Liquidators appointed as receivers to a trust, but remuneration an issue

Rohrt, in the matter of Rose Guerin and Partners Pty Ltd (in liq) v Princes Square W24NY Pty Ltd (No 2) [2021] FCA 547 (24 May 2021)

Justice Anderson appointed liquidators as receivers to a trust of which the company was a former trustee so that the company could secure its right of indemnity out of the trust.

Rose Guerin and Partners Pty Ltd (the Company) conducted an accounting practice as the trustee of a trust (the Trust). The Company’s sole director and shareholder (Ms Guerin) was both the appointor and primary beneficiary of the Trust.

On the same day that administrators were appointed to the Company, the Company was, by a purported variation to the trust deed, replaced as trustee by Princes Square W2NY Pty Ltd (the New Trustee). The New Trustee continued to conduct the accounting practice.

The liquidators had difficulty obtaining the books and records of the Trust and the accounting practice and suspected that they had not received full and frank disclosure of information relating to its affairs.

The liquidators applied to be appointed as the receivers and managers over the property, assets and undertaking of the Trust. They joined the New Trustee as the defendant.

Justice Anderson confirmed the relevant principles. Namely, that even where a trustee has been removed and replaced, the outgoing trustee retains a right of indemnity from the assets of the trust, secured by an equitable charge over them, for its liabilities incurred while acting as the trustee. A receiver and manager can be appointed over trust property to secure the trustee’s right of indemnity out of trust assets.

The New Trustee resisted the appointment of receivers to the Trust saying that Ms Guerin had paid the Company’s creditors leaving only herself as the remaining creditor. His Honour found that Ms Geurin had only paid some of the creditors who had lodged proofs of debt and that it was for the liquidators, not Ms Geurin, to investigate and pay the Company’s creditors.

Appointing receivers and managers to the trust assets would allow the liquidators to properly investigate the electronic records of the accounting practice and prevent the New Trustee from imperiling the Company’s right to indemnification by dissipating the assets of the Company, as it carried on the accounting practice.

His Honour found that the apparent disharmony between the Company’s director and the liquidators was not a reason to deny the appointment as receivers.

However, his Honour was concerned that where the Company’s secured creditor was owed approximately $300,000 and the liquidators had not begun to adjudicate the proofs of debt, the liquidators had incurred fees and disbursements of over $550,000 including an uplift fee for professional legal costs.

His Honour ordered that the liquidators were not to charge any further fees in the liquidation, or as receivers, without approval by the Court.

This liquidation was evidently a difficult one for the liquidators considering the approach taken by the Company’s director. It’s easy for liquidators to quickly incur fees on such jobs because of the day-to-day challenges that they present. Nevertheless, liquidators must proceed with caution regarding their fees. A Court may not be so sympathetic.