Voluntary Administrators – entitlement to an equitable or statutory lien over funds held on trust

In the recent decision of Trenfield, in the matter of Crusaders Managers Pty Ltd (Administrators Appointed)[1], the Federal Court of Australia considered whether the voluntary administrators of a company (whose sole purpose was to act as the trustee of a trust), should be appointed as receivers and managers of a trust in order to deal with the assets of the trust. 

The facts

Crusaders Manager Pty Ltd (Crusaders) was incorporated for the purpose of acting as the trustee of the Crusaders Trust (Trust). Crusaders was placed into voluntary administration by way of appointment by director of Crusaders. At a meeting of creditors of Crusaders, the first voluntary administrators were replaced and Ms Kelly-Anne Trenfield and Mr John Park of FTI Consulting were appointed as the new voluntary administrators (Voluntary Administrators).

An advertising and marketing campaign by the Voluntary Administrators had resulted in a sale contract being negotiated, however, as the assets of the business were vested in the Trust, the Voluntary Administrators did not have the capacity to enter into the contract and sell the trust assets.

As a further complication, it was unclear if the Trust was a bare trust as there were various deeds of variation that purported to change the trustee and beneficiaries of the Trust which had been executed in the years leading up to the voluntary administration. This caused some uncertainty as to whether Crusaders remained the trustee of the Trust or if they had been replaced by virtue of a previous deed.

The Voluntary Administrators made an application under section 57 of the Federal Court of Australia Act 1976 (Cth) to become receivers and managers of the assets of the Trust and to proceed with the sale of the trust assets.

The Court’s decision

Whilst it is accepted that a liquidator of a trustee might be appointed as the receiver for the purposes of securing the benefit of the right of indemnity, the Court had to consider whether the same principles applied to voluntary administrators of a trustee.

Justice Derrington concluded that, despite the issues regarding any current trustee, the Voluntary Administrators were:

• To be appointed as receivers and managers without security over all of the assets and undertaking of the Trust; and
• Granted the power to do all things necessary and convenient to effect the sale of the assets and undertaking of the Trust.

Justice Derrington stated that “there is little doubt that Crusader has a right of indemnity out of the trust assets, and that it no longer has the ability to sell the trust assets or there is doubt as to its ability in that respect”.[2]

His Honour considered the decisions made in both Re Mecfab Holdings Pty Ltd[3] and Griffiths (Administrator) v The Trustee for the Chrisamanda Trust t/as Chrisamanda Trust[4] where it was found to be expedient to appoint administrators as receivers of the assets of a trust of which the company had been trustee in order to secure the trustee’s rights of indemnity.

Costs, expenses and remuneration

Justice Derrington ordered that the costs, expenses and remuneration of the Voluntary Administrators acting as receivers and managers of the Trust would be paid from the assets of the Trust, however such remuneration would need to be approved by the Court.

A further order was made that the Voluntary Administrators, as receivers and managers of the Trust, were not able to distribute the assets of the trust to creditors or beneficiaries without the further direction of the Court. A further hearing will be held in order to request further direction from the Court in relation to the distribution of the proceeds of the trust assets.

Key takeaway

This matter reiterates the importance of applying to Court for orders regarding the appointment of receivers and managers of a trust to provide parties with the capacity to deal with trust assets. Despite the uncertainty relating to the current trustee of the Trust, it was found that, as the trust debts were incurred at the time Crusaders was the trustee, it should have a right of indemnity out of the trust assets.

[1] [2018] FCA 876.

[2] [2018] FCA 876 at [12].

[3] [2015] NSWSC 46.

[4] [2017] FCA 1222.

Authored by:

Cameron McKenzie, Partner
Jasmia Bavaresco, Solicitor