On 4 February 2013, Stansfield DIY Wealth Pty Ltd (in liquidation) was wound up, and a liquidator was appointed. At that time, the only function of the company was acting as trustee of a self-managed superannuation fund. It had no assets or liabilities, save in its capacity as trustee of the super fund.
The liquidator sought directions from the Court as to whether he was permitted to sell or otherwise deal with the trust assets of the super fund in order to discharge the company’s liabilities and to recover the liquidator’s remuneration and expenses.
The Court confirmed that if a company in liquidation remains as trustee of a trust, the liquidator of that company is entitled to administer the trust (including any powers under the trust deed to deal with trust assets) and be indemnified out of the trust assets for all costs incurred by it in its capacity as trustee.
In this case, although not prevented by the trust deed from doing so, the Court said that the company should not continue to act as trustee as it was in breach of s 126Kof the Superannuation Industry Supervision Act. This section prohibits companies in receivership, administration or liquidation from being or acting as trustees of superannuation entities.
The Court, therefore, recommended that the company immediately resign as trustee.
The Court then considered the liquidator’s rights over trust assets in circumstances where the company in liquidation has ceased to be trustee. Interestingly, previous cases suggested that the liquidator of a corporate trustee which held legal title to trust property, in which it also had an equitable interest, could sell that property pursuant to the power of sale conferred by s 477 of the Corporations Act 2001 (Cth), and that this power survived the removal and replacement of the trustee.
Justice Brereton, however, held that as a consequence of ceasing to be the trustee, the powers of sale under the trust deed were no longer available and s477(2)(c) did not provide an alternative source of power of sale to the liquidator. This is because the trust assets, whilst legally owned by the former trustee, were not “property of the company”. As such, the company in liquidation (former trustee) only had an equitable charge over the trust assets.
Nonetheless, this did not leave the liquidator without any remedy. The Court advised that where a corporate trustee has been removed and no power of sale is available to the liquidator, the liquidator should seek orders for it to be appointed as receiver and manager of the trust assets by way of enforcement of the equitable lien of the former trustee.
This would enable the liquidator, as receiver, to realise trust assets to discharge the liabilities of the former trustee and recover its own costs.
This decision confirms that liquidators face additional challenges and costs when winding up a corporate trustee of a superannuation fund or a corporate trustee that, by reason of its insolvency, lost the benefit of the sale powers in the trust instrument.
Section 477(2)(c) does not empower a liquidator to sell the beneficial interest in trust property, even if the company in liquidation has an equitable charge over the property, because the property is not “property of the company” within the meaning of the section.
In the event that the company is no longer trustee, or might be acting in breach of a trust instrument or statute in selling trust property, the liquidator should apply to the court to be appointed as receiver of the trust assets so as to recoup the benefit of the company’s indemnity out of those assets.