Insolvency Trends

By 9 September 2020Insolvency
Insolvency

A bare trustee’s power of sale and avoiding receivership appointments to sell trust assets in exercise of the right of indemnity: a different approach for Queensland.

There is a trend in the administration of insolvent trustee companies to seek Court appointment of receivers to trust assets in cases where the company, by virtue of its insolvency, has been disqualified from acting as trustee under the terms of the trust deed, and remains in possession of trust assets as a bare trustee only. Such an appointment puts beyond any question the issue, on which there has been a divergence of views in the authorities, as to whether a bare trustee of a trust has the power to sell trust assets in the absence of any order of the Court, and so secures, in giving effect to the lien, the company’s right of indemnity which, as property of the company, vests in the liquidator.

While prudent – for convenience and certainty in the administration – a necessity to obtain such orders does, however, inevitably increase the costs of an insolvent administration: a potentially widespread issue bearing in mind that in Australia, use of the trust as a trading structure is not uncommon; and a requirement for liquidators of insolvent corporate trustees to approach the Court for appointment of receivers, or judicial sale, in each and every case to enable recourse to trust assets – often the only assets – may lead to diminished returns to creditors.

Recent authorities such as Carrello, in the matter of Gembrook Investments Pty Ltd (in liq) [2019] FCA 1143, Carrello, in the matter of Caneland Holdings Pty Ltd (in liq) [2019] FCA 1144, and Cremin, in the matter of Brimson Pty Ltd (in liq) [2019] FCA 1023 held that there is a need for a Court order, and the appropriate course is to seek the appointment of a receiver, before an insolvent company in the position of bare trustee has power to sell trust assets; that the right of indemnity does not confer a self-help right on the part of an insolvent trustee to sell trust assets so that the proceeds can be used to pay creditors.

A different approach in Queensland

Notwithstanding this line of authority, in Queensland, at least, the position is otherwise.

An earlier, but not oft-cited, decision of Justice Dowsett in Barnet, in the matter of Fulkoto Pty Ltd (In Liquidation) [2013] FCA 595 held that in Queensland, by virtue of sections 4, 5, 31 and 32 of the Trusts Act 1973 (Qld) a bare trustee has a power of sale of trust assets 1.

It follows that, in Queensland, there ought be no need for a liquidator of a bare corporate trustee to seek to be appointed receiver so as to sell trust assets in the exercise of a right of exoneration.

This view has been confirmed in a recent, though unpublished, decision of the Supreme Court of Queensland on 21 July 2020 in the matter of Ward, In Re Lynch Insurance Services BS7274/20 (“Lynch”).

In that matter, Murdoch Lawyers acted for the Liquidator of a company which had apparently traded as trustee of a trust, but in respect of which no trust deed could be located. In those circumstances the Liquidator sought directions from the Court including as to whether he ought proceed with the winding up on the basis that the company had only ever traded as trustee of the trust, and his power to realise the trust property. (Ancillary directions as to the payment of creditors from proceeds of the realisation of trust assets and the Liquidator’s remuneration in accordance with the Corporations Act 2001 (Cth) were also sought.)

In Lynch, Justice Boddice, after finding that the preponderance of evidence supported a conclusion that the company only ever traded as trustee of the trust, adopted the reasons of Justice Dowsett in Re Fulkoto and confirmed that the various provisions of the Trusts Act 1973 (Qld) support the conclusion that a bare trustee does have power to sell trust assets, and there was no need for the liquidator of a bare corporate trustee to be appointed receiver of the trust to sell trust assets in the exercise of the right of exoneration.

Conclusion

The approach in Queensland, averting the need for liquidators of corporate trustees always to seek appointment as receivers to sell trust property, makes good commercial sense, reduces uncertainty and cost and streamlines insolvent administrations for the benefit of creditors.

If you would like more information or advice about the matters raised above, please contact our insolvency and litigation experts at Murdoch Lawyers on (07) 4616 9898.

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1 Sections 4 and 5 of the Trusts Act, read together, make clear that the definition of “trust” includes bare trusts and “trust property” therefore includes property of a bare trust; section 32 of the Trusts Act confers a general statutory power of sale for all trustees to sell trust property.

This publication has been carefully prepared, but it has been written in general terms and should be viewed as broad guidance only. It does not purport to be comprehensive or to render advice. No one should rely on the information contained in this publication without first obtaining professional advice relevant to their own specific situation.

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