The question in Pleash (Liquidator) v Tucker  FCAFC 144 (29 August 2018) was whether financial documents of a discretionary trust ought to be produced for the purpose of a liquidator investigating the ability of an examinee (and former director of the company) to satisfy any judgment debt that may be obtained against him.
The appellants were liquidators of Equitrust Limited (In Liquidation) (Receivers and Managers Appointed) (“Equitrust”). The first respondent, Mr Tucker, was for a time a director of Equitrust. The other nine respondents were related entities of which Mr Tucker was sole director (save for a superannuation fund trustee of which he was a director). Six of the respondents were corporate trustees of discretionary trusts.
Mr Tucker was one of a number of persons summonsed for examination about the examinable affairs of Equitirust. Section 579(9) of the Corporations Act provides that:
The Court may direct a person to produce, at an examination of that or any other person, books that are in the first-mentioned person's possession and are relevant to matters to which the examination relates or will relate.
Amongst the documents sought by the Liquidators from Mr Tucker were:
- certain financial statements of any superannuation fund in which Mr Tucker has an interest;
- certain financial statements and income tax returns for the various discretionary trusts with which Mr Tucker is associated; and
- the most recently received bank statements for those same entities.
It was not in issue between the parties that a consideration of Mr Tucker’s ability to satisfy any judgment debt that the Liquidators may obtain against him fell within the examinable affairs of Equititrust under s 597(9).
The Liquidators contended that the above documents were relevant because as sole director of the corporate trustees (save for the superannuation fund trustee), Mr Tucker had effective control over distributions to beneficiaries, and could therefore cause the corporate trustees to direct payments in satisfaction of his own debts.
Mr Tucker on the other hand contended that despite such control, the critical point is that he has no proprietary interest in the income or capital of the trusts. The excluded documents described above were not within the scope of the inquiry because none are concerned with assets owned and liabilities owed by him personally.
The primary judge, Reeves J, agreed with Mr Tucker’s submission and found that the assets of the trusts would not be available to apply to any judgment against Mr Tucker, and so information as to those assets was outside the scope of 'examinable affairs'. Furthermore, although the possibility of orders being made against the property of one or more of the trusts under the provisions of Part VI Division 4A of the Bankruptcy Act could not be ruled out, the application of those provisions were too remote in time and dependent on too many contingencies for the liquidators to gain access to the documents at the present time.
The Full Court observed that the main issue raised by the Liquidators’ grounds of appeal was whether property must be owned by a prospective defendant to be relevant to the potential recovery of a judgment debt in the context of examinable affairs.
The Full Court answered this question in the affirmative before dismissing the appeal. In the course of its reasoning, the Full Court expressly agreed with the analysis and conclusion of Jackson J in Fordyce v Ryan  QSC 307, where his Honour did not accept that a beneficiary's legal or de facto control of the trustee of a discretionary trust alters the character of the interest of the beneficiary such that it will constitute property of the bankrupt if the beneficiary becomes bankrupt.
The Full Court also considered Swishette Pty Ltd v Australian Competition and Consumer Commission  FCAFC 45. In Swishette, Clinica Internationale Pty Ltd (in liquidation) admitted contravening the Australian Consumer Law (“ACL”) and its managing director, Mr Laski, admitted being knowingly involved in the contraventions. Section 239 of the ACL empowers the Court to make an order “against the person” who engaged, or was involved, in the contravening conduct. The primary judge made an order under s 239 directing Mr Laski to apply certain trust funds (being the proceeds of sale of a property owned by Swishette) to repay dissatisfied customers of Clinica. Swishette’s principal activity was to act as trustee of a discretionary trust of which Mr Laski was a beneficiary. Mr Laski was Swishette's sole director and shareholder as well as the Appointor of the trust.
Swishette successfully appealed against the above order. The Full Court held that despite Mr Laski's level of control over Swishette, the primary judge erred in finding that the trust property can and should be regarded as the property “of” Mr Laski, and it was not open to the primary judge to make the order (which disregarded the existence of the trust and the obligations on Swishette, as trustee, with respect to the application of trust funds). The Full Court confirmed the decision in Swishette to be correct and applicable in the circumstances of this case.
The main principle to be drawn from the Full Court’s decision in this case is contained in paragraph  as follows:
we do not consider there is a proper basis to extend the scope of 'examinable affairs' to a consideration of what assets outside of those that comprise a prospective defendant's property might voluntarily be directed to payment of [a judgment] debt.
Take home points
- The discretionary trust remains an effective vehicle for asset protection to the extent that the interests of the beneficiaries in the assets of the trust do not constitute property according to the general law.
- Where a liquidator seeks to investigate the ability of a party to meet any prospective judgment debt, it will be difficult for the liquidator to compel production of documents that relate to assets not owned by the party. It is clear from the above decision that the scope of ‘examinable affairs’ will not extend to assets within the ‘wherewithal’ of, or potentially available to, a prospective defendant.