Supreme Court New South Wales Medium Neutral Citation: In the matter of J & Lee Property Investment Group Pty Ltd [2017] NSWSC 1115 Hearing dates: 16 August 2017 Date of orders: 16 August 2017 Decision date: 16 August 2017 Jurisdiction: Equity - Corporations List Before: Brereton J Decision: Receivers and managers appointed of trust assets Catchwords: CORPORATIONS – external administration – liquidation – corporate trustee – where trust deed contains ipso facto clause – application by liquidator to be appointed receiver of trust assets – where at least some liabilities of company incurred qua trustee - where some assets of company at least arguably trust property – where company's assets apparently comfortably exceed liabilities – where company and directors have repeatedly failed to bring application for termination of winding up - held, receivers and managers of trust property appointed, with limited powers. Legislation Cited: (CTH) Corporations Act 2001, s 477(2) Category: Procedural and other rulings Parties: Chief Commissioner of State Revenue (plaintiff) J & Lee Property Investment Group Pty Ltd (defendant) Representation: Counsel: J Brown (sol) (plaintiff) S Lee (director) (defendant) Solicitors: Matthews Folbigg (plaintiff) File Number(s): 2016/383417 Judgment 1. The company J & Lee Property Investment Group Pty Ltd was wound up by order of the Court on 13 February 2017, when the present applicant Peter Hillig was appointed its liquidator. The winding up order was made on the ground of insolvency, for failure to comply with a creditor's statutory demand served on the company by the plaintiff Chief Commissioner of State Revenue, for a debt for land tax in respect of three properties of which the company was and is the registered proprietor. 2. It appears, although there may be some controversy about this, that on or about 15 May 2009 the company executed a trust deed of that date, whereby it became the trustee of the J & Lee Group Trust, a unit in which it appears that Seong Won Lee, Suel A Lee, and Elisabeth Park were the original unit holders. The trust deed contained, in clause 13.2, an "ipso facto" clause, so that the trustee became disqualified from holding office as such upon going into liquidation. The liquidator is not aware, and there is no suggestion, that any replacement trustee has been appointed. However, in the light of the winding up order, the ipso facto clause has the consequence that a new trustee could be appointed by those with power to do so, and that unless and until that happens, the liquidator remains a bare trustee of the trust assets of the company. 3. The company's only assets appear to comprise three parcels of real property, one at Mascot, one at Vineyard, and one at Liverpool Street Sydney. It is suggested that their combined value exceeds $30,000,000, of which the Liverpool Street property represents about $2,000,000. 4. There is what appears at this stage to be reasonable evidence that the Mascot and Vineyard properties, but not the Liverpool Street property, are trust assets. That is because the front pages of the contracts, by which the Mascot and Vineyard properties were acquired by the company, describe the purchaser as the company in its capacity as trustee of the trust; and minutes of meetings of the company, which appear to have resolved to acquire those properties and appear to be executed by a director of the company, refer to it as doing so in its capacity as trustee of the trust. In contrast, in the case of at least one other property (which the company no longer holds, at Redfern), there was no reference to the company acting in its trustee capacity. 5. In respect of the Liverpool Street property, the contract cover sheet does not refer to the company acting in a trustee capacity, nor is there any other document which does so. Indeed, the company could not have purchased it as trustee of the trust, because it was acquired before the trust was settled. 6. For those reasons, on the present evidence, it is probable that Mascot and Vineyard are trust assets, but that Liverpool Street is not. However, on this application, I do not ultimately need to resolve that issue, to, and do not propose to do so. 7. The liabilities of the company, in addition to a possible liability to the New South Wales Crime Commission under a Proceeds of Crime Act order of $8.5 million, appear to be only the plaintiff's debt - now approximately $225,000. This debt, in respect of land tax, appears to have been incurred in respect of all three properties, and thus at least in part by the company in its capacity as trustee of the Mascot and Vineyard properties. 8. As I have indicated on previous occasions when the proceedings have been before the court, if the values to which I have referred are anything like correct, the company may well have ample assets with which to pay its liabilities, in which case an application for termination of the winding up, if properly made, might well succeed. However, although there have been repeated adjournments to permit such an application to be made, [1] none has yet been made. In those circumstances, I do not think that the Court can continue indefinitely to defer dealing with the liquidator's application in order to afford the directors an opportunity to make an application which they have so far been not only unable but, as it seems to me, unwilling to make. Nonetheless, incorporation of some conditions can minimise any irrevocable prejudice. 9. In simple terms, the issue on this application is whether the liquidator should have control of such of the company's assets as are trust assets, as well as those assets that are not. Somewhat ironically, as I understand the position advanced by the directors, they contend that the documents relied on by the liquidator as indicating that the Mascot and Vineyard properties are trust assets are fraudulent, and that those properties are not trust assets. The irony is that if that contention is correct and the properties are not trust assets, then this application is unnecessary, and the liquidator would be able to sell those properties in his own right as liquidator, without also seeking to be appointed receiver of the trust assets. 10. So in reality, all that the Court is required to decide at this stage is whether the liquidator should, for the time being, have control of all the assets in the company's name, including such assets as may be trust assets. The alternative is that it remain in doubt whether the liquidator has control of those properties which may be trust assets (although on the case put forward by the directors, he would be entitled to have such control, as liquidator of the company). 11. It is well established now that, where a trustee company becomes disqualified, the Court can appoint the liquidator as receiver and manager of the trust assets, to protect the company's interests as former trustee, and in particular its right to be indemnified out of the assets of the trust in respect of liabilities incurred by it in its trustee capacity. In this case, if the Mascot property and the Vineyard property are trust assets, then the liability to the Office of State Revenue for land tax in respect of those properties was incurred in the company's trustee capacity. 12. In the circumstances that, if those properties are trust assets, the liquidator of the former trustee would have a right of indemnity against them, while if they are not trust assets (as the directors contend), the liquidator would be entitled to control them in any event, the administration will be facilitated and simplified by clarifying the position now and appointing the liquidator as receiver of the trust assets. It will then be clear beyond question that the liquidator has control of all the assets in the company's name, whether as liquidator of the company, or as receiver of the company's trust assets. 13. However, because of what appears to be at first sight the very considerable surplus of assets available over liabilities, and because an application is pending in another division of the court to vary or set aside the proceeds of crime order, it is correct, as Mr Brown for the liquidator pointed out, that the liquidator would need to act with caution in proceeding to any sale of any of the properties, at least those which may be trust properties. I therefore propose to impose a condition that the receiver not sell without the leave of the Court, in order to ensure that no such step is taken without the due consideration of the Court, and to preserve any opportunity to apply in the meantime to terminate the winding up. 14. As I have indicated, I am not by this judgment resolving whether or not the apparent trust assets are in fact trust assets, and the order made will be expressed in terms of the trust assets generally, without determining what those assets are. If the liquidator needs advice as to whether he would be justified in treating certain assets as trust assets, he can apply for that advice in due course. 15. The Court orders that: 1. Peter Hillig and Michael John Morris Smith of Smith Hancock Chartered Accountants, Level 4, 88 Phillip Street, Parramatta be appointed as joint and several receivers and managers ("the receivers") of the assets and undertaking of the J & Lee Group Trust ("the trust assets") until further order. 2. Subject to the following orders, the receivers have in respect of the trust assets: 1. the powers that a liquidator has in respect of property of a company pursuant to (CTH) Corporations Act 2001, s 477(2); and 2. the power to make and determine payment of any claims against the assets of the trust fund. 1. The receivers not, without the leave of the Court: 1. sell any trust assets; or 2. make any distribution of trust assets or their proceeds to creditors or beneficiaries. 1. The receivers have liberty to apply for the approval of their remuneration upon the realisation of the trust assets. 2. There be liberty to apply on three days' notice, any such notice to specify the issues to be raised and the relief to be sought. ********** J & Lee Property Investment Observations 23.5.17 (16.2 KB, pdf) Endnote 1. The application was first before the Court on 27 March, when Mr Lee, a director of the company, was granted leave to appear and a direction was made that any application by him to terminate the winding-up be filed and served by 10 April, returnable on 24 April. That was not done, and when the matter returned before the Court on 24 April, the Court extended time for Mr Lee to make such an application until 19 May, to be returnable on 22 May. Once again, no such application was made, and on 22 May some detailed observations were made in an endeavour to assist the directors to address what was required, a written copy of which was later provided to them: see annexure 1. The liquidator's application was adjourned to 26 June 2017, to enable the directors to make a proper application for termination of the winding-up. On 26 June, when no such application had been made, the liquidator's application was set down for hearing on 16 August, with an indication that it would proceed that day, unless an application for termination of the winding up was by then before the court. Amendments 22 August 2017 - Amended attachment 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: 22 August 2017