We recently wrote a case alert on the decision in Re Bacchus Distillery Pty Ltd (Administrators Appointed) (2014) 98 ACSR 539 and an article published in the December 2014 edition of the Australian Insolvency Journal on Bacchus as well as Aptostolou v VA Corporation of Australia Pty Ltd (2010) 77 ACSR 84 and Re Kitay  FCA 670. These cases represented a practical development for insolvency practitioners, as they confirmed that an administrator or liquidator of an insolvent trustee company has the power to sell trust assets under ss 437A(1)(c) and 477(2)(c) of the Corporations Act 2001 (Cth) (Act) and that the liquidator or an administrator need not approach the Court on every occasion to seek approval to sell trust assets.
However, the powers of receivers have been less clear. A recent decision of Beach J in Benton, in the matter of Mackay Rural Pty Ltd (Receivers and Managers Appointed)  FCA 1285 clarifies these powers and confirms that section 420 of the Act confers a power on receivers to dispose of trust property where such a power may otherwise be absent. However, receivers must be careful to ensure that they are appointed to the trust assets or otherwise have a right to realise the trust assets (eg, pursuant to the trustee’s right of indemnity).
Mr and Mrs Amrougis (the Defendants) ran a dairy farming business on a property in Deloiraine, Tasmania (Property). The Defendants were directors of Mackay Rural Pty Ltd (Mackay) which was the legal owner of the Property. Mackay held the Property on trust. As security for funds advanced to Mackay, the National Australia Bank (NAB) took a registered mortgage over the Property (Mortgage) and a registered debenture (Debenture) over the all of the assets of Mackay. Mackay was in default of the NAB facilities and the NAB appointed receivers (Receivers), first pursuant to the Debenture, and then – on the day of the trial – pursuant to the Mortgage.
The Receivers took steps to sell the Property to satisfy the debts owing to the NAB. The Defendants opposed the sale and sought to frustrate the sales campaign. The Receivers applied to the Court for determination of the following questions. Namely, whether:
(a) the Receivers were validly appointed to the assets of Mackay, including the Property;
(b) the Debenture under which the Receivers were appointed extends to the Property;
(c) the Receivers are entitled to enter into possession of the Property to conduct a sale of the Property.
A major issue was whether the Debenture or the Mortgage extended to assets held on trust by Mackay, including the Property.
Beach J found that the Property:
(a) was not subject to the charge under the Debenture, because the Debenture only charged assets which Mackay held “beneficially”. Mackay only held the Property on trust and thus had no beneficial interest in the Property; but
(b) was charged by the Mortgage.
Although the Debenture did not extend to the Property, Beach J held that Mackay’s right to be indemnified and exonerated for liabilities it had incurred in the furtherance of the trust was “picked up” by the Debenture, as was the equitable lien which secured Mackay’s right of indemnity. Beach J held that although the equitable lien did not confer a direct power of sale on Mackay:
(a) Mackay’s powers of sale under the deed establishing the Trust could be used to enter into possession of the Property and sell it to enforce Mackay’s right of indemnity and corresponding equitable line. Furthermore, the Receivers could “stand in the shoes of Mackay with respect to this personal right of indemnity”; and
(b) alternatively, section 420 of the Act may provide the requisite power.
In this sense, the Act appears to confer on receivers powers to realise property not wholly owned by the chargor (or mortgagor) company. Mackay appears to be anaologous to the decisions in Apostolou, Bacchus and Kitay, which confirm that administrators and liquidators may dispose of trust property held by a corporate trustee under sections 477(2)(c) and 437A(1)(c) of the Act. However, Beach J said that although Bacchus and Kitay were “in a general sense analogous”, they do not apply directly to a receivership context, which generally occurs as a result of a private contractual appointment. That is, the powers under section 420 of the Act cannot be exercised inconsistently with the terms of the instrument which appointed the receiver (there, a debenture).
Beach J also found that as the Receivers had the power under the Mortgage to enter into possession of the Property and sell it. Unlike the Debenture, the Mortgage did extend to the Property (notwithstanding it was held on trust).
Mackay is of value to receivers who are faced with a situation whereby: (a) property is held on trust; and (b) it is unclear whether the security under which the receiver is appointed extends to the trust property. It confirms that so long as the trustee has a right to be indemnified out of trust assets for liabilities incurred in the furtherance of the trust (and that right, as an “asset”, is charged) then the trustee or the receiver standing in the shoes of the trustee may sell the asset if there is a power in the trust deed, or with the assistance of the powers in section 420 of the Act.
If you have any questions in relation to this article, please contact Ariel Borland, Partner or Jennifer O’Farrell, Lawyer. The authors wish to thank Ellen Rattray, Seasonal Clerk, for her assistance in preparing this article.