ARTICLE PRECENDENT – Re Total Truss Systems Pty Ltd (in Liq) [2021] VSC 205

With some hesitancy, an Australian Court has granted orders nunc pro tunc to retrospectively give powers to a liquidator to correct it’s unauthorised dealing of trust property.

Author: Stephen Wallace

27 July 2021

On 24 March 2021, Gardiner AJ granted orders in Re Total Truss Systems Pty Ltd (in Liq) [2021] VSC 205, to allow the liquidators to sell and otherwise dispose of trust property that it was not authorised to do under the trust Deed.

Background

Total Truss Systems Pty Ltd (in Liq) (‘the Company’) was placed into voluntary liquidation pursuant to s 491 of the Corporations Act 2001 (Cth) in 2014. The Company operated a business manufacturing trusses and frames for use in the construction industry. The Company was trustee of a unit trust described as the Total Truss Systems Unit Trust.

The liquidators sought, pursuant to s 63 of the Trustee Act 1958 (Vic), an ordering conferring on the Company, nunc pro tunc, the necessary powers to enable the Company to:

1. carry on the business of the Trust;
2. sell or otherwise dispose of all or any part of the Trust Property in its capacity as trustee of the Trust;
3. compromise any claim against the Company in its capacity as trustee, or against any of the Trust Property on any terms the Liquidators see fit; and
4. bring any claim against any party on behalf of the Trust.

The Trust

The Company was appointed trustee of the Trust under the terms of a Trust Deed dated 23 June 2004. The Trust Deed provided that the appointment of a liquidator to a corporate trustee, ispo facto, results in, among other things, the position of trustee becoming vacant.

A replacement trustee was not appointed to the Trust and it was the liquidators understanding that the Company was the bare trustee of the Trust and without power under the Trust Deed.

All assets of the Company used by it in the business were held by the Company on trust. All liabilities incurred by the Company in operating the business were incurred in its capacity as trustee of the Trust.

Ordinarily, the effect of similar ipso facto clauses, is that the corporate trustee becomes a bare trustee. The corporate trustee therefore continues to hold the assets of the trust for its beneficiaries but with limited powers to deal with same.

Re Civil Construction Network Services Pty Ltd (in Liq) [2020] VSC 474 confirmed that a liquidator of an insolvent corporate trustee is not empowered to sell trust property without an order of the Court or appointment of a receiver for the trust assets. Further, Trust assets are not ‘property of the company’ but rather trust property in which the corporate trustee has a proprietary interest by way of lien or charge to secure its right of exoneration.

Consideration

The Court were reluctant to grant the order nunc pro tunc and regularise the liquidators’ position retrospectively. However, having regard to the evidence filed which indicated that, had the liquidators made a timely application shortly after their appointment, such an order would very probably have been made. The order was granted.

The Court ordered that pursuant to s 90-15 and 90-20 of the Insolvency Practice Schedule (Corporations), the First Plaintiffs were justified and acted reasonably in proceeding on the basis that:

1. the Company carried on business solely in its capacity as trustee;
2. all of the assets of the Company are properly characterised as property held by the Company in its capacity as trustee of the Trust; and
3. all of the creditors of the Company are creditors of the Trust.

Key Take Out

Due to the standardisation of ipso facto clauses in trust deeds, the liquidator of an insolvent corporate trustee is not empowered to sell trust property without an order of the Court or appointment of a receiver for the trust assets.

ALG has experience in dealing with matters involving insolvent corporate trustees and are well equipped to work with you during these unprecedented times.

Contact the ALG team on (02) 4220 7100 or by email at lawyers@alg.com.au to book a free half-hour initial consultation.

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