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Insolvency | InsolvencyLitigation

Beware the corporate trustee

The recent decision of the Victorian Supreme Court in Re Western Port Holdings Pty Ltd [2017] is a timely reminder of the issues insolvency practitioners can face in appointments involving corporate trustees.

This matter concerned an application by the deed administrators of Western Port Holdings Pty Ltd (the Company) for orders to be appointed as receivers for the purposes of selling certain assets held by the Company as bare trustee.

The deed administrators previously entered into possession of the Company's business following various breaches of the deed of company arrangement (DOCA), including non-payment of significant taxation and other statutory liabilities.

The deed administrators advertised the business for sale and a number of offers were received. The deed administrators ultimately wished to accept one of those offers. By the time the matter had reached Court, the sale process had reached an advanced stage.

It became apparent to the deed administrators that the Company had been operating its business (and holding business-related assets) in its capacity as a trustee. In accordance with the terms of the trust instrument, the office of trustee had automatically been determined and vacated as a result of the Company entering into the DOCA. For that reason the Company held the trust assets as a bare trustee only. No replacement trustee had been appointed.

In accordance with the relevant Victorian legislation (section 37 of the Supreme Court Act 1986), the Court had power to appoint a receiver over property if it was just and convenient to do so.

In making orders appointing the deed administrators as receivers of the trust assets, the Court noted that:

  • a receiver should not be appointed unless the affirmative case is a strong one;
  • the Court should act where there is a real risk to the assets of a company or trust;
  • there is no obvious conflict between the duties of deed administrators under a DOCA and as receivers;
  • there was a great risk in this case that the sale could be adversely affected and/or delayed given the lack of clarity as to whether the deed administrators had the power to deal with the trust property;
  • by facilitating the sale, the trustee will be able to realise assets and have its trust liabilities discharged.

In dealing with trust property, it is always the safest course for insolvency practitioners to approach the Court for appropriate orders. This is particularly so in more recent times where the Courts are seemingly taking a step back from those authorities (for example Kitay [2014] FCA 670 which took a more liberal view of statutory powers of sale, such as that contained in section 477(2)(c) of the Corporations Act 2001 (Cth).

"The content of this publication is for reference purposes only. It is current at the date of publication. This content does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication."