Liquidators are commonly appointed to a company where, prior to liquidation the company was a trustee of a trust. Often when the liquidators are appointed, the company has ceased to be the trustee and a replacement trustee has not been appointed.
In these circumstances, the company in liquidation is a bare trustee in relation to the trust assets and the liquidator will assume this role until a replacement trustee is appointed. Often a replacement trustee is not appointed.
Does the liquidator as bare trustee have a power to sell trust assets?
There are statements in authorities that the liquidator of a bare trustee:
- does not have a power of sale; and
- should obtain the leave of the court before selling any trust assets.
In some cases, trust assets have been sold prior to the liquidator discovering that the company held the assets on trust as bare trustee. The liquidator has then sought the Court’s approval for the sale of the trust assets. Seeking approval after the event has been frowned upon by the court and can be problematic.
What is the position in Queensland?
In the Federal Court of Australia case of Fulkoto Pty Ltd (in liquidation) the trust assets located in Queensland had been sold by the liquidator as bare trustee. The liquidator sought the Court’s approval in respect of the trust assets that had been sold and other orders relating to the proceeds of sale and the winding up.
In Fulkoto, Cooper Grace Ward acting on behalf of the liquidator successfully argued that in Queensland, by virtue of the Trusts Act 1973 (Qld) (Trusts Act), a bare trustee has a power of sale in respect of trust assets.
His Honour Justice Dowsett observed that the conventional wisdom in the texts is that a bare trustee does not have a power of sale. His Honour held that in Queensland, a bare trustee has a power of sale in respect of trust assets by virtue of specific provisions of Trusts Act.
However, this power of sale under the Trusts Act is not unrestricted and must be exercised in accordance with the duties of the trustee to the trust.
Relevance for liquidators where the Trusts Act applies to the Trust
The decision in Fulkoto provides some comfort for liquidators where the Trusts Act applies and the trust assets are situated in Queensland.
Our view is that where the law of Queensland applies to the trust, a liquidator who is a bare trustee has the power to sell trust assets in Queensland without obtaining the Court’s approval to do so, provided it is reasonable in all the circumstances for the liquidator to exercise the power to sell the trust assets.
Liquidators who are a bare trustee in respect of trust assets in Queensland should:
- consider whether the Trusts Act applies;
- make enquiries to determine whether a new trustee is likely to be appointed including investigating whether anyone is seeking to appoint a new trustee; and
- where the Trusts Act applies and there is no likelihood that a new trustee will be appointed, consider whether it is reasonable in all of the circumstances for the liquidator to sell the trust assets.