In Kitay, in the matter of South West Kitchens (WA) Pty Ltd  FCA 670, Mr Kitay was appointed liquidator of South West Kitchens (WA) Pty Ltd (SW Kitchens) by voluntary winding up. SW Kitchens was trustee of a trust and owned all its assets as trustee of that trust. The trust deed provided that SW Kitchens was disqualified from acting as trustee if it was wound up.
The liquidator wished to sell the trust assets of SW Kitchens in the ordinary course of the winding up under s 477(2)(c) of the Corporations Act which empowers a liquidator, subject to the section, “to sell or otherwise dispose of, in any manner, all or any part of the property of the company”.
The liquidator was, however, concerned as to his power to sell the company’s assets under s 477(2)(c) given that:
- SW Kitchens had been disqualified from acting as trustee; and
- a removed or disqualified trustee retains its right of indemnity and has the benefit of an equitable lien over trust assets as a means of securing that right; but
- the equitable lien securing the right of indemnity does not give the removed trustee a power of sale but must be enforced by a Court-ordered sale or the appointment of a receiver.
The question was therefore whether the liquidator had a statutory power under s 477(2)(c) to sell the trust assets which was over and above the rights the company had under the trust deed. As the company was disqualified from acting as trustee by virtue of its liquidation, if the liquidator had no separate power of sale under s 477(2)(c), it would be limited to enforcing the company’s right of indemnity / equitable lien by way of Court proceedings.
McKerracher J considered competing authorities. His Honour preferred the reasoning in an earlier case of Apostolou where the court held that:
- in addition to a trust instrument, a liquidator has a separate authority to sell property which is conferred by s 477(2)(c) of the Corporations Act;
- there is no reason why the liquidator’s statutory power of sale under s.477(2)(c) cannot be used by the liquidator to satisfy the right of indemnity which passes from the company to the trustee;
- the power of sale under s 477(2)(c) can be exercised in respect of property in which the company in liquidation has an equitable interest (eg by way of right of indemnity / equitable lien), provided the liquidator has legal title to dispose of the asset; and
- the statutory power of sale may be exercised by a liquidator even where the trust instrument itself does not confer a power of sale.
McKerracher J saw no reason why the liquidator’s power of sale should be limited by the terms of a private trust agreement. His Honour considered that a liquidator could rely upon the statutory power of sale under s 477(2)(c) to sell assets held by a company on trust without having to seek Court approval on every occasion a sale was proposed. His Honour did, however, recognise that it would be appropriate in complicated cases for a liquidator to seek the protection of a Court order before proceeding with a sale.
As this was a straightforward winding up with no further complicating factors, the Court declared that the liquidator had the power under s 477(2) to deal with the trust assets in the course of winding up.
This decision confirms that liquidators have the power to sell assets held by a company on trust where the liquidator has legal title to those assets and the company in liquidation has an equitable interest in respect of those assets. It gives liquidators greater certainty to sell trust assets of a corporate trustee in liquidation without having to incur the time and cost associated with obtaining court approval of any sale.