 CLR 226, 246; Belar Pty Ltd (in liq) v Mahaffey [2000] 1 Qd R 477, [20]; Lemery Holdings [21]; Apostolou, [49]; Caterpillar Financial Australia, [18]; Finplas, [23(e)]]. However, the equitable lien securing the trustee's right of indemnity and exoneration does not of itself give the former trustee a power of sale; rather, it is a security which is enforceable by the trustee only by judicial sale or appointment of a receiver with a power of sale: Hewett v Court (1983) 149 CLR 639, 663; 7 ACLR 909, 924; Apostolou, [39]; Finplas, [23(g)]. If the company has ceased, or ceases, to be trustee of the trust, then the powers of sale given to the trustee under the trust deed (or otherwise given, for example by statute, to a trustee) are no longer available to it. 11In those circumstances - where the company in liquidation is no longer the trustee - does the liquidator have any other power of sale? Some cases suggest that such a power is to be found in Corporations Act, s 477, which provides as follows: 477 Powers of liquidator ... (2) Subject to this section, a liquidator of a company may: ... (c) sell or otherwise dispose of, in any manner, all or any part of the property of the company; and ... 12In Apostolou, Finkelstein J held that as well as the power available under the trust instrument, the liquidator of a corporate trustee which held legal title to trust property in which it also had an equitable interest could sell the subject property pursuant to the power of sale conferred by s 477, and that this survived the removal and replacement of the corporate trustee. His Honour said (at [48]): [48] In the circumstances we are considering (that is where a corporate trustee holds legal title to trust property over which it also has a proprietary claim) the right of indemnity passes to the liquidator who may resort to the trust property to make good that right: Re Suco Gold Pty Ltd (in liq) (1983) 7 ACLR 873, 878, 881. There is no reason in principle why the liquidator's statutory power of sale is not available to enable the claim to be satisfied. To the contrary, it would be highly inconvenient if it could not and, instead, the liquidator was required to go to court. In my view, the power of sale conferred by s 477 may be exercised in respect of property in which the company in liquidation has an equitable interest, provided the liquidator has the legal title to dispose of. The statutory power of sale may be exercised by the liquidator of a trustee company even where the trust instrument itself did not confer a power of sale. See, for example, UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd (1996) 21 ACSR 457 where it was held that an unassignable chose in action could be sold by a liquidator under the statutory power of sale. 13In response to a submission that because the company may have been replaced as trustee this power was no longer available, his Honour continued (at [50]): [49] ... This is not correct. First, the removal of a trustee does not get rid of the trustee's right of indemnity: Coates v McInerney (1992) 7 WAR 537; 6 ACSR 748; Dimos (t/as Leo Dimos & Associates) v Dikeakos Nominees Pty Ltd (1996) 68 FCR 39; 149 ALR 113. Second, the appointment of a new trustee does not automatically vest Torrens land in the new trustee: s 45(3)(c) of the Trustee Act 1958 (Vic). In any event, only "trust property" can vest in the new trustee. It is arguable that, whether or not the trust property is Torrens land, "trust property" does not include property in respect of which the former trustee retains an equitable interest: Buckle at [49]-[50]; Xebec Pty Ltd (in liq) v Enthe Pty Ltd (1987) 18 ATR 893 at 898; see also Ford and Lee Principles of the Law of Trusts (Lawbook Co, subscription service) [8400] (update 62). [50] Third, even if trust property includes property in which the former trustee retains an equitable interest, the retiring trustee is entitled to retain possession of the trust property, subject to a court order to the contrary, until it is paid what it is due or until it sells the property. I acknowledge that Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd [2008] NSWSC 1344 (Lemery Holdings) holds that a retiring trustee cannot retain possession of trust property as against a new trustee. With respect, in my opinion there is no doubt that a retiring trustee can hold trust property to secure his right of reimbursement against both the beneficiaries and a new trustee. ... 14It is unnecessary to consider in this judgment his Honour's critique of Lemery Holdings (now reported in (2008) 74 NSWLR 550), although I do not understand Stott v Milne (1884) 25 Ch D 710, to which his Honour refers, and which was not referred to in Lemery Holdings, to address the position between a former trustee and its successor, as distinct from between trustee and beneficiary, a distinction which was fundamental in Lemery Holdings. For present purposes, the crucial question is whether "property of the company" for the purposes of s 477 extends to property of which the company is the legal owner but holds on trust, and in which it also has an equitable interest as chargee to secure its right of indemnity. An appeal from his Honour's judgment to the Full Court was dismissed [Apostolou v VA Corporation of Aust Pty Ltd [2011] FCAFC 103], but this point did not arise, the Full Court (Perram, Nicholas and Yates JJ) observing (at [46]) (emphasis added): The primary judge reasoned that, in the present case, the liquidators had two sources of power to sell the St Kilda property in order to enforce the right of indemnity. First, clause 8.3 of the deed constituting the VA Unit Trust conferred a power of sale on the trustee. After reviewing a number of authorities, the primary judge concluded that, where a trustee has legal title to property coupled with such a power of sale, the trustee may resort to that power in order to get in funds against which to exercise the trustee's right of indemnity: see at [40]-[46]. His Honour also considered that there was no reason why, in the present case, the liquidators could not resort to the power of sale conferred by s 477(2)(c) of the Corporations Act to enable the indemnity to be enforced. No issue arises on this appeal concerning his Honour's conclusions in this regard. 15Apostolou was followed in Kitay, in the matter of South West Kitchens (WA) Pty Ltd, to which I shall come. 16It would be extraordinary, in the context of insolvency law, if "property of the company" included property of which it was a trustee and in which it had no beneficial interest. It is of course well-established, in the field of bankruptcy, that property held by the bankrupt on trust does not vest in the trustee-in-bankruptcy [(CTH) Bankruptcy Act 1966, s 116(2)(a) (which excludes from the property divisible among creditors property that is held by the bankrupt in trust for another person); Scott v Surman (1743) Willes 400, 402; 125 ER 1235; Morgan v Swansea Authority (1878) 9 Ch D 582, 585 (CA); St Thomas's Hospital v Richardson [1910] 1 KB 271, 277 (CA)]. A trustee in bankruptcy takes only the property of the bankrupt, subject to all liabilities and equities which affect it in the bankrupt's hands [Bagshaw v Scott [2002] FCAFC 362; (2002) 126 FCR 27, [15]-[20]]. 17While the law of corporate insolvency is not identical (in particular, absent a court order, property of a company does not vest in its liquidator), Corporations Act, s 474, provides that the liquidator must take into his or her custody, or under control, all then property which is, or appears to be, "property of the company"; and the Court may, on application of the liquidator, direct that all or any part of the property of the company vest in the liquidator. "Property" is defined, in s 9, to mean "any legal or equitable estate or interest (whether present or future and whether vested or contingent) in real or personal property of any description ...". In the case of trust property, the only "property" that the company has is the bare legal interest. Theoretically at least, a liquidator could sell the bare legal interest of the trustee, but not the beneficial interest in trust property. 18I do not understand Apostolou to suggest otherwise, save where the company in liquidation has, in addition to bare legal title, an equitable interest in the trust property (at [48]). In turn, I accept that where the company has an equitable interest in property, the liquidator can sell that (equitable) interest. However, it is only that interest - and not the whole asset - that the liquidator is authorised to sell. Thus, if the company held land upon trust for itself and three others, its liquidator could sell the legal interest of the trustee (for what, if anything, it is worth) and its 25 per cent beneficial interest, but (in the absence of other relief, for example under (NSW) Conveyancing Act 1919, s 66G) not the other 75 per cent beneficial interest. 19The equitable interest of a trustee that has a charge to secure its right of indemnity extends to all the assets of the trust, but is not co-extensive with them: it is constrained to the limit of the liabilities that it secures. Moreover, it is in the nature of a hypothecation, and does not equate to beneficial ownership. The relevant "property of the company" is the charge, not the assets charged. Accordingly, the liquidator would be authorised by s 477 to sell the company's interest as equitable chargee, but not the underlying assets to which the charge attached. 20For those reasons, I am respectfully unable to agree with the decision in Apostolou. 21In Kitay, in the matter of South West Kitchens (WA) Pty Ltd, the trust deed provided that the company was disqualified from holding office if it went into liquidation. The trust assets were modest (between $66,011 and $86,361), and the liquidator desired to sell them at auction with a view to distributing the proceeds to the creditors pro rata after satisfying the costs incurred in the liquidation. The question was whether the disqualification of the trustee from acting as such by operation of the trust deed precluded the exercise of the liquidator's statutory power of sale in respect of the trust assets. McKerracher J, in a judgment which I have found of great assistance, after referring to Apostolou (at [16]), considered a number of other authorities which his Honour though were arguably inconsistent with Apostolou and might (inferentially though not expressly) support the view that the liquidator had no power of sale absent a court order. 22The first (at [20]) was Caterpillar Financial Australia, in which the liquidator of a corporate trustee sought an order under (VIC) Trustees Act 1958, s 63, in relation to the sale of a motor vehicle owned by the corporate trustee. The Court does not appear to have been referred to s 477 or to Apostolou, but proceeded on the basis that the sale of the motor vehicle by the liquidator was beyond power. Having concluded that the conduct of the liquidator was honest and reasonable, the Court granted relief under Corporations Act, s 1318 and alternatively under (VIC) Trustees Act 1958, s 67. 23Next, his Honour referred (at [22]) to Neeeat Holdings (in liq) (2013) 299 ALR 744, where Kenny J after referring to Caterpillar Financial Australia observed (at [20]-[21]) that Apostolou had earlier held that the liquidator had the right to sell the assets of the trust even in the event of the appointment of a new trustee, but was not required to decide whether the power of sale under s 477 survived the trustee's loss of power as trustee, because the relief sought and granted was pursuant to Corporations Act, 479(3) and (VIC) Trustees Act 1958, ss 63 and 89(1). 24Then, his Honour noted (at [24]) Theobald, in the matter of Finplas Pty Ltd, in which the Court held that although on their appointment the liquidators acquired the benefit of the trustee's right to indemnity and/or exoneration and the equitable lien which supported these rights, as a bare trustee of the trust assets Finplas did not have the power to sell them, nor did it have a right to sell the assets by reason of the equitable lien held over the assets, save with the assistance of the Court. It followed (at [23(h)]) that when the liquidators had arranged to sell the plant and equipment owned by Finplas, they did not have the power to do so, and relief was granted under (WA) Trustees Act 1962, s 75, and, Corporations Act, s 479(3) - in the absence of reference to Apostolou or s 477. 25His Honour observed (at [25]) that the same conclusion was reached in Pleash, in the matter of Suncoast Restoration Pty Ltd, and in Fletcher, in the matter of Starrit Pty Ltd (in liq) [2012] FCA 803, again without reference to Apostolou or s 477(2)(c). 26Finally, his Honour referred (at [26]) to Kerr, in the matter of Angel's Castle Pre-School Pty Ltd (In Liquidation) [2010] FCA 786, in which the office of the trustee was vacated because the company entered into liquidation, but the appointors were able to appoint a new trustee. Jacobson J expressed agreement with the principles stated by Finkelstein J in Apostolou at [46]-[54], but did not specifically address the availability of the power of sale under s 477(2)(c). His Honour followed the course taken by McLelland J in Re Indopal Pty Ltd (1987) 12 ACLR 54 and by Austin J in Bastion v Gideon Investments, appointing the liquidator as receiver and manager of the trust assets, for the reason that there was doubt as to whether the business was held by the company beneficially or as trustee, and if a new trustee were appointed that might cause difficulty, at least at the conveyancing stage, even if the power of sale survived. Thus, while Kerr, in the matter of Angel's Castle Pre-School Pty Ltd accepted the correctness of Apostolou, it did not in fact apply it. 27McKerracher J, having observed (at [28]) that the cases were mainly ex parte applications without the benefit of a contradictor - as was the case before him - concluded: [29] However, it does appear that in Apostolou, the possibility of the power and the appropriateness of the power under s 477 was expressly considered. In the other cases, it was not raised. If the decisions are inconsistent (which I am by no means certain about given that different relief was sought in the other cases), I would give greater weight to the decision in which the specific power under s 477 CA was considered until appellate authority directs otherwise: CSR Ltd v Eddy (2005) 226 CLR 1 (at [13]-[14]). [30] The effect of the Trust Deed to preclude a company continuing to act as trustee after the appointment of the liquidator cannot be doubted. Equally, there appears to be no reason in policy or in principle, and none referred to in the authorities discussed, as to why a liquidator's power of sale which is part of his or her statutory duties in a broader public interest should be limited by the terms of a private trust agreement. [31] There appears to be no constraint on the power of sale under s 477(2)(c) CA. It does not impose any limitation on the power of sale insofar as the assets of a company are held on trust. Of course, the company has to have legal ownership of the assets in order for them to be sold but generally, and certainly in this case, the former Trustee, SW Kitchens, will have both legal ownership of the Trust Assets as a bare trustee and beneficial interest in the Trust Assets as the holder of the equitable lien. It is also to be noted in passing that s 501 CA provides that subject to the provisions of the CA, the property of a company must, on its winding up, be applied in satisfaction of its liabilities. Once again, there is no statutory exception expressed in relation to property held by the company on trust. [32] In the absence of any statutory constraint, or other complication there appears to be no other reason why the liquidator ought not be permitted in a straightforward case to discharge his or her duties to conduct the liquidation in the ordinary manner. The proceeds of asset sales will, after satisfying costs and expenses of the liquidation, be distributed pro rata to creditors. [33] I agree with Finkelstein J in Apostolou that such a procedure makes good commercial sense, avoiding the need for liquidators of trustee companies on every occasion to approach the Court to seek approval to sell trust assets. Of course, as in Apostolou, there may be some occasions on which seeking the assistance of the Court is appropriate, but it should not be necessary on every occasion. 28His Honour was, with respect, correct to point out that in none of the authorities which appear to have assumed the absence of a power of sale had the Court been referred to Apostolou or to s 477(2)(c), but rather proceeded on an assumption that the liquidator had no power to sell assets once the company ceased to be the trustee, or became a bare trustee. However, for the reasons I have given, that assumption was a correct one. The question is not whether a private trust can constrain the exercise of a liquidator's statutory powers; rather, it is whether those powers extend to property that is not beneficially the property of the company. As I have said, I do not see how it can: the power is limited to the company's legal and equitable interests in property. The liquidator cannot sell interests in property that the company does not have. 29If anything, this conclusion is fortified by s 501, to which his Honour referred: in requiring the property of the company to be applied in satisfaction of its liabilities, s 501 does not authorise the use for that purpose of property in which the company has no beneficial interest. Alternatively put, only the company's beneficially-owned property could be used for that purpose. This illustrates that references to "property of the company" are limited to its legal and beneficial interests. 30Accordingly, in my view s 477(2)(c) does not empower a liquidator to sell the beneficial interest in property that the company holds on trust, even if the company has an equitable charge over it, because the property is not itself "property of the company". 31That does not leave the liquidator of a corporate trustee which is removed and replaced without a remedy. One established course of action available to a liquidator in those circumstances is to seek appointment as a receiver of the trust assets, by way of enforcement of the lien over those assets of the company as former trustee for liabilities incurred by it in that capacity, as occurred in Re Indopal Pty Ltd, where McLelland J (as the later Chief Judge then was) considered an application in relation to a company in respect of which a winding up order had been made, which was the trustee of a discretionary trust. The directors of the company were also beneficiaries under the trust. The trust deed provided that the office of trustee should be determined and vacated if the trustee being a corporation should enter into liquidation. By motion in the winding up proceedings, the liquidator sought a declaration that the company was entitled to be indemnified out of the assets of the trust, an order for the appointment of a receiver and manager of the trust, and orders that the directors deliver to the liquidator the books and property of the company and a statement as to affairs. His Honour said that it appeared that the company was entitled to be indemnified out of the assets of the trust, at least to the extent of those assets as were in existence at the date of the winding up order, in respect of liabilities incurred by it by virtue of being trustee, including the costs and expenses of the winding up. But his Honour declined to make a declaration to that effect until either the present trustee of the trust, or some other representative of the existing and future beneficiaries of the trust, was joined as a respondent. However, his Honour observed that any right of indemnity of the company out of the assets of the trust would be secured by an equitable lien over those assets and, accordingly, that it was expedient to appoint a receiver and manager of the trust assets to protect the company's interests. In that respect, his Honour said (at 57): In view of the tentative view I have already expressed as to the company's right of indemnity there is I think a strong case for the appointment of a receiver and manager of the assets of the ... trust. Any right of indemnity of the company out of assets of the trust would be secured by an equitable lien over those assets and in the light of circumstances disclosed by the evidence it is clear that it is expedient to protect the company's interests by the appointment of a receiver and manager. The liquidator proposes that he should be appointed and this appears to me to be a convenient and sensible course ... 32A similar approach was taken by Austin J in Bastion v Gideon Investments; by Jacobson J in Kerr, in the matter of Angel's Castle Pre-School Pty Ltd; and by me in In the matter of Gramarker Pty Ltd; Clifford Sanderson (as liquidator of Gramarker Pty Limited) v Simon Kerr [2014] NSWSC 243, where the company by operation of the trust deed was disqualified from holding office as such if it went into liquidation, but no replacement trustee had been appointed. 33Accordingly, if the company has ceased to be trustee of the super fund, it can no longer exercise the trustee's power of sale under the trust instrument or at general law (because it is not the trustee), and Corporations Act, s 477(2)(c), does not empower the liquidator to sell assets held by the company on trust. In such circumstances, the appropriate remedy for a liquidator is to seek appointment as a receiver of the trust assets, by way of enforcement of the (former) trustee's right of indemnity. Does the company remain trustee of the super fund? 34The deed empowers the trustee to appoint a replacement trustee (clauses 174 and 175). It also provides (clause 177) that the trustee will determine who acts as trustee in accordance with the deed and superannuation law for the fund to continue as a self-managed superannuation fund, and will take the necessary steps to appoint or remove the persons or body to or from the office of trustee; the trustee may accept the trustee's resignation in writing for this purpose; and where the trustee is unable or unwilling to determine who will act as trustee then the majority of the members of the fund will determine who will act as trustee (or if there are no members, the former members or their legal personal representatives). However, unlike many of the cases to which reference has been made, the trust deed does not provide that the trustee ceases to be trustee upon going into liquidation. 35By operation of Superannuation Industry (Supervision) Act 1993, s 120(2)(e), upon the commencement of the winding up the second plaintiff became a disqualified person for the purposes of that legislation and thereafter commits an offence under s 126K if it is or acts as trustee of a superannuation entity. However, nothing in the Act provides that upon becoming a disqualified person a trustee thereupon ceases to be trustee. That is rather confirmed by s 133, which provides that the Regulator may remove (or suspend) a trustee who is a disqualified person, indicating that merely becoming a disqualified person does not have that effect. Moreover, s 127 provides that a failure to comply with a provision of Part 15 (which contains s 126K) does not affect the validity of an appointment or transaction. 36The result, as it seems to me, is that while upon going into liquidation the company became a disqualified person within the meaning of the legislation, it did not thereby cease to be trustee of the super fund. It remains the trustee of the super fund. However, by continuing to be and act as trustee while a disqualified person, the company contravenes s 126K and thereby commits an offence. Moreover, it must notify the regulator (ATO) that it has become disqualified under s 126K(7). If the company in liquidation were to exercise any of the trustee's powers under the trust deed - including the power of sale - it would be acting as trustee, in contravention on s 126K. The liquidator would probably be liable as an accessory. 37The provisions of the trust deed to which I have referred permit the trustee to resign, leaving it to the member to determine who should act as trustee. In the light of s 126K, this seems to be the prudent course. It is said, understandably enough, that given the financial circumstances of the company and the super fund, it is not realistically feasible to appoint a new trustee, and that that there is no evidence of the defendant as the sole member of the self-managed superannuation fund taking any step to change the trustee; but there is no evidence that any approach has been made to Mr Stansfield in that respect. In any event, whether he takes up the opportunity or not may well be immaterial, for reasons which will become apparent. If he does not, then the company would remain a bare trustee of the trust assets. 38Accordingly, while the company in liquidation remains the trustee of the super fund, it commits an offence by doing so, and would more conspicuously do so if it exercised its power of sale. If, as would be prudent, it resigned as trustee, it would have no power of sale. The directions sought 39The present application invokes Corporations Act, s 479(3), Superannuation Industry (Supervision) Act, s 312, and Trustee Act, s 63. Notice of the application was served on Mr Stansfield, who did not appear; on the Australian Prudential Regulation Authority, which responded that it did not intend to appear or otherwise take an interest in the proceedings; and on ASIC, which confirmed that it had no interest in and did not intend to appear in the proceedings. 40Corporations Act, s 479(3), empowers the liquidator to apply to the Court for directions in relation to any particular matter arising under the winding up. The function of such an application is to give the liquidator advice as to the proper course of action to take in the liquidation. It does not enable the Court to confer on the liquidator powers that he or she does not otherwise have. While s 479(3) appears to have been invoked in a number of the cases to which reference has been made to make orders in the nature of that sought here [see, for example, Neeeat Holdings, [3], [22] and orders [1] and [2]; Theobald, in the matter of Finplas Pty Ltd, [16], [49] and order [5]; Pleash, in the matter of Suncoast Restoration Pty Ltd, [64]-[67]], in my respectful view it provides no proper basis for such orders. Its function is to enable the liquidator to obtain judicial advice as to the exercise of his powers, not to obtain powers and authorities that the liquidator does not otherwise have. 41Similarly, Trustee Act, s 63, empowers a trustee to apply to the Court for advice; but this does not authorise the Court to relieve a trustee from compliance with a Commonwealth statute, nor to confer powers on a trustee that it does not otherwise have, let alone give powers to a person who is no longer the trustee. And lest it be thought that s 81 (advantageous dealings) may empower the Court to authorise a trustee to sell, the problem here is not want of power in the trustee to sell - the trust instrument confers such power - but that (1) while the company remains trustee, exercising the power would involve committing an offence against the Superannuation Industry (Supervision) Act, and (2) after the company ceases to be trustee, a former trustee is not a trustee to whom s 81 could apply. 42Superannuation Industry (Supervision) Act, s 312 (Irregularities), confers on the Court power to make orders declaring that any act, matter or thing purporting to have been done, or any proceeding purporting to have been instituted or taken, under the Act or in relation to a superannuation entity, is not invalid by reason of any contravention of a provision of the Act or the governing rules of a superannuation entity; relieving a person from civil liability in respect of such a contravention; or extending or shortening the period for doing any act, matter or thing or for instituting or taking any proceeding under the Act or in relation to a superannuation entity; and also to make consequential or ancillary orders. Similarly, s 310 (Power to grant relief) empowers the Court on application by a "superannuation official" - which includes the liquidator of a corporate trustee - to relieve the official from civil liability for "official misconduct" (meaning negligence, default, breach of trust or breach of duty) if satisfied that the official has acted honestly and ought reasonably be excused. These provisions are concerned with retrospective validation of irregularities and relief from liability, not the prospective authorization of contraventions. They provide no power to make an order prospectively permitting the liquidator - or the company in liquidation - to sell or otherwise deal with the property of the super fund. 43While the second plaintiff presently remains the trustee of the super fund, and as such has a power of sale of trust assets (and to wind up the super fund), it commits an offence by remaining trustee and would commit further offences by exercising the power of sale. In those circumstances, I do not see how the Court could properly make an order permitting the liquidator to exercise those powers, or to the effect that the liquidator would be justified in doing so. To the contrary, the proper course, in light of the provisions of the Superannuation Industry (Supervision) Act, and in particular s 126K, is for the company to resign as trustee, and leave it to the sole member, if so minded, to appoint a replacement. 44It follows that the court cannot give the directions sought in the Originating Process. Advice 45As I have sought to explain, that does not leave the liquidator without a remedy. While it would be prudent for the liquidator to cause the company to resign as trustee, leaving Mr Stanfield, if he wishes, to appoint a replacement trustee, in any event the liquidator, in order to implement the winding up of the company, would be justified in applying to be appointed receiver and manager of the trust assets. This would enable the liquidator, as receiver, to realize trust assets to enforce the (former) trustee's indemnity, and apply the proceeds to discharge the liabilities of the company (all of which were incurred in the capacity of trustee). In addition, he would be entitled to recover the costs of the receivership and, because the company's sole function was to act as trustee of the super fund, the general costs of liquidation. As this is likely to exhaust the assets of the super fund, the absence of a replacement trustee would be of little consequence. Conclusion 46My conclusions may be summarized as follows. 47The company in liquidation remains trustee of the super fund. As such, its liquidator has power under the trust deed to (1) administer the trust assets, (2) pay trust creditors, (3) wind up the trust, and (4) because acting as trustee was the only function of the company and it has no other assets, recover all his remuneration and expenses from the trust assets. 48However, although the company in liquidation remains the trustee of the super fund, it commits an offence against Superannuation Industry Supervision Act, s 126K, by doing so, and would more conspicuously do so if it exercised its power to sell trust assets or to wind up the trust. 49If, as would be prudent, the company resigns as trustee, the liquidator would have no power of sale, as the trustee's power of sale under the trust instrument would no longer be available, and Corporations Act, s 477(2)(c), does not empower the liquidator to sell assets held by the company on trust. 50The function of Corporations Act, s 479(3), is to enable the liquidator to obtain judicial advice as to the exercise of his powers, not to obtain powers and authorities that the liquidator does not otherwise have. Superannuation Industry (Supervision) Act, ss 310 and 312, are concerned with retrospective validation of irregularities and relief from liability, not the prospective authorization of contraventions. None of the provisions invoked provide power to make an order prospectively permitting the liquidator, or the company in liquidation, to sell or otherwise deal with the property of the super fund, in contravention of Superannuation Industry (Supervision) Act, s 126K, or in the absence of a power of sale. 51In such circumstances, the appropriate course for a liquidator is to seek appointment as a receiver of the trust assets, by way of enforcement of the (former) trustee's right of indemnity, pursuant to which he could realize trust assets, and apply the proceeds to discharge the liabilities of the company (all of which were incurred in the capacity of trustee), and recover the costs of the receivership and, because the company's sole function was to act as trustee of the super fund, the general costs of liquidation. 52Accordingly, I will not make the direction sought. As the advice I propose to give departs from that sought, I will defer formally making the following orders until counsel has had an opportunity to consider these reasons. Subject to such submissions as counsel may then make, I propose to make orders pursuant to s 479(3) to the following effect: (1)The liquidator would be justified in causing the company to resign as trustee of the super fund. (2)The liquidator would be justified in applying to the court to be appointed as receiver without security of the assets of the super fund, with the powers that a liquidator has in respect of the property of a company under Corporations Act, s 477(2), for the purpose of enforcing the company's right of indemnity as trustee of the fund. 7 November 2014 53HIS HONOUR: I published reasons for judgment on 30 October 2014 and indicated that the court was prepared to give certain advice by way of directions to the liquidator, which advice differed from that that was sought in the initiating process. I therefore deferred formally making orders until counsel had had an opportunity to consider my reasons. 54That opportunity has been exercised and the liquidator now seeks orders which include the advice that I indicated would be given, and further orders pursuant to that advice. 55One of the orders sought was that having been appointed receiver of the assets of the Super Fund, the receiver be empowered to pay out of the assets remuneration for his services in an amount equal to the time actually spent by him or any partner or employee of his firm, calculated in accordance with the rates set out in his consent. I am not prepared to make a carte blanche order for remuneration in that form and the receiver will be given liberty to apply for approval of his remuneration at an appropriate time. 56The Court orders (pursuant to Corporations Act 2001, s 479(3)) that: (1)The first plaintiff (the official liquidator of the second plaintiff) would be justified in causing the second plaintiff to resign as trustee of the Elliott Stansfield Super Fund, ABN 23 106 347 080 (the "Super Fund"). (2)The first plaintiff as liquidator of the second plaintiff would be justified in applying to the Court to be appointed Receiver without security of the property of the Super Fund, with the powers that a liquidator has in respect of the property of a company under Corporations Act, s 477(2), for the purpose of enforcing the company's right of indemnity as trustee of the fund. 57The Court further orders that: (3)Michael John Morris Smith of Smith Hancock have leave to apply to be appointed receiver of the Super Fund and the filing of an interlocutory process for such relief be dispensed with. (4)Michael John Morris Smith of Smith Hancock, Level 4, 88 Phillip Street, Parramatta, Accountant and Insolvency Practitioner, be appointed without security as receiver and manager (the "Receiver") of the assets and undertaking of the Super Fund until further order. (5)The Receiver have the powers in the Schedule of Powers, together with the powers that a liquidator has in respect of property of a company pursuant to the Corporations Act 2001, s 477(2). (6)Upon completion of the realisation of property and payment of costs and expenses, and creditors, the Receiver is to deliver to: (a)the Court; and (b)the Commissioner of Taxation, a statement of receipts and payments in relation to the realisation of property and payments made by the Receiver. (7)The plaintiffs' costs of these proceedings be costs and expenses in the winding up of the second plaintiff. (8)The Receiver have liberty to apply for the approval of his remuneration upon the realisation of the property of the Super Fund. (9)There be liberty to apply on 3 days' notice, any such notice to specify the relief to be sought. and the Court notes that: (10)The object of the appointment in Order 4 is to: (a)enable the first plaintiff, as receiver, to realise trust assets to enforce the second plaintiff's indemnity, and apply the proceeds to discharge the liabilities of the second plaintiff (all of which were incurred by it in its capacity as trustee) in accordance with the priorities as set out in the Corporations Act 2001, s 556; and (b)enable the first plaintiff to recover the costs of the receivership and, because the second plaintiff's sole function was to act as trustee of the Super Fund, the general costs of the liquidation. SCHEDULE OF POWERS 1 Power to do all things necessary or convenient to be done for or in connexion with or as incidental to the attainment of the objective noted above. 2 Power to discontinue, terminate or wind up any such business, enterprise or venture, in whole or in part. 3 Power to sell and convert into cash any property or asset of the Super Fund. ********** Amendments 13 November 2014 - Renumbering Amended paragraphs: 56, 57 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 13 November 2014