In the matter of J & Lee Property Investment Group Pty Ltd (No 2) [2018] NSWSC 1728

Supreme Court New South Wales

Medium Neutral Citation: In the matter of J & Lee Property Investment Group Pty Ltd (No 2) [2018] NSWSC 1728 Hearing dates: 12 November 2018 Date of orders: 12 November 2018 Decision date: 12 November 2018 Jurisdiction: Equity - Corporations List Before: Parker J Decision: See [14] Catchwords: CORPORATIONS – external administration – application for directions by receivers – receivers seeking order to sell or dispose of real property belonging to a company – where company acts as trustee of a unit trust – where company owes debt to New South Wales Crime Commission – where unitholders of the trust cannot be identified – orders made allowing the properties to be sold on terms that a further order is required in order to distribute the proceeds of sale Legislation Cited: Criminal Assets Recovery Act 1990 (NSW) Trustee Act 1925 (NSW), s 70 Cases Cited: In the matter of J & Lee Property Investment Group Pty Ltd [2017] NSWSC 1115 Category: Consequential orders (other than Costs) Parties: Peter Hillig (First Applicant) Michael John Morris Smith (Second Applicant) New South Wales Crime Commission (First Respondent) Seong Won Lee (Second Respondent) Representation: Counsel: S Golledge (First and Second Applicant – appearing ex parte)

Solicitors: Matthews Folbigg Pty Ltd (First and Second Applicant) File Number(s): 2016/383417 Publication restriction: Nil

Judgment – ex tempore

Revised and reissued on 13 November 2018 1. This is an application by receivers, appointed by order of the Court in August 2017, for directions empowering them to sell property referred to in that order. 2. These proceedings were commenced as an application to wind up the defendant company, J & Lee Property Investment Group Pty Limited (to which I refer as "the Company"). The ground on which the Company was wound up was failure to pay land tax claimed to be due to the Office of State Revenue. 3. The Company is the trustee of a unit trust known as J & Lee Group Trust. The trust was settled by way of trust deed in May 2009. The Company is a registered proprietor of three properties, which are referred to in the evidence as the "Mascot property", the "Vineyard property" and the "Sydney property". The Mascot property and Vineyard property appear to be held by the Company in its capacity as trustee of the trust. Evidence before the Court suggests that their current value is between $19 million and $22 million. 4. The trust deed contains a clause commonly referred to as an "ipso facto" clause providing that the trustee is to be disqualified from holding the office of trustee upon going into liquidation. In this case, there are potential issues as to whether liabilities of the Company are liabilities incurred as trustee and, accordingly, as to whether assets of the trust can be applied in satisfaction of the Company's liabilities. The position has been further complicated because orders have been obtained at the suit of the New South Wales Crime Commission for the payment of the sum of money, initially $8.5 million, pursuant to the Criminal Assets Recovery Act 1990 (NSW). 5. It has become common in cases where a trust deed contains an ipso facto clause for a liquidator to apply to the Court to be appointed as receiver of the assets of the trust in order to be able to realise those assets so that they may be made available to satisfy the company's liabilities, to the extent those liabilities may be discharged out of trust assets. An application of this sort was made in the present case to Brereton J (as his Honour then was) who made orders appointing Mr Peter Hillig, the liquidator of the Company, as receiver in August 2017: In the matter of J & Lee Property Investment Group Pty Ltd [2017] NSWSC 1115. 6. At the time his Honour made these orders, there were a number of uncertainties about how the property of the Company and of the trust should be administered. One was that although there was evidence suggesting that the Mascot and Vineyard properties had been acquired by the Company as trustee of the trust, that issue had not been definitively determined and the parties potentially interested in the question were not all represented before his Honour on the application. Accordingly, his Honour did not, in the judgment, resolve whether or not the apparent trust assets were in fact trust assets: see [14]. 7. Another uncertainty was that there had been some opposition to the application by Seong Won Lee who had previously controlled the affairs of the Company. Mr Lee had also foreshadowed an application to set aside the orders made in favour of the New South Wales Crime Commission. 8. It was also unclear who the unitholders in the trust were. The trust deed identified Mr Lee, Suela Lee (who I was told was Mr Lee's son) and Elisabeth Park as the original unitholders, but there was no register of unitholders. It was unclear whether they remained the unitholders under the trust. 9. For these reasons, while his Honour was persuaded to appoint Mr Hillig and his partner Michael John Morris Smith as receivers and managers of the trust assets, he directed that no steps should be taken by them to sell the assets or to distribute any of the proceeds without further order of the Court. 10. Mr Hillig now moves for orders empowering him to sell the Mascot and Vineyard properties. The Interlocutory Process also seeks orders concerning the distribution of the proceeds, but those orders are not pressed at this point. Mr Hillig proposes to return to Court and to seek further orders concerning distribution only once the properties have been sold and the monies paid into Court. In these circumstances, the application before me is a very limited one as I am concerned only with the sale of the properties, and I will not be making any decision about the distribution of the proceeds or about the trust status or otherwise of the properties in question. 11. Mr Lee is in gaol. I was informed from the Bar Table that steps were taken to serve him, but it was not possible to have evidence before the Court today to confirm that that had happened. In the hope of avoiding an unnecessary delay and the unnecessary incurring of costs, I propose to make orders as sought by Mr Hillig but to stay those orders until satisfactory evidence is put before the Court to show that service has been effected. The orders will also be the subject of a grant of liberty to apply. 12. In my view, the time has come for the property to be sold. Since August 2007, no one has come forward to seek to take control of the trust, and the receivers have been unable to identify or make contact with the named original unitholders, apart from Mr Lee who was heard on last year's application. The liabilities of the Company, including the liability resulting from the proceedings brought by the New South Wales Crime Commission, continue to accrue interest and there are no funds available to discharge the liabilities which continue to accrue from holding the property (such as land tax). There is clearly room for debate about whether all of the liabilities of the Company are properly payable out of the assets of the trust, but on any view it is in the interests of the unitholders, just as much as it is in the interests of the creditors, to convert the properties into cash so that undoubted liabilities can be discharged and the incurring of further interest can be avoided. 13. Accordingly, I will make orders empowering Mr Hillig as receiver to sell the properties and I will make consequential orders which will entitle him to pay for the costs of the sale and for the costs of this application out of those proceeds. But the distribution of any further moneys will need to await a further application to the Court. That application is some distance off and it is not necessary to deal with it in detail on this application, but I would note that it appears likely that, on any view, there will be a surplus in the trust attributable to the unitholders. This means that it is important that the trust should be properly constituted for the future. If the receivers are unable to identify all of the unitholders (who have power under the trust deed together to appoint a new trustee), consideration should be given to invoking the Court's power under the Trustee Act 1925 (NSW), s 70 to appoint a new trustee. If this step is taken, it may be that it should be taken before any application is made to distribute the proceeds of the monies held in Court, since a new trustee acting in the interests of the unitholders would, on the face of it, be the proper contradictor to any such application. No doubt these and other matters will be considered by the receivers before pursuing the balance of the application. 14. The orders of the court are: 1. I make orders in accordance with paragraphs 1 and 2 of the interlocutory process dated 25 October 2018. 2. I stay the operation of those orders until 7 days have elapsed after the applicant has filed with the Court an affidavit or affidavits of service on the second respondent, Seong Won Lee, and written submissions concerning the validity of such service. 3. I grant liberty to apply on forty-eight hours' notice. 4. I direct that the interlocutory process be adjourned for further mention on 11 February 2019.