In the matter of Australasian Barrister Chambers Pty Ltd [2016] NSWSC 1767

Supreme Court New South Wales

Medium Neutral Citation: In the matter of Australasian Barrister Chambers Pty Ltd [2016] NSWSC 1767 Hearing dates: Monday, 24 October 2016 Date of orders: 25 October 2016 Decision date: 25 October 2016 Jurisdiction: Equity - Corporations List Before: Brereton J Decision: Refer to [14] Catchwords: CORPORATIONS – winding up – winding up in insolvency – application to appoint liquidator as receiver of trust asset to enforce company's right of indemnity as former trustee – where defendant company was custodian trustee of strata title lots for respondent which held its assets as trustee of self-managed super fund – company transferred units to respondent and relinquished position of trustee, but did not relinquish right to indemnity – right of indemnity extends only to assets of which company had been trustee – where only way to satisfy company's liabilities is enforcement of right of indemnity – where no satisfactory common law remedy Category: Principal judgment Parties: David Henry Sampson (applicant) Owners Strata Plan number 21574 (plaintiff) Australasian Barrister Chambers Pty Ltd (defendant) ABCD Corporation Pty Ltd (respondent) Representation: Counsel: R D Marshall SC (applicant) Derek Minus (respondent)(in person)

Solicitors: Gillis Delaney Lawyers (applicant) File Number(s): 2015/ 326742

Judgment (ex tempore) 1. HIS HONOUR: The applicant David Henry Sampson is the liquidator of the defendant company Australasian Barrister Chambers Pty Ltd ("ABC"), which was on 8 December 2015 wound up in insolvency by order of the Registrar on an application made by the plaintiff Owners Strata Plan 21574, for failure to comply with a creditor's statutory demand dated 22 September 2015 which demanded payment of an amount due under a judgment of the Local Court of New South Wales for arrears of strata levies. By interlocutory process filed on 30 September 2016, the liquidator seeks an order appointing himself as receiver of the assets of the Minasian Superannuation Fund (of which the respondent ABCD Corporation Pty Ltd is the trustee), for the purpose of enforcing the company's right of indemnity, as a former trustee of certain assets, out of the trust fund. 2. The company ABC was the custodian of certain assets – including three lots in the strata plan which comprised Culwulla Chambers – for ABCD, which in turn held its assets as trustee of the Minasian Superannuation Fund. It is not established that its function as custodian was the only function of ABC; it appears to have also had other functions. The directors of ABC were Mr Minus and his spouse Ms Minasian, and its shareholders Mr Minus as to ten shares and ABCD as to ten shares. The directors of ABCD were Mr Minus and Ms Minasian, and the shareholders Mr Minus and Ms Minasian as to one share each. Although the evidence is not extensive, it appears that the Minasian Superannuation Fund is a self-managed superannuation fund in which the beneficiaries are Mr Minus and Ms Minasian. 3. ABC was the custodian of lots 21, 31 and 34 in the strata plan, pursuant to a Custodian Appointment Deed dated 13 November 2008 between ABCD and ABC. The Deed makes clear that ABC was a bare trustee. The right of indemnity of the trustee against the trust assets, which arises at general law, was acknowledged in clause 8(3) of the Deed. 4. On 4 December 2015, only four days before the company was wound up, transfers of the three lots in question, from ABC to ABCD were registered. They appear to have been dated 9 November 2015, pursuant to notifications and directions given by ABCD on 8 November 2015. 5. The report as to affairs of the company, provided to the liquidator by Mr Minus, discloses no assets of significance and, as liabilities, the debt in respect of strata levies which founded the judgment of the Local Court to which I have referred, and a debt to Mr Minus himself of about $100,000 for counsel's fees for work said to have been done by him for the company. On any view, the debt to the strata plan was incurred in respect of the property of which the company was custodian, and is therefore a debt incurred in its capacity as trustee, in respect of which it would be entitled to indemnity from the trust assets. 6. Since the report as to affairs, Mr Minus has quantified his claim for legal fees against the company at a much larger sum – in the order of $632,000. Some of the services for which he claims appear to be unrelated to the real property of which the company was the custodian trustee, and to have been rendered to the company in respect of other functions of the company. Some of the services, however, does appear to have been rendered to the company in its capacity as custodian trustee of the three strata lots in Culwulla Chambers. 7. The following propositions are uncontroversial, or at least are well-established by authority. First, a trustee has a right of indemnity out of the trust assets to meet obligations that it has incurred in its capacity as such trustee. Secondly, that right of indemnity is secured by an equitable charge over the trust assets. Thirdly, where the trustee ceases to be trustee and is replaced by another trustee, its right of indemnity and the equitable charge nonetheless ensure. Fourthly, the right of indemnity and the equitable charge is not immediately enforceable by the former trustee without the assistance of the Court, but can only be enforced by way of judicial sale or the appointment of a receiver. 8. In this case, it may be that some confusion has descended into the argument because of the sub-trust by which ABCD held its beneficial interest on the terms of the Minasian Superannuation Fund. But the critical point is that the trust fund of which ABC was the trustee comprised the three lots in Culwulla Chambers. These lots were registered in the name of ABC, and ABC held them on the trust referred to in the Custodian Appointment Deed, for the beneficiary ABCD. Although ABCD in turn held its interest on sub-trust for the Minasian Superannuation Fund, that is essentially irrelevant for present purposes, because ABC's right of indemnity was out of the trust fund of which it was trustee – that is to say the assets which it held as bare legal owner upon trust for ABCD – and those assets comprised the three lots in Culwulla Chambers. When, upon the direction of the beneficiary, ABC relinquished the position of trustee and transferred the property to ABCD, it did not relinquish its right of indemnity in respect of those assets. 9. ABC's right of indemnity does not extend to all the assets of the Minasian Superannuation Fund, as the interlocutory process suggests, only to those assets of which ABC itself had been the trustee. However, the three lots in question are assets available to satisfy ABC's right of indemnity in respect of liabilities incurred by it in its capacity as trustee. Those liabilities include the petitioning creditor's debt, and at least some of the Mr Minus's claim, to the extent that those claims are ultimately proved. 10. Mr Minus appeared and opposed the relief sought in his capacity as a creditor of ABC. He argued that the application was premature as there had been no consultation with creditors, no meeting of creditors, and no ascertainment of the assets and liabilities of the company; and also that the liquidator was acting only for one creditor, being the petitioning creditor. 11. The petitioning creditor's claim is in the order of $75,000; Mr Minus's claim is in the order of $632,000, at least some of which appears, as I have said, to be against the company in its capacity as a custodian trustee. How much of Mr Minus' claim will ultimately be admitted by the liquidator remains to be seen. Together, those two claims comprise, so far as is known, the whole of the liabilities of the company. So far as assets are concerned, other than its right of indemnity, Mr Minus suggests that the company has a set-off in the order of between $10,000 and $15,000 against its petitioning creditor in respect of a costs order which it obtained in earlier proceedings against the strata plan, and a potential claim for damages for professional negligence against solicitors who provided advice to it at some stage. The claim for damages for professional negligence is self-evidently, from a liquidator's perspective, an asset that is fraught with difficulty in terms of realising it for the benefit of creditors. The set-off may be in a different position, but taking Mr Minus' contentions at their highest, it would only reduce the petitioning creditor's debt from $75,000 to $60,000. 12. The only way in which the liabilities of the company can be satisfied – under someone, such as the beneficiaries of the superannuation fund, make a contribution that enables the liquidator to do so – is the enforcement of the company's right of indemnity against the assets that it formerly held on trust. Mr Minus submitted that it was a matter for the creditors to determine what was done in this respect, but that is not correct. If Mr Minus were admitted for $632,000 and the petitioning creditor for $60,000 net, Mr Minus would self-evidently carry any meeting of creditors; but Mr Minus has a significant conflict of interest, because while he may be a creditor to that extent – a matter which of course has not been tested and depends on the liquidator's acceptance of his proof of debt – he and his wife are also the beneficiaries of the trust for which the assets are ultimately held, and their interests as beneficiaries are contrary to his interests as creditor. Mr Minus' submissions focused on the detriment that would be occasioned to the beneficiaries of the superannuation fund by making the orders sought, but did not attend to the benefit to the creditors from making that order. And in this context, the interests of the creditors prevail over the interests of the beneficiaries. There is practically no other way in which the creditors can be paid, as it seems to me, than by recourse to enforcing the indemnity. By doing so, the liquidator is not acting on behalf of one creditor only, but in the interests of all creditors; notwithstanding that there is only one unrelated creditor, while the other creditor Mr Minus – being a related creditor or an associate – has an interest as beneficiary inconsistent with his interest as creditor. There is no obligation to call for and adjudicate proofs of debt before getting in the assets, and indeed, particularly where (as here) there have already been dealings with the relevant assets at a time when winding up is imminent, it might be said to be prudent and desirable for the liquidator to take expeditious steps to get in and protect those assets. 13. It was also submitted that equitable enforcement should not be granted if there was a perfectly good legal remedy available. But there is no perfectly good legal remedy available to the liquidator. The remedy under (NSW) Strata Schemes Management Act 1996, s 80, to which Mr Minus referred, is one that was available to the plaintiff, and on which the plaintiff relied, in suing the company to obtain the judgment. It has already been exercised. It is not the kind of legal remedy which is relevant to declining equitable enforcement in the present context. 14. For those reasons, the applicant should have the relief it seeks, but that relief will be in respect of the three lots in Culwulla Chambers only. The Court orders that: 1. The applicant David Henry Sampson ("the receiver") be appointed without security as receiver of the land comprised in lots 21, 31 and 34 in strata plan 21574, situate at and known as suite 602, Culwulla Chambers, 67 Castlereagh Street, Sydney in the State of New South Wales ("the land") 2. The receiver have the powers that a liquidator has in respect of the property of a company under Corporations Act s 477(2)(a) 3. The receiver not distribute the assets to creditors or beneficiaries without the further direction of the Court. 4. The parties have leave to apply for directions on 48 hours' notice by arrangement with my associate. 5. The respondent ABCD Corporation Pty Limited pay the applicant's costs of the application and, to the extent that those costs are not recoverable from the respondent, the costs be costs in the receivership. 1. Upon the undertaking of Derek Michael Minus to the Court that he will not, in the meantime, cause, permit or suffer the assets referred to in order 1 to be transferred, encumbered or otherwise adversely dealt with, the Court orders that: 1. The operation of order 1 be stayed until 6 December 2016 or further order. 1. The Court further orders that: 1. Each party has liberty to apply by arrangement with my associate for a variation of the stay.