Supreme Court New South Wales

• Medium Neutral Citation: In the matter of North Food Catering Pty Limited [2014] NSWSC 77
• Hearing dates: 10 February 2014
• Decision date: 10 February 2014
• Before: Brereton J

Decision

(1) The second plaintiffs, as liquidators of the first plaintiff, would be justified in distributing the funds held by the first plaintiff as trustee for the Nofoem Unit Trust in the following order and priority:

(a) First, in the payment of the second plaintiff's costs and expenses of this application;

(b) Secondly, in payment of the second plaintiff's remuneration in the total amount of $189,741.17 and;

(c) Thirdly, in payment of an amount of up to $40,000 to Westfield Shopping Centre Management Company Pty Limited in respect of indemnity funding advanced by Westfield and applied by the second plaintiffs towards their costs remuneration expenses in their administration of the first plaintiff.

(2) Liberty be reserved to the plaintiffs to apply in relation to any further remuneration of the second plaintiffs that may become payable or any other matter arising in the liquidation of the first plaintiff generally.

• Catchwords: CORPORATIONS - external administration - winding up - liquidators' applications - application for directions - where company is trustee of trading trust and has no other function - whether liquidators remuneration recoverable from trust property
• Legislation Cited: (Cth) Corporations Act 2001, ss 479(3), 511; (NSW) Trustee Act 1925, s 63
• Cases Cited: 13 Coromandel Place Pty Limited v CL Custodial Pty Limited (in liq) (1999) 30 ACSR 377; Bastion v Gideon Investments (2000) 35 ACSR 466; Grime Carter & Co Pty Limited v Whytes Furniture (Dubbo) Pty Limited (1983) 7 ACLR 540; Re Application of Sutherland [2004] NSWSC 798; (2004) 50 ACSR 297; Re Byrne Australia Pty Ltd (1981) 5 ACLR 475; [1981] 1 NSWLR 394; Re Enhill Pty Ltd (1982) 5 ACLR 4; Re French Caledonia Travel Service Pty Ltd (in liq) [2003] NSWSC 1008; (2003) 59 NSWLR 361; 48 ACSR 97; Re GB Nathan & Co Pty Ltd (In Liquation) (1991) 24 NSWLR 674; Re Greater West Insurance Brokers Pty Ltd [2001] NSWSC 825; (2001) 39 ACSR 301; In re MF Global Limited (in liq) (No 2) [2012] NSWSC 1426; Re Suco Gold Pty Limited In Liquidation (1993) 33 SASR 99; Trio Capital Ltd (admin appointed) v ACT Superannuation Management Pty Ltd [2010] NSWSC 941; (2010) 79 ACSR 425
• Category: Principal judgment
• Parties: North Food Catering Pty Ltd (In Liquidation) ACN 132 073 388 (first plaintiff); Jim Sarantinos and John Melluish (second plaintiffs)
• Representation: Counsel: D R Sulan (plaintiffs); Solicitors: Clayton Utz (plaintiffs)
• File Number(s): 2013/363426

Judgment (ex tempore)

1 HIS HONOUR: Pursuant to an originating process filed on 3 December 2013 and amended in court today, the second plaintiffs Jim Sarantinos and John Melluish, who are the liquidators of the first plaintiff North Food Catering Pty Limited, apply pursuant to (Cth) Corporations Act 2001, ss 479(3) and 511, and (NSW) Trustee Act 1925, s 63, for the advice and direction of the court that they are justified in distributing certain funds held by the first plaintiff as trustee for the NOFOEM Unit Trust, first in payment of their costs and expenses in connection with the application, secondly in payment of their remuneration in the total amount of $189,741.17 and, thirdly, in payment of up to $40,000 to Westfield Shopping Centre Management Company Pty Limited, in respect of indemnity funding advanced by Westfield and applied by them towards their costs, remuneration and expenses in the administration of the first plaintiff.

2 The first plaintiff went into voluntary administration on 7 June 2012 when Messrs Sarantinos and Melluish were appointed administrators, and into liquidation on 20 July 2012 pursuant to a resolution of creditors at the second creditors meeting to that effect.

3 Although it was not originally evident, it has now emerged that the company was and is the trustee of the NOFOEM Unit Trust, a trading trust that operated a number of restaurants, a cookery school, a providore, a bakery and a catering business, and supplied food products for on-sale to the public, including from premises in the Westfield Sydney shopping centre which were leased from Westfield. It also appears that the company's sole activities were as trustee of that trading trust, and it undertook no activities other than in its capacity as such trustee.

4 Notice of the present application has been given to each of the beneficiaries of the unit trust and to the company's secured creditor, the National Australia Bank. None has indicated any opposition to the application.

5 In the course of the administration and subsequent liquidation, the liquidators have performed a number of tasks of the type that one would expect in the administration of an insolvent company. These have included operating and trading the trust businesses with a view to achieving their sale as a going concern or eliciting a proposal for a deed of company arrangement in relation to those assets; identifying, gathering in and realising the trust property; selling the assets of the trust business; and taking steps to recover preference payments, including from the Australian Taxation Office and the Office of State Revenue. In addition, the liquidators have performed the statutory functions of liquidators and incurred costs in attending to them.

6 As a result of the liquidators' efforts in trading on the businesses of the trust, the initial assets of $503,915 were increased to $1,120,177. From that has been paid out the costs of trading, and a distribution to the National Australia Bank as secured creditor, together totalling $943,408. That left a balance of trust assets as at 1 November 2013 of $176,768. A further $128,033 has been received since then, including from settlement of the preference claim against the Australian Taxation Office. After further payments of $5,485, there now remains a balance of trust assets of $299,315.

7 The total remuneration claimed by the liquidators is $290,330.70, inclusive of GST. The liquidators have apportioned that as best they can between the voluntary administration period, the liquidation period and estimated future liquidation work, and between trust-related work and statutory liquidation work. This allocation can be summarised as follows:

	Amount ($) (GST Inclusive)	Amount ($) (GST Exclusive)
Total remuneration incurred (both paid and unpaid)
(a) Voluntary Administration period (i) Trust-related work (ii) Statutory work	149,664.35 120,759.65 28,904.70	136,058.50 109,781.50 26,277.00
(b) Liquidation period (i) Trust-related work (ii) Statutory work	91,738.35 59,767.40 31,970.95	83,398.50 54,334.00 29,064.50
(c) Estimated future (liquidation) (incl. $4,603 WIP as at 31 Jan 2014 - not attributable to statutory work) (i) Trust-related work (ii) Statutory work	48,928.00 38,875.00 9,053	44,480.00 36,250.00 8,230.00
Total	290,330.70	263,937.00

8 So far the liquidators have been paid $100,589.53 on account of their remuneration. $40,000 of that has been provided by Westfield pursuant to an indemnity, and $52,339.53 was released from the realisation of secured assets by approval of the National Australia Bank. Those payments related to the voluntary administration period. A further $8,250 has been provided by assetless administration funding from ASIC in respect of the liquidation period. Accordingly, there remains unpaid a total of $189,741.17, of which $57,324 relates to the voluntary administration period, $83,488 to the liquidation period, and $48,928 is the estimated future costs of liquidation.

9 As Black J summarised the position In re MF Global Limited (in liq) (No 2) [2012] NSWSC 1426 (at [55]), the principles regarding the payment of liquidator's remuneration out of the assets of a trust of which the company in liquidation is the trustee include the following:

(1) The court has an inherent equitable jurisdiction to allow a trustee remuneration, costs and expenses out of trust assets, and this extends to a person such as a liquidator who is, for practical purposes, controlling a trustee (see Re Application of Sutherland [2004] NSWSC 798; (2004) 50 ACSR 297; Trio Capital Ltd (admin appointed) v ACT Superannuation Management Pty Ltd [2010] NSWSC 941; (2010) 79 ACSR 425).

(2) The court may decline to exercise that jurisdiction where the company does not solely act as trustee and has sufficient beneficial assets to meet the liquidators' remuneration costs and expenses and where the work done by the liquidator in relation to trust assets may properly be treated as done for the purposes of winding up the company affairs. Thus, generally where a company has assets which are not held on trust, the liquidators' costs should usually fall on its non-trust assets (see Re GB Nathan & Co Pty Ltd (In Liquation) (1991) 24 NSWLR 674 at 685-689; Re Greater West Insurance Brokers Pty Ltd [2001] NSWSC 825; (2001) 39 ACSR 301).

(3) Where the company has both trust assets and assets held beneficially by the company, the costs can be apportioned such that the remuneration attributable to the statutory liquidation work would fall on the assets beneficially owned by the company, whereas that which related to administering the trust property might fall on the trust assets (see Re French Caledonia Travel Service Pty Ltd (in liq) [2003] NSWSC 1008; (2003) 59 NSWLR 361; 48 ACSR 97 at [212]).

10 The difficulty in the present case is that there has unquestionably been work done which is statutory liquidation work not directly or specifically referable to the administration of the trust assets on the one hand, and there is no property owned beneficially by the company as distinct from held on the trust of the trading trust on the other. Thus the question arises whether the former costs can be paid out of the trust assets.

11 In 13 Coromandel Place Pty Limited v CL Custodial Pty Limited (in liq) (1999) 30 ACSR 377, Finkelstein J in the Federal Court of Australia recognised (at 385) that liquidators' work that was solely concerned with the winding up and not with the administration of trust assets could not ordinarily be charged against the trust assets. His Honour said that, provided a liquidator was acting reasonably, he was entitled to be indemnified out of trust assets for his costs and expenses in identifying or attempting to identify trust assets, recovering or attempting to recover trust assets, realising or attempting to realise trust assets, protecting or attempting to protect trust assets and distributing trust assets to the persons beneficially entitled to them. His Honour continued:

The position is a little more involved as regards work done and expenses incurred in what may be described as general liquidation matters. If that work is unrelated to the beneficiaries and their claims it is difficult to see how the costs could be charged against their assets. In the case of a company that has carried on the business of trustee it might be that much of the work involved in the liquidation is chargeable against trust assets if it can be shown that the liquidation is necessary for the proper administration of the trust. But it is unlikely that this will be so where the company did not act solely as trustee, or at least did not act in that capacity to a significant extent. In that event the liquidator will be required to estimate those of his costs that are attributable to the administration of trust property and only those costs will be charged against the trust assets.

12 In that passage, his Honour recognised that where, as here, the company was solely a trustee "it might be" that much of the work involved is chargeable against the trust assets. However, review of the authorities to which I have been referred by Mr Sulan persuades me that the position is, if anything, stronger than that. In Re GB Nathan & Co Pty Limited, McLelland J, as the later Chief Judge in Equity then was, held that where work done by a liquidator in relation to trust assets may properly be considered as having been done for the purpose of winding up the affairs of the company, any remuneration and expenses attributable to that work should be paid out of the non-trust property of the company to the extent that there was such property available, but that to the extent that there was not sufficient available property, allowance should normally be made to the liquidator out of trust assets.

13 In Re Suco Gold Pty Limited In Liquidation (1993) 33 SASR 99, in a passage that was later to be cited by Campbell J in this Court in a case to which I will in due course come, King CJ concluded that when a company which carries on no activities other than being the trustee of a trading trust, goes into liquidation, the proper costs and expenses of the liquidator can be met from the assets of the trust. It is unnecessary for the purposes of this judgment to explain in detail the course of reasoning by which his Honour came to that conclusion, in which Jacobs J concurred.

14 In Grime Carter & Co Pty Limited v Whytes Furniture (Dubbo) Pty Limited (1983) 7 ACLR 540, again in this court, McLelland J held that where the company was a trustee of a trading trust and carried on the business of the trust, the costs and expenses of the winding up, including the remuneration of the liquidators, could be paid out of the trust assets in priority to the claims of the trust creditors.

15 Then in Re French Caledonia Travel Service Pty Limited (In Liquidation) (2003) 59 NSWLR 361, Campbell J, as he then was, said at (423 [201]), citing Re Suco Pty Limited and Grime Carter & Co Pty Limited, "When a company which carries on no activities other than being the trustee of a trading trust goes into liquidation, the proper costs and expenses of the liquidator can be met from the assets of the trust".

16 In Bastion v Gideon Investments (2000) 35 ACSR 466, Austin J at 480 [70] said that the remainder of the liquidator's costs and expenses had been incurred in investigating the affairs of the company as its liquidator:

In Grime Carter & Co Pty Limited, (at 542) McLelland J held that the liquidator of a company which was a trading trustee is entitled to apply trust assets in satisfaction of the costs and expenses of the winding up, including the liquidator's remuneration - at any rate where, as in that case and the present case, all of the assets and liabilities of the company are trust assets and trust liabilities. In reaching this conclusion, he preferred the judgment of the Full Court of the Supreme Court of Victoria in Re Enhill Pty Ltd (1982) 5 ACLR 4, to the judgment of Needham J in Re Byrne Australia Pty Ltd (1981) 5 ACLR 475; [1981] 1 NSWLR 394. That conclusion now appears to be generally accepted, although the reasoning was, in my respectful opinion, better articulated by his Honour in the Re GB Nathan & Co Pty Limited (at 685-6, citing Re Suco Pty Limited) than in Grime Carter & Co Pty Limited (at 542).

In light of these principles, and my opinion that all the assets of the company should be treated as trust assets, the liquidator is entitled to be paid his reasonable remuneration, costs and expenses both for the work done to date as liquidator (including the costs of these applications), and the work done to date on behalf of the trust, out of the assets of the company ...

17 Those cases appear to me to establish clearly enough that in the present case the liquidators are entitled to be paid their remuneration, whether for administering the trust assets or for general liquidation work, out of the trust assets, since the company has no assets other than trust assets.

18 A number of further matters require comment. As has been mentioned, the liquidator has been partly paid to date, including to the extent of $40,000 by Westfield pursuant to indemnity funding that it provided to enable the liquidators to trade on the business. Under the deed of indemnity, Westfield was subrogated to the liquidators' rights in relation to any remuneration paid by Westfield in respect of the amounts advanced. As the liquidators will now be entitled to their remuneration from the trust assets, it is, as the liquidators contend, appropriate that Westfield's right to subrogation be recognised and the $40,000 be reimbursed to Westfield from the trust assets.

19 The liquidators have disclosed that they inadvertently have paid themselves some remuneration from trust assets prior to seeking the approval of the Court to do so. Upon realising what had happened, they rectified that situation by repaying the moneys that had been paid to them. No interest accrued on the funds during the time that they were held by the liquidators, so no loss has been occasioned to the trust. I do not consider that this warrants any further attention.

20 Finally, the liquidators have already paid an amount of $18,330 to their solicitors in respect of legal services provided for statutory liquidation as distinct from trust administration matters. Given the conclusion that I have reached as to the liquidators' entitlement to be remunerated out of trust property, this also does not require further attention.

21 Accordingly, the court orders that:

(1) The second plaintiffs, as liquidators of the first plaintiff, would be justified in distributing the funds held by the first plaintiff as trustee for the Nofoem Unit Trust in the following order and priority:

(a) First, in the payment of the second plaintiff's costs and expenses of this application;

(b) Secondly, in payment of the second plaintiff's remuneration in the total amount of $189,741.17 and;

(c) Thirdly, in payment of an amount of up to $40,000 to Westfield Shopping Centre Management Company Pty Limited in respect of indemnity funding advanced by Westfield and applied by the second plaintiffs towards their costs remuneration expenses in their administration of the first plaintiff.

(2) Liberty be reserved to the plaintiffs to apply in relation to any further remuneration of the second plaintiffs that may become payable or any other matter arising in the liquidation of the first plaintiff generally.

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Decision last updated: 29 August 2014