Justice Brereton’s decision in Stansfield DIY Wealth Pty Ltd (in liquidation) [2014] NSWSC 1484 has set a new precedent as to whether a liquidator of a corporate trustee is required to approach the Court in order to seek approval to sell trust assets.

Background

Stansfield DIY Wealth Pty Ltd (the company) had the sole function of acting as the trustee of the Elliot Stansfield Super Fund (the super fund). The company had no assets or liabilities save in its capacity as trustee of the super fund.

In 2013, the company was wound up by order of the Supreme Court of New South Wales.

The liquidator of the company then applied for directions as to whether the liquidator or the company could sell or otherwise deal with the property of the super fund to satisfy the creditors of the company.

A trustee’s power of sale

An insolvent trustee, and the administrator or liquidator appointed to that trustee, has a right of indemnity over trust assets and a lien to secure their equitable interest in trust assets.

As to whether trust assets might be sold to satisfy that interest, decisions preceding Stansfield recognised the power of an administrator or liquidator of an insolvent trustee company to sell trust assets under s 437A(1)(c) and s 477(2)(c) of the Corporations Act 2001 (Cth) (the Act). Further, these decisions suggested that the court need not be approached on every occasion to seek approval (see Apostolou v Va Corporation of Australia Pty Ltd [2010] FCA 64, Re Bacchus Distillery Pty Ltd (Administrators Appointed) [2014] VSC 111 and Kitay, in the matter of South West Kitchens [2014] FCA 670).

However, in Stansfield, Brereton J held that:

“…the equitable lien securing the trustee’s right of indemnity and exoneration does not of itself give the former trustee a power of sale; rather, it is a security which is enforceable by the trustee only by judicial sale or appointment of a receiver with a power of sale”

His Honour held that:

1. contrary to Re Bacchus and Kitay, an insolvent trustee company cannot sell trust assets where it merely holds legal title to those assets;
2. if the insolvent trustee company has a beneficial interest in the trust property, it may dispose of that beneficial interest;
3. where a trustee or insolvency practitioner has a beneficial interest over the company’s assets arising by virtue of an equitable lien, the liquidator does not have the power to dispose of the assets secured by the equitable lien under s 477(2)(c) of the Act and said:

“In my view s 477(2)(c) does not empower a liquidator to sell the beneficial interest in property that the company holds on trust, even if the company has an equitable charge over it, because the property is not itself “property of the company””.

Can a corporate trustee in liquidation remain the trustee of a superannuation trust fund?

While many trust deeds prohibit a corporate trustee from remaining trustee of a superannuation trust if the company goes into liquidation, there was no such prohibition in the deed between the company and the super fund in Stansfield. However, as the company was the trustee of a self-managed superannuation fund, pursuant to s 120(2)(e) of the Superannuation Industry (Supervision) Act 1993 (Cth) the company became a ‘disqualified person’ upon commencement of the winding up. This meant that the company committed an offence under s 126K of the Superannuation Industry (Supervision) Act 1993 (Cth) if it was, or acted as, trustee of the super fund.

The court suggested that the prudent course of action would be for the company to resign as trustee of the super fund.

Power of sale where the trustee has been placed into liquidation and ceases to be the trustee

While his Honour held in Stansfield that a liquidator was not empowered to sell the beneficial interest in property that the company holds on trust, he found that the liquidator would be justified in seeking orders that the liquidator be appointed as a receiver of the trust assets.

This would then allow the liquidator, as receiver, to realise the trust assets and apply the proceeds to discharge the liabilities of the company in liquidation, and likely the liquidators fees as well.

Practical implications

Prior to Stansfield there was a line of authority which seemed to recognise a power of a liquidator to sell trust assets under s 477(2)(c) of the Act, following the Stansfield decision it remains prudent for liquidators seeking to sell trust assets to apply to the Court to be appointed as receivers to recover their equitable interest in the trust assets.

Following the decision in Stansfield, this same approach was taken by Yates J in SMP Consolidated Pty Limited (in liquidation) v Posmot Pty Limited [2014] FCA 1382.