Trust assets… What’s the deal?

Articles, Restructuring + Insolvency

ERA Legal recently acted for the liquidator (Liquidator) of Triangle Sheetmetal Pty Ltd (in liquidation) (Company) seeking, amongst other things, an order under section 57(1) of the Federal Court of Australia Act 1976 (Cth) (Act) appointing the Liquidator as receiver and manager of the property of the Triangle Sheetmetal Unit Trust (Trust).

The decision in Kugel (Liquidator) (Trustee) v Hopemaid Pty Ltd (Trustee), in the matter of Triangle Sheetmetal Pty Ltd [2018] FCA 875 confirms the recent trend in authorities concerning the uncertain ambit of a liquidator’s power under section 477(2)(c) of the Corporations Act 2001 (Cth). That is, whether a liquidator has the power to sell trust assets to secure the former corporate trustee’s right of indemnity out of those assets.  In light of the uncertainty, liquidators have adopted the course of seeking to be appointed as receiver and manager of the assets of the trust so that, in that capacity, they can exercise power over the property to secure the trustee’s right of indemnity out of the assets of the trust.

Section 57(1) of the Act empowers the Court to appoint a receiver, on such terms and conditions as the Court thinks fit, in any case in which it appears to the Court to be just and convenient to do so.  The general ground upon which the Court appoints a receiver is the protection or preservation of property for the benefit of persons who have an interest in it.

Markovic J noted at [13] the reasoning why the Liquidator should be appointed:

  1. Such an appointment would enable the Liquidator as receiver and manager of the Trust to realise the assets of the Trust and apply the proceeds of the assets to discharge the liabilities of the Trust.
  2. Importantly, the appointment would ensure the Liquidator is in a position to convey a secure title to those assets.
  3. There was no obvious conflict between the Liquidator’s duties as liquidator and his duties as receiver and manager of the property of the Trust because it appeared to the Liquidator that both the Trust and the Company are insolvent.

In addition to granting the order under section 57(1) of the Act, the Court capped the Liquidator’s remuneration as receiver and manager in order to avoid the cost of any future application seeking approval of those costs.

Take away point

While the recent trend in authorities has the implicit effect of endorsing the approach taken in In the matter of Stansfield DIY Wealth Pty Limited (in liquidation) [2014] NSWSC 1484; 291 FCR 17, until there is a decision which unequivocal resolves the conflict in authorities, liquidators would be justified in applying to a Court to seek an appointment as receiver and manager with a power of sale over the assets of a trust to secure the corporate trustee’s right of indemnity out of those assets.

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