In Cremin, in the matter of Brimson Pty Ltd (In Liquidation)  FCA 1023 (“Cremin”), the Federal Court clarified the steps that a liquidator must take to deal with the trust assets beneficially held by a corporate trustee to which the liquidator has been appointed.
The relevant facts, commonly confronted by liquidators when appointed to a corporate trustee, were as follows:
- the liquidator was appointed to three (3) companies that operated three (3) “Snooze” franchises in Melbourne;
- the franchises were operated exclusively by each of the three (3) companies in their capacity as trustee of a trading trust;
- the companies to which the liquidator was appointed to did not operate any business in their own right. Accordingly, the corporate trustees held the assets of the franchises on trust;
- pursuant to the trust deeds of the trading trusts, each corporate trustee:
- was automatically removed upon the liquidator’s appointment;
- was indemnified out of the assets of each of the trusts for liabilities incurred by the company as trustee; and
- did not have the power to sell trust assets except for the benefit of the trust’s beneficiaries; and
- none of the three (3) corporate trustees had been replaced as trustee of their respective trusts. In those circumstances, each of the corporate trustees had no power to deal with the assets of the trading trusts.
Given the above factual background, to enable the liquidator to deal with the assets of each of the trading trusts, the liquidator applied to the Federal Court of Australia pursuant to sections 90-15 and 90-20 of the Insolvency Practice Schedule and the Trustee Act 1958 (Vic) for orders that he:
- could, pursuant to the powers detailed at section 477 of the Corporations Act 2001 (Cth), wind up the trading trusts and pay the creditors of those trusts from the assets of the trusts; or
- be appointed as receiver and managed to the assets of the trading trusts.
In Cremin, the Federal Court confirmed the following:
- a company that is a trustee of a trading trust that has been automatically removed as trustee as a consequence of the appointment of a liquidator, holds the assets of the trust as bare trustee;
- as a bare trustee, the corporate trustee does not have the power to deal with the assets of a trading trust to which it was previously appointed. In those circumstances, the liquidator appointed to the corporate trustee cannot deal with the trust’s assets without an order from the Court giving him power to deal with those assets or appointing him as receiver over the trust’s assets;
- despite the removal of the corporate trustee as trustee of the trading trusts, the corporate trustee’s right to be indemnified out of the assets of the trust for liabilities incurred by the company as trustee, and the equitable lien that arises as a consequence, is still available to that corporate trustee; and
- any proceeds realised by the liquidator pursuant to the exercise of the corporate trustee’s right of exoneration, could only be used to satisfy trust liabilities or trust creditors.
Impact of the Decision
Before Cremin, there had been uncertainty as to how liquidators could deal with trust assets and whether the power to sell the property of a company enables a liquidator to sell the assets of a trust of which the company acts as trustee. That uncertainty has now effectively been resolved. Cremin confirms that before dealing with trust assets, liquidators must first approach the Court either for orders allowing the sale of trust property or orders appointing the liquidator as receiver over the trust’s assets.
Marino Law has extensive experience acting for insolvency practitioners, lenders, financiers, directors and trustees in the administration of all corporate insolvency appointments. Our highly experienced lawyers regularly advise clients in the following areas of corporate insolvency:
- voluntary administrations;
- enforcement of securities; and
- statutory demands.
We also regularly provide advice to liquidators, lenders and financiers regarding the registration of security interests on the PPSR, the validity of those registrations and their enforceability.
Should you require assistance in any of the above areas, please contact one of our highly experienced lawyers.