09 August 2016

Liquidators’ right to sell trust assets

Over the last few years considerable uncertainty has arisen in relation to the position of a liquidator appointed to a company which operates as trustee of a trust, particularly a trading trust.  It is long established that trustees are entitled to be indemnified (from the trust assets) in respect of liabilities properly incurred as trustee.  That right of indemnity is secured by an equitable lien (or charge) over the trust assets.

Trust deeds will almost invariably provide that the trustee is removed immediately upon liquidation.  In that instance, what power does a trustee have to deal with trust assets in order to satisfy creditor claims (and remuneration expenses)?

Two schools of thought have developed:

  1. that the company in liquidation remains as a bare trustee (subject to the exercise of any power of appointment) and that the liquidator may cause the company to deal with trust assets under the power conferred by section 477(2) of the Corporations Act (“the Act”); or
  2. that the right of the company in liquidation to claim indemnity from the trust assets is limited to its right as equitable lien holder, which might be enforced only through a court appointed receivership.

The position seemed clear following the Federal Court decision of Apostolou v VA Corporation of Aust Pty Ltd (2010) 77 ACSR 74.  The court found that a liquidator had a general power to sell under section 477(2)(c) of the Act.

In Queensland, the preferred approach should be that taken by Dowsett J, in the matter of Fulkoto Pty Ltd (in liquidation) [2013] FCA 595.

That case arose out of the liquidation of a company which had, prior to liquidation, acted solely as the trustee of a trading trust. One of the issues that arose was whether or not a bare trustee, in Queensland, has a power of sale over trust assets.

The court held that, by virtue of sections 31 and 32 of the Trusts Act (Qld), a bare trustee in Queensland has a power of sale of trust assets.

A similar approach was adopted by the Federal Court, in the matter of Southwest Kitchens (WA) Pty Ltd [2014] FCA 670.

Again, the key issue before the court was whether or not the liquidator was entitled to dispose of trust assets under the power of sale conferred by section 477(2)(c) of the Act, even though the company was disqualified from continuing to act as trustee.

The court determined that a company (as former trustee) had both legal ownership of the trust assets as the bare trustee, and a beneficial interest in the trust assets of the holder of an equitable lien.  As a consequence, the liquidator had power to sell under section 477(2) of the Act and was not required to approach the court for approval.  That position was re‑inforced by the operation of section 27 of the Trusts Act (WA).

A contrary position was adopted by Brereton J of the New South Wales Supreme Court in Stansfield DIY Wealth Pty Ltd (in liquidation) [2014] NSWSC 1484.

In that instance the liquidator had sought out directions that he be permitted to sell trust assets.  The application was refused.

His Honour declined to follow Apostolou (and later authorities) and determined the trust property was not “property of the company” for the purpose of section 477(2) of the Act.

Of concern, His Honour also concluded that (in the context of a superannuation trustee) the continued operation of a company in liquidation as trustee for a superannuation fund (in circumstances where the trustee became a disqualified person under section 126K(7) of the Superannuation Industry (Supervision) Act) constituted a criminal offence.  His Honour also suggested that a liquidator would probably be liable as an accessory to an offence under the Act.

In the end, His Honour did assist by indicating that the liquidator would be justified in making an application for the appointment of a receiver.


Trustees in Queensland have a general power to sell trust assets under s 32.  Trustees in Western Australia have similar power under s 27(1).

However, Queensland and Western Australia are the only jurisdictions where this general power to sell is conferred by legislation. This may explain why the Federal Court in Kitay and Fulkoto (in dealing with the WA Trusts Act and QLD Trusts Act respectively) made different findings to Brereton J in Stansfield and other decisions where the NSW Trusts Act was considered.

We conclude that, in Queensland, a liquidation of a bare trustee company does have a right to sell trust assets BUT that power should not be exercised where the trust is regulated by the Superannuation Industry (Supervision) Act.

For further information please do not hesitate to contact Tim McGrath or Melanie Husband on 4036 9700.

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