Last fortnight DRI partner Glen Cussen presented a briefing on "other peoples' money"' focusing on the recent Federal Court decision in Kitay v South West Kitchens.
The focus was on the rights of a liquidator to deal with trust assets and we drew attention to the 'watch this space' area of SMSFs.
It hasn't taken long, but the Supreme Court has now delivered a contrary judgment in Stansfield DIY Wealth Pty Limited [2014] NSWSC 1484 ("Stansfield").
In an application for directions by the liquidator of the trustee of a superannuation fund, the Court in Stansfield held:
- The Liquidator does have a right of indemnity and a lien to secure the equitable interest;
- The statutory power in s477(2)(c) of the Corporations Act enabling a liquidator to sell property of the company does not extend to trust property (other than the bare legal interest in that property) (contrary to South West Kitchens)
- An insolvent trustee cannot, under the Superannuation Industry (Supervision) Act, act as trustee of the superannuation fund, and should resign.
The Court noted that the remedy otherwise available to a liquidator in these circumstances is to apply to be appointed as Receiver of the trust assets, with the powers that a liquidator has in respect of property of a company under section 477(2), for the purpose of enforcing the Company's right of indemnity as trustee of the fund.
While not making a carte blanche order for remuneration, Justice Brereton granted the Liquidator, as the appointed Receiver, liberty to apply for approval of his remuneration upon realisation of the property of the super fund.
Where to?
Consistent with the discussion at our briefing, Stansfield was another case where the trustee was in liquidation, though had not been replaced. More applications are likely, and will be contested, where a new trustee has been appointed to the trust assets.
The particular circumstances of SMSFs and the SIS Act raise additional considerations for insolvency practitioners and those advising them.
The bottom line for a liquidator of a trust though, given Corporations Act obligations, is to seek to pay or satisfy the trustee's liabilities, incurred as trustee. A question was posed at our briefing whether trust structures are still advantageous.
The decision in South West Kitchens indicated that direct sale of trust assets was available to a liquidator, under the Corporations Act.
Whilst the decision in Stansfield disagrees, the Court resolved the liquidator's dilemma, by appointing the liquidator as Receiver, with a power of sale of the trust assets.
The ultimate result is accordingly the same, namely, that the insolvency practitioner is able to realise the trust assets to pay the trustee's liabilities – that is, sell 'other peoples' money.
The Court in Stansfield specifically noted in the orders made:
The object of the appointment ... (as Receiver) ... is to:
- enable the [Receiver] to realise trust assets to enforce the ... indemnity, and apply the proceeds to discharge the liabilities of the [trustee company] ... in accordance with ... the Corporations Act ...; and
- enable the [Receiver} to recover the costs of the receivership and, because the [trustee company's] sole function was to act as trustee of the Super Fund, the general costs of the liquidation.
Liquidators and Trustees still need to take care in the terms of their appointment. Practitioners need to be more circumspect having regard to the recent decision in Stansfield, at least until the issue of competing views is addressed in the future by a Full Court or Appeal Court.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
