Re Crest Realty Pty Ltd (in liq.) and the Companies Act

[1977] 1 NSWLR 664
(1977) 2 ACLR 502
(1977-78) CLC 40-349

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(Judgment by: Needham J)

Re Crest Realty Pty Ltd (in liq.) and the Companies Act

Court:

Judge:
Needham J

Case References:
Australian Home Finance Pty Ltd, Re - [1956] VLR 1
Bank of Scotland v Macleod - [1914] AC 311
Canadian Guaranty Trust Co v Young - [1933] 3 DLR 558
Country Traders Distributors Ltd and the Companies Act, Re - [1974] 2 NSWLR 135
Farrow's Bank Ltd, Re - [1921] 2 Ch 164
HJ Webb and Co. (Smithfield, London) Ltd, Re - [1922] 2 Ch 369
Hiebert Estate, Re - [1934] 4 DLR 799
King of Hanover v Bank of England - (1869) LR 8 Eq 350
Knowles v Scott - [1891] 1 Ch 717
Northumberland Insurance Co Ltd (No. 2), Re - (1975) 1 ACLR 142
No. 9 Bomore Road, Re - [1906] 1 Ch 359
Nos. 56 and 58 Albert Road, Norwood, Re - [1916] 1 Ch 289
Provincial Treasurer of Manitoba v Minister of Finance for Canada - [1943] 3 DLR 673
Ruddington Land, Re - [1909] 1 Ch 701
Spencer, Re; Duncan v Royal Geological Society - (1916) 33 TLR 16
Thomas Franklin & Sons Ltd v Cameron - (1935) 36 SR (NSW) 286; 53 WN 30
Windsor Steam Coal Co (1901) Ltd, Re - [1928] Ch 609

Judgment date: 3 August 1977

Sydney

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Judgment by:
Needham J

The liquidator of Crest Realty Pty. Ltd. (in Liq.), hereinafter called the company, applied by summons dated 21st December, 1976, for directions. In essence, the question sought to be determined is whether the liquidator is entitled to operate upon a bank account with the Bank of New South Wales styled "Crest Realty Pty. Limited Trust Account". The account was opened by the company in conformity with the duty placed upon it by s. 36 of the Auctioneers and Agents Act, 1941. The company had carried on the business of a real estate agent, and had been licensed so to do under the provisions of s. 23 of the Act. It was wound up on 15th March, 1976, by resolutions of meetings of its members and creditors, and the license expired on 6th June, 1976, and was not renewed.

Section 36 of the Auctioneers and Agents Act requires a licensee to hold moneys received by it for or on behalf of any person exclusively for such person, to be paid to such person, or to be disbursed as he directs, and, until so paid or disbursed, the moneys are required to be paid into a bank in New South Wales to a trust account and retained therein. By s. 36 (2) it is provided that the moneys shall not be available for the payment of the debts of the licensee to any other creditor.

At the commencement of the winding up there was in the bank account a credit balance of $95,423.67. The liquidator swears that he has inspected the books and records of the company relating to the account and is satisfied that there is no deficiency in the account. He has investigated the transactions in respect of which moneys (no doubt chiefly deposits on purchases of land in which the company acted as agent) were paid into the trust account, and is in a position to account to certain persons for moneys held in the account. The bank has declined to permit the liquidator to operate on the account, contending that a new trustee of the moneys held in the account should be appointed.

There is no dispute between the parties that the company remains a trustee, despite the liquidation. The bank's argument is that the liquidator's duties, under the Companies Act, 1961, are restricted, so far as property is concerned, to the property of the company. Therefore, although, in a creditors' voluntary winding up, all the powers of the directors cease on the appointment of a liquidator: s. 261 (4), it does not follow that the liquidator inherits all the powers of the directors; he is restricted to the powers granted by the Act, and those powers relate to his duty to get in the property of the company and distribute it, or the proceeds of its sale, among the creditors. The bank's submissions departed from the purity of this stance in one respect: it was said that the liquidator was entitled, and perhaps bound, to apply to the court for the appointment of a new trustee of the moneys in the bank account. No express statutory justification for the exercise of this power was appealed to, other than s. 261 (1) of the Companies Act, 1961, but I was referred to the cases cited by the authors of Jacobs, Law of Trusts in New South Wales, 3rd ed., p. 380, footnote (97). In fact, all the cases there referred to, namely, King of Hanover v. Bank of England^[1]; Re No. 9 Bomore Road^[2]; Re Ruddington Land^[3]; Re Nos. 56 and 58 Albert Road, Norwood^[4] and Re Spencer; Duncan v. Royal Geological Society^[5] related to dissolved corporations. The bank's submissions included an examination of many sections of the Companies Act which tended to show, so it was argued, that that Act had no application, so far as the relationship of the liquidator to the company, the creditors and the contributories was concerned, to property held on trust by the company. In answer to a suggestion from me that, if the liquidator were able to exercise, through the company, the powers of a trustee, the rights of the beneficiaries would be found in the Trustee Act, 1925, counsel for the bank submitted that the essential step was to ascertain whether the Companies Act required him, or permitted him, to exercise the company's trust powers. Undoubtedly that is so. But it seems to me not to the point to establish, as counsel did, that no rights are expressly given to beneficiaries by the terms of the Companies Act. The Companies Act, in prescribing duties to be performed by the liquidator, concentrates upon the rights and duties of creditors and contributories; if the Act, by s. 261 (1), vests in him, for the moment, the powers of the directors to represent the company in its capacity as a trustee, the rights and obligations involved will all be found in the Trustee Act. Reliance was, however, placed upon the terms of s. 291 (2) which, in effect, provides that the bankruptcy laws for the time being shall be applied in the winding up of an insolvent company with regard to the respective rights of secured and unsecured creditors and debts provable .... Section 116 (2.) (a) of the Bankruptcy Act, 1966 (Cth.) excludes from the property of the bankrupt divisible amongst his creditors property held by the bankrupt in trust for another person. Accordingly, such property would not pass to the Official Receiver. However, s. 82 (2.) of the Bankruptcy Act implies that a demand in the nature of unliquidated damages arising by reason of a breach of trust is a debt provable in the bankruptcy. If, therefore, the company had, prior to liquidation, acted in breach of its duties as a trustee in respect of the moneys in the bank account, it would seem that a beneficiary would have been entitled to prove in the liquidation for a sum equivalent to the damages suffered by him by reason of the breach of trust. However, the question for resolution does not depend upon whether the beneficiaries of the moneys in the trust account can prove in the liquidation, although some reference was made to this matter in the submissions made on behalf of the liquidator.

I suggested to counsel for the bank that some assistance might be gained by considering the position of a trustee company in liquidation. Again appealing to the provisions of s. 261 (1), counsel submitted that, because the liquidator is appointed for the purpose of winding up the affairs and distributing the assets of the company, the liquidator would be empowered to apply to the court for the appointment of new trustees to the trust estates being administered by the trustee company.

Counsel for the liquidator also relied upon the provisions of s. 261 (1). He submitted that the duty of the liquidator to wind up the affairs of the company involved him in administering, in the name of the company, trusts of property held by the company, at least until a new trustee is appointed on the application either of the company, or of a beneficiary. Such a new trustee, or new trustees, should be appointed at the conclusion of the winding up, if the trust must still continue, as would be the case in many of the trusts administered by a trustee company. In the present case, he submitted, no such problem arose. He said, with some justification I think, that, if the liquidator has a power to apply to the court for the appointment of a new trustee, he would make such an application on behalf of the then trustee, the company, and, if he could exercise that trust power in the name of the company, why is he unable to exercise other such powers? It is not without significance, I think, that s. 6 (2) (g) of the Trustee Act allows the appointment of a new trustee by deed where a trustee being a corporation is dissolved. In contrast, the relevant power of the court to appoint a new trustee (s. 70 (3)) arises in the case of a trustee which being a corporation is in liquidation or is dissolved.

Counsel were unable to refer me to authority which concluded this point. For the bank, I was referred to Professor Ford's statement at p. 475 of his Principles of Company Law: Property which the company held on trust does not come under the liquidator's control. Reference is made by the author to Re Australian Home Finance Pty. Ltd.^[6], but it is not clear that he relies upon the case as justification for the statement I have quoted. Counsel for the bank conceded that the decision of Herring C.J.^[7] was no authority for that proposition. Indeed, as it seems to me, his Honour appears to have assumed that, the company having been a trustee of the moneys involved, the liquidator was under a duty to recognize the trust and distribute the trust moneys amongst all the beneficiaries. It should be emphasized that the Chief Justice did not discuss the problem with which I am faced. No other authority is relied upon by Professor Ford.

As I have said, counsel for the liquidator relied upon the power implicitly given to the liquidator by s. 261 (1) of the Companies Act to wind up the affairs of the company. The duty to distribute the assets of the company is, he submitted, another duty. By reference (s. 269 (1) (b), the liquidator in a voluntary winding up may exercise all the powers conferred on liquidators in a compulsory winding up by s. 236 (2), including that set out in s. 236 (2) (k), namely to do all such other things as are necessary for winding up the affairs of the company and distributing its assets. Section 236 (2) (f) and (d) were also relied upon, but said by the bank to be merely incidental powers relating to the duty to distribute the assets. Administration of any trust, with the limitations already referred to, was submitted to be part of the duty of the liquidator to wind up the affairs of the company. The liquidation of the company, so it was submitted, made no difference to the trusteeship of the company, except in so far as the directors' powers to act for the company-trustee ceased and devolved upon the liquidator. Reference was made to Re Farrow's Bank Ltd.^[8] and Re H. J. Webb and Co. (Smithfield, London), Ltd^[9]. In the latter case, Warrington L.J. said^[10] that winding up does not effect a cessio bonorum, as does a bankruptcy, but the company's property remains vested in it as before, and, in the former case, Lord Sterndale M.R. said^[11], of the equivalent of the New South Wales s. 236 (2), and of a compulsory winding up, that he is put there to do the acts which the directors of the company did before their powers ceased: with this restriction, of course, that in all that he does he must have regard to the interests of the creditors of the company. These statements are to a degree equivocal, as the questions before the court there were not the question before me.

Section 233 (2) of the Companies Act gives the court, on the application of the liquidator, power to vest in him all or any part of the property ... belonging to the company or held by trustees on its behalf. It is noticeable that property held by the company on trust for another is not included. It follows that that property must remain in the company and, until a new trustee is appointed by the court, unless the liquidator can perform, in the company's name, the duties imposed by the trust on the trustee, there is no manner in which the company-trustee may act. While this consideration cannot be conclusive of the question, it tends, in my opinion, to support the submission of the liquidator, particularly when one contrasts the powers given by the Trustee Act first, to the persons entitled to appoint new trustees (s. 6), and secondly, to the court (s. 70 (3)).

In the absence of any binding authority on the question, decisions of courts both local and in other jurisdictions appearing to bear on the matter achieve a greater importance. I have examined cases which considered the status of the liquidator, e.g. Bank of Scotland v. Macleod^[12]; Thomas Franklin & Sons Ltd. v. Cameron^[13]; Knowles v. Scott^[14], but they do not seem to me to point in any particular direction so far as the present question is concerned. The decisions of Maugham J. and the Court of Appeal in Re Windsor Steam Coal Co. (1901) Ltd.^[15] are likewise equivocal. Maugham J.'s decision^[16] that the liquidator was not a trustee and, therefore, not entitled to the statutory protection given to trustees, related to the performance by the liquidator of his duties in respect of the assets held beneficially by the company; it did not bear on the present question.

There are, however, decisions which are of assistance. In Re Country Traders Distributors Ltd. and the Companies Act^[17], Mahoney J., as he then was, decided that, after a company had been ordered to be wound up, its liquidator has a power and a duty, upon receipt by the company of a take-over offer, to prepare, authenticate and publish a Part B statement under s. 180G of the Act in response to the Part A statement served upon the company. The obligation is in terms placed upon the company by s. 180G; there is no express power or duty placed upon the liquidator by the take-over provisions of the Act. What appears to me to be the crux of his Honour's decision appears as follows^[18]: That there are limits upon the powers of a liquidator in the compulsory winding up of a company is clear. These limitations are imposed, for example, by reference to the persons with whose assent or authority particular powers can be exercised and there are other limitations because of, it may be, the limited verbiage of the particular provisions of, for example, s. 236 of the Act. However, in my opinion, where a liquidator is appointed by the court to wind up a company and the statute imposes an obligation in terms of s. 180G and having the public purpose which is obvious from the nature of that obligation and that obligation is imposed upon the company, then, whatever be otherwise the limits of his power in a particular case, the power of the liquidator extends, in my view, to do whatever is necessary to cause that company to carry out its statutory obligations.

The liquidator in the present case would say that the obligation arose from the terms of s. 261 (1).

Counsel for the bank suggested that the decision of Bowen C.J. in Eq. in Re Northumberland Insurance Co. Ltd. (No. 2)^[19] supported the bank's claim, because his Honour there held that no obligation was placed upon the liquidator to furnish the prescribed information to the Treasurer required by reg. 13 of the regulations made under the Insurance (Deposits) Act, 1932-1973 (Cth.). It is not clear to me from the judgment whether this conclusion arose from the fact that the liquidator had no money, and that the Companies Act, s. 287 (1), denied any liability in him to do acts which involved expense; whether it arose from the fact, or partly reflected the fact that, when the liquidator was appointed, the essential information should already have been supplied by the company, or whether it was a decision on a matter of principle, or any combination of these reasons. The money in the deposit was, by the Act, the money of the company; it was held, under the terms of the Act, as security for claims by policy holders. An indication that his Honour's decision rested upon the basis of s. 287 (1) of the Companies Act, appears in the following^[20]: The deposit itself I am bound to regard as forming part of the assets of the company (s. 18 (2)). Where the value of the deposit is in excess of the claims of those entitled to have recourse against it, he will clearly be obliged to obtain possession of any surplus in order to add it to the common pool of money available for unsecured creditors. Where, as here, the deposit is likely to prove insufficient to meet the claims of those entitled to have recourse against it, he still has an interest and an obligation. It was suggested in argument that those amongst the unsecured creditors who were entitled to have recourse against the deposit were in the position of preferred creditors. I think their position is rather to be compared with that of secured or partially secured creditors. To the extent to which their claims are satisfied out of the deposit, the common pool of money available to unsecured creditors generally will be relieved. There is, I consider, an obligation resting on the liquidator to do what he can to ensure that those creditors entitled to have recourse against the deposit in fact have that recourse, and that the common pool of money is accordingly relieved to that extent.

I do not think that this decision assists me to reach a conclusion favourable to the bank.

There are three Canadian decisions which have been of some assistance in the resolution of this question. Two of them arose in the winding up of Canadian Guaranty Trust Co., a trustee company. The first was Canadian Guaranty Trust Co. v. Young^[21]. The company, by its receiver and manager, sued three of its former directors. The action was successful at first instance. Shortly afterwards, the company was ordered to be wound up, and the defendants in the action appealed. The receiver and manager, now the liquidator, contested the appeal without applying to the court for leave. The appeal was successful and the Master, on the application of the defendants, ordered that the costs be paid forthwith by the liquidator, in priority to other creditors. The liquidator appealed to the Manitoba Court of Appeal. In joining in the unanimous decision to dismiss the appeal, but to vary the Master's order by declaring that the costs should be paid out of the company's assets, and not out of those of any trust estate, Robson J.A. said^[22]: I am not questioning, however, that if the company had money of its own these costs ought to be paid thereout. What I am concerned about is that these estates held by the company as executor or administrator or other trustee be not resorted to for the purpose. As a matter of fact it has not been made to appear how the liquidator got legal control of these estates. If necessary the whole matter can be tested in this way. If any beneficiary or person entitled for instance to administration were to come to the proper Court and ask to be allowed to replace the company there would be no answer and he or she would be entitled to take over the particular estate in specie.

In the same winding up, the liquidator made an application, to the Saskatchewan Court of King's Bench, to remove the company as administrator d.b.n. of the estate of A. Hiebert: see Re Hiebert Estate^[23]. The report is not in direct speech and the reasoning of Taylor J. seems to stem partly from the fact that the Winding-up Act, R.S.C. 1927, c. 213 is a Dominion Statute, while the courts having control over deceased estates are Provincial courts. Having said that exclusive jurisdiction over the estate rested in the courts of the province, Taylor J. added^[24]:

"The liquidator had no right to assume that he as liquidator could continue in the name of the liquidating trust company to function as trustee. See the Winding-Up Act, R.S.C. 1927, c. 213, s. 19.

The liquidator's control over the affairs of the trust company is subject to the same responsibility as the trust company. These trust assets are not subject to liquidation as ordinary assets of the trust company. They remain clothed with trust and subject to the orders and directions of the Courts of the Province. A first duty of the liquidator should be to preserve the trust property and the accounts and forthwith apply to the proper Court for direction as to the disposal thereof. A company in liquidation cannot continue to exercise the duties of trustee unless directed to do so by a Court having jurisdiction over the trust, and a liquidator who undertakes to do so without such an application or any direction accepts responsibility for any consequences that may ensue."

Section 19 of the Winding-up Act referred to provided: The company, from the time of the making of the winding-up order, shall cease to carry on its business, except in so far as is, in the opinion of the liquidator, required for the beneficial winding-up thereof; but the corporate state and all the corporate powers of the company, notwithstanding it is otherwise provided by the Act, charter or instrument of incorporation, continue until the affairs of the company are wound up.

This case is of marginal significance, but it does seem to imply that the liquidator, subject to his duty to apply to the Provincial court for directions, has the power to exercise, on the company's behalf, trust functions and duties.

The third case, Provincial Treasurer of Manitoba v. Minister of Finance for Canada^[25] is a decision of the Supreme Court of Canada. The issue was whether the Province was entitled to certain moneys as bona vacantia or under the Vacant Property Act, or whether the Dominion Minister was entitled under ss. 139 and 140 of the Winding-up Act, R.S.C. 1927, c. 213. The moneys were deposits held by the company now in liquidation, a trust company. The liquidator, another trust company, had been unable to alert the respective owners of the moneys in the trust account. The Master had directed the liquidator as to the procedures for discovering and repaying to the depositors the moneys held on their behalf. A balance of $9,844.40 remained. Because of the claims of the Dominion and the Province, the liquidator applied for directions. On appeal from the Court of Appeal of Manitoba, the Supreme Court held that, as the moneys had been held on trust by the company, the sections of the Winding-up Act were inapplicable. It was further held that the Province was entitled under the Vacant Property Act. In delivering the unanimous judgment of the five members of the Court, Hudson J. said^[26]:

"... we do know that at the time of the winding-up order the trust company had in its possession trust property more than sufficient to pay the depositors then unpaid.

It would appear then that the fund in question is held to fulfill the trust of 1924 and can be treated in no other way.

In this view of the matter, ss. 139 and 140 can have no application. The moneys were held by the liquidator as trustee for the individual depositors and not for the trust estate or for anybody else."

It was ordered that the liquidator should pay the fund to the Provincial Treasurer.

I appreciate that there are dangers in applying decisions of a court in another country, but, in this case, the Supreme Court treated English authority as relevant and I have not found anything in the Winding-up Act, R.S.C. 1927, c. 213, which would take the statements I have quoted out of the New South Wales company context. At its highest, the case goes no further than to show that the Supreme Court of Canada saw nothing impermissible in a liquidator having duties in respect of property held on trust by the company. But to that extent it supports a conclusion reached independently, that part of a liquidator's duty, in winding up the affairs of the company is to exercise the powers of the directors in the administration of trusts by the company, subject, of course, to the desirability of making application to the court either for directions or for the appointment of a new trustee in cases where that is expedient.

In my opinion, the liquidator's contention should be upheld. In the absence of any statutory provision regulating the administration of trusts of which a company in liquidation is the trustee, it seems to me that s. 261 (1) of the Companies Act places upon the liquidator the duty to act in a responsible way in the administration of the trust in the name of the company. In respect of some cases, it would be unsuitable for the company to continue to act as trustee, but nothing appears in the present case to indicate that that stage has yet been reached.

I would, therefore, give an affirmative answer to question 1 in the summons; as to questions 2 and 3 I would answer: Yes, in the name of the company. To question 4 I would give a negative answer. To question 5 I would say that, at present, there does not appear to be any reason why a new trustee should be appointed, but that circumstances may alter in such a way as to make it desirable for the company to be removed and another trustee appointed. I think the bank should pay the liquidator's costs.

The liquidator sought an order that interest be payable by the bank on the moneys in the account, if I should uphold his principal contention. I do not think this is a suitable case for the making of such an order for a number of reasons. In the first place, the moneys are in a statutory trust account; secondly, there was a substantial point of law to be decided, the bank's attitude being not unreasonable in the state of the authorities; thirdly, there was some delay by the liquidator in bringing this matter before the court. Finally, even if interest were to be awarded, it could not be awarded in respect of the whole of the amount in the account, as the evidence indicates only that the liquidator is able to pay out some of the moneys at this stage. For these reasons, I decline to make any order for interest.

The liquidator also sought an order, under s. 263 (3) of the Companies Act, that the bank forthwith pay to him all moneys held in the account. I think this order is unnecessary in the light of the directions I have already given.

Order accordingly.