The recent Federal Court of Australia Cussen (Liq), in the matter of Zerren Pty Ltd (in liq) [2017] FCA 981 decision reaffirms the importance of making full and fair disclosure of all relevant facts and circumstances to the Court when making an application under section 479(3) of the Corporations Act 2001 (Cth) (Act) (now repealed) and its replacement, Div 90-15 of Schedule 2 to the Act.

Background

Zerren Pty Ltd (in liquidation) (the Company) was placed in liquidation on 24 June 2014.  Immediately prior to the liquidation, the Company was the registered owner of properties in Willoughby and Wollstonecraft.

In October 2014, the Australia Taxation Office lodged a proof of debt in the liquidation which referenced two accounts – one for the Company and the second referring to the Company as trustee for the Merrick Family Trust.

During 2014 and 2015 the Liquidator sold the Willoughby property.

In March 2017, shortly after exchanging contracts for the sale of the Wollstonecraft property, the Liquidator, upon request, received a letter from the NSW Office of State Revenue (OSR) which stated that land tax was payable on the Wollstonecraft property owned by “Zerren Pty Ltd atf Merrick Family Trust”.  This was the first indication to the Liquidator that the property was held on trust by the Company.

Following the Liquidator’s enquiries with the OSR and various other parties, save for a 2008 land tax assessment located by the OSR said to show that the Company as trustee for the Merrick Family Trust had been paying land tax for the Wollstonecraft property since 2008, there was no other evidence indicating that the property was acquired or held by the Company as trustee for any trust.

However, the OSR confirmed that it did not have any records to indicate the basis upon which it recorded that the Company purchased or holds the Wollstonecraft property on trust.

In light of this uncertainty, the Liquidator approached the Court to determine whether it was appropriate to treat the Wollstonecraft property as property owned by the Company in its own right.

What the Court said

Section 479(3) of the Act provided for a Court-appointed liquidator to apply to the Court for directions in relation to a matter arising under a winding up.

The Court noted that the function of section 479(3) of the Act was to give the liquidator advice as to the proper course of action for them to take in the liquidation.   The Court referred to the decision of Goldberg J in Re Ansett Australia Ltd and Korda [2002] FCA 90 at [44]:

“When liquidators and administrators seek directions from the Court in relation to any decision they have made, or propose to make, or in relation to any conduct they have undertaken, or propose to undertake, they are not seeking to determine rights and liabilities arising out of particular transactions, but are rather seeking protection against claims that they have acted unreasonably or inappropriately or in breach of their duty in making the decision or undertaking the conduct. They can obtain that protection if they make full and fair disclosure of all relevant facts and circumstances to the Court”.

Having regard to the circumstances, the Court was satisfied that the issue raised by the Liquidator was an appropriate subject matter for a direction under section 479(3) of the Act because it raised a legal issue of substance as to the capacity in which the Company held the Wollstonecraft property, affecting the manner in which the Liquidator should carry out his functions.

Having regard to the evidence presented by the Liquidator, the Court considered it appropriate for the Liquidator to treat the Wollstonecraft property as property owned in its own right and granted approval nunc pro tunc to the Liquidator’s entry into the contract for the sale of the Wollstonecraft property under section 477(2B) of the Act.

Take away point

The decision reaffirms the importance of liquidators to make full and fair disclosure of all relevant facts and circumstances to the Court when making an application under Div 90-15 of Schedule 2 to the Act.

For more information please contact ERA Legal.