Supreme Court New South Wales Medium Neutral Citation: In the matter of Wise Guys International Pty Limited (in liquidation) [2015] NSWSC 1245 Hearing dates: 22 June 2015 Decision date: 22 June 2015 Jurisdiction: Equity - Corporations List Before: Black J Decision: Order that special leave be granted to the liquidator to distribute surplus assets of a trust. Orders in accordance with short minutes of order. Order that costs and expenses of the application be paid out of the assets of the Company. Catchwords: CORPORATIONS – winding up – application by liquidator for special leave to distribute surplus of assets in the liquidation of company – where surplus to be distributed to unitholders pursuant to a trust deed – where directions sought by liquidator as to allocating a vesting date of the trust – whether leave should be granted – whether direction should be given that the liquidator is entitled to terminate the trust, pursuant to the terms of the trust deed. Legislation Cited: - Corporations Act 2001 (Cth) ss 479, 479(3), 488, 488(2) - Trustee Act 1925 (NSW) s 63 - Corporations Regulations 2001 (Cth) reg 5.6.71 - Supreme Court (Corporations) Rules 1999 (Cth) Cases Cited: - Re Catombal Investments Pty Ltd [2014] NSWSC 313 - Re MF Global Australia Ltd (in liq) [2012] NSWSC 994; [2012] 267 FLR 27 Category: Procedural and other rulings Parties: Craig Neil Drury (Plaintiff) Wise Guys International Pty Ltd as a trustee of GT3RSR Unit Trust (First Defendant) Wise Guys International Pty Ltd as a trustee of YQSL Superannuation Fund (Second Defendant) Wise Guys International Pty Ltd (Third Defendant) Simon Arnold (Fourth Defendant) Representation: Counsel: G Cussen (solicitor – Applicant liquidator) Solicitors: Kemp Strang (Applicant liquidator) File Number(s): 2014/78701 Judgment – ex tempore 1. By Interlocutory Process filed on 11 May 2015, Mr Adam Shepard in his capacity as liquidator of Wise Guys International Pty Ltd (in liq) ("Company") brings an application under ss 479(3) and 488(2) of the Corporations Act 2001 (Cth) and s 63 of the Trustee Act 1925 (NSW). Mr Shepard seeks an order under s 488(2) of the Corporations Act granting special leave to him to make a distribution of the surplus in the winding up of the Company, relevantly, to other parties entitled to that surplus, who he identifies as the unitholders of a trust of which the Company is trustee. He also seeks, at least as the application has developed in the course of oral submissions, directions that he is entitled to terminate the relevant trust, pursuant to a power conferred on the trustee by the Trust Deed, and to distribute the surplus on the winding up of the Company to unitholders in a specified manner. So far as the distribution of the surplus is concerned, he seeks an order, in a form commonly made in relatively straightforward distributions of surplus, dispensing with the requirement to have annexed to the order a schedule in accordance with Form 551 which would otherwise be required under reg 5.6.71(2) of the Corporations Regulations 2001 (Cth). 2. The application is supported by Mr Shepard's affidavit dated 11 May 2015 and a further affidavit of his solicitor, Mr Cussen, dated 18 June 2015. Mr Shepard's affidavit sets out the orders that are sought and draws attention to the fact that they were to be, and now have been, notified to the Australian Securities and Investments Commission and that they are sought by the consent of the affected contributories. Mr Shepard draws attention to relevant documents and sets out the background to the winding up, which was a winding up on just and equitable grounds in circumstances that there was a dispute between Mr Drury and Mr Arnold, each of whom held one of the two issued shares in the Company, and who were unitholders in the trust both in their own capacity and as trustees of a superannuation fund, the YQSL Super Fund. Mr Shepard points out that the trust deed of the trust did not provide for the automatic removal of the trustee, when it was placed in liquidation, but permitted the acceleration of the Vesting Date of the trust, by resolution of the trustee, and for distribution of the trust in that situation. Clause 12.7 provided that, when the trust terminated pursuant to cl 13, the trustee must distribute the trust fund as provided for in cl 13. Clause 13.3 of the Trust Deed, to which Mr Shepard referred, provided that the trustee may, with the consent of all unit holders, by deed or oral or written resolution appoint an earlier day to be the Vesting Day as defined in the Trust Deed. Clause 13.3 then provided for the manner in which the trust would terminate on the Vesting Day, and provided for distribution to unitholders, broadly, pro rata to the number of units held by them of the net cash proceeds derived from realisation of the trust fund and available for distribution, subject to certain rights of the trustee to retain moneys for specified purposes. I draw attention to those provisions because the approach proposed to be adopted by Mr Shepard reflects the implementation of those provisions. 3. Returning to Mr Shepard's affidavit, he sets out the investigations which he made and the conclusions which he reached as to the history of the trust, and notes the respective interests and entitlements of unitholders, namely Mr Arnold, Mr Drury and the YQSL Super Fund. It appears that Mr Shepard's conclusions as to those matters are accepted by Mr Arnold and Mr Drury, since they consent to the relevant application. Mr Shepard also sets out the steps which have been taken to sell the property that was owned by the Company, in its capacity as trustee of the trust, and to discharge creditors' claims, which it appears it were only claims of Mr Arnold and Mr Drury. 4. Mr Cussen's affidavit in turn updates the steps which have been taken by Mr Shepard since his affidavit, including notice of the application to the Australian Securities and Investments Commission and advertisement of the application in accordance with the Supreme Court (Corporations) Rules 1999 (NSW), and confirms that each of Mr Arnold and Mr Drury, being the two directors and contributories of the Company, have been served with and consent to the application. Mr Cussen also points to the steps which have been taken to confirm the Company's tax position and Mr Cussen referred in submissions to the expectation that no further superannuation guarantee charge will be payable by the Company, where it had no employees, although he also indicates that it is the liquidator's intention not to distribute any surplus until he has received clearance from the Australian Tax Office. 5. It is convenient to address the matters raised in this application by reference first to the application for leave to distribute a surplus, and then to the application for directions made by Mr Shepard under s 479(3) of the Corporations Act and s 63 of the Trustee Act, since the former provides the context in which the latter directions might be appropriate. I have been assisted here by helpful written submissions provided by Mr Cussen, which draw attention to a number of the relevant authorities. 6. The Court has often had occasion to deal with applications under s 488(2) of the Corporations Act, typically in circumstances where a distribution is to be made to contributories of a company. However, Mr Cussen notes in his submissions that it is arguable that that section also applies, so as to require leave, where the proposed distribution of a surplus is to be made by a liquidator of a company, albeit that distribution will be made to unitholders of a trust of which the company is trustee, rather than contributories. It seems to me that Mr Cussen's assessment of that matter is plainly correct, because s 488(2) of the Corporations Act refers, not to distributions to contributories, but to distributions of a surplus of a company, although it has most commonly been applied where distributions are to be made to contributories. It seems to me that the policy recognised in the case law as supporting the application of the section, namely to ensure that proper inquiries have been made by a liquidator before a surplus is distributed, is equally applicable, notwithstanding that the distribution may be made to beneficiaries or unitholders in a trust as distinct from contributories. 7. I am satisfied, having regard to Mr Shepard's evidence, and can more readily be satisfied where the contributories consent to the application, that the creditors' claims in this matter have been properly identified and discharged, and that there is in fact a surplus in the distribution, and that it should properly be distributed, not to contributories, but instead to unitholders in the trust. That seems to me to be the necessary consequence of two matters, namely that the property held by the Company as trustee was held on behalf of the trust, and the beneficiaries have the claim to that property in priority to the shareholders in the Company and, second, the trust has no distinct legal existence, so that any distribution cannot be made by the Company to the trust as such, but can only be made to its beneficiaries or unitholders as the persons who have a claim upon the trust's property. I am satisfied that this is a proper case for an order under s 488(2) of the Corporations Act that the liquidator be granted special leave to distribute the surplus assets of the Company and I will make such an order. 8. As I noted above, the liquidator also seeks dispensation from the requirement that the order authorising the distribution of surplus assets have annexed to it a schedule in accordance with Form 511 as otherwise recognised under reg 5.6.71 of the Corporations Regulations. There seem to me to be two matters that support the giving of such a direction. The first is that, notwithstanding the legal complexities arising in a distribution to unitholders of the trust, the identity of the persons to whom the distribution is to be made and the amounts of the distribution to be made to them is clear, particularly where they consent to the distribution, so there is no useful purpose to be served by formally settling a list of persons entitled for that purpose. The second reason, to which Mr Cussen draws attention, and which seems to me to have substantial force, is that the relevant provisions contemplate the settlement of a list of contributories, consistent with the usual application of this section, whereas the distribution to be made is not one that will be made to contributories of the Company. That seems to me a further reason why the preparation of such a schedule would have no utility in the present circumstances. 9. I turn now to the direction that is sought by the liquidator under s 479(3) of the Corporations Act and s 63 of the Trustee Act. In the ordinary course, the Court is unlikely to give such a direction in respect of a matter which is uncontroversial. In the present case, it might be suggested that there is little controversy, at least as a matter of fact, where a distribution is to be made to unitholders of the trust, on terms to which they consent. It is for this reason that I suggested, a little earlier, that it was first necessary to deal with the application under s 488 of the Corporations Act, because it seems to me that the matter which warrants a direction in this circumstance is the somewhat unusual interaction between the application of s 488 of the Corporations Act and the termination of the trust, so as to bring about a distribution to unitholders, in a manner that involves legal complexities. 10. The function of s 479(3) of the Corporations Act, and the broadly corresponding provisions in s 63 of the Trustee Act is well recognised, and I summarised it in Re MF Global Australia Ltd (in liq) [2012] NSWSC 994; [2012] 267 FLR 27 at [7] as follows (omitting citations): "Section 479(3) of the Corporations Act allows a liquidator to apply to the court for directions in relation to a matter arising under a winding up. The function of a liquidator's application for directions under this section is to give the liquidator advice as to the proper course of action for him or her to take in the liquidation...the court may give directions that provide guidance on matters of law and the reasonableness of a contemplated exercise of discretion but will typically not do so where a matter relates to the making and implementation of a business or commercial decision, where no particular legal issue is raised and there is no attack on the proprietary or reasonableness of the decision..." I also noted that a direction under this section protects the liquidator from liability for breach of duty or unreasonable behaviour if full disclosure was made to the Court. 1. In the present case, it seems to me that the discretion which the liquidator is asked to exercise, in respect of the termination of the trust, is not merely a commercial decision, but involves issues of some legal complexity, particularly combined with the proposed distribution of the surplus of the Company. The liquidator seeks, first, an order that he would be justified in appointing today to be the Vesting Day of the trust, pursuant to cl 13.2 of the trust deed, to which I have referred above; second, to terminating the trust and winding it up with effect on and from today; and, third, distributing the available net surplus in the Company and the trust, to unitholders in the proportions which he set out in his affidavit, which appear to reflect the relevant accounting records, and to which they consent. Mr Cussen helpfully drew attention to the decision of Brereton J in Re Catombal Investments Pty Ltd [2014] NSWSC 313. That decision is not precisely on point because, in that decision, his Honour gave directions under s 479(3) of the Corporations Act and s 63 of the Trustee Act which authorised a liquidator to give effect to a distribution of a surplus arising under s 488 of the Corporations Act, which would otherwise have been payable to beneficiaries of the trust, by making that payment to contributories, where the real interests in a family trust were reflected by the three contributories. That decision is however helpful by way of analogy, in two respects. First, his Honour appears to have contemplated, in reaching that result, that the ordinary position, which the liquidator here proposes to adopt, is a distribution to those interested in the trust, notwithstanding his Honour there authorised a distribution to the contributories where it brought about an economically equivalent result. Second, his Honour there considered it appropriate to make, as I also consider it appropriate to make, directions under s 479 of the Corporations Act and s 63 of the Trustee Act, given the potential complexities arising from a distribution of a surplus in respect of a company which has its function as trustee. 2. In the present case, it seems to me that the merits, as established by Mr Shepard's affidavit, support the taking of the steps which he proposes to take and support the direction which he seeks. In particular, the provisions of the trust deed to which I have referred authorise the trustee to appoint an earlier Vesting Date and then to terminate the trust and distribute its assets, in the manner which Mr Shepard would do as liquidator of the Company, and the distribution which he proposes to make is consistent with the provisions in the Trust Deed which provide for distribution pro rata to unitholders. The steps which he proposes to take, of terminating the trust in this manner, would also bring about a distribution of the surplus to those who are entitled to it, in circumstances that that surplus is ultimately held for the benefit of those who are interested in the trust. For these reasons, I am satisfied that I can properly make directions of the kind sought by Mr Shepard in this application. 3. I should finally note that Mr Shepard seeks an order that his costs and expenses of the application be paid out of the assets of the Company, as trustee of the trust, as a priority in accordance with the Corporations Act. It seems to me that that order is properly sought, so far as this application is a proper step taken in respect of the administration of the Company and the trust. 4. For these reasons, I make orders in accordance with the Short Minutes of Order initialled by me and placed in the file, amending order 2(a) by adding at the end of the order the words "pursuant to cl 13.2 of the Trust Deed". ********** 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: 04 September 2015