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Aravanis & Anor v Studwell Pty Ltd & Ors [2015] FCCA 2102 (7 August 2015)

Last Updated: 14 August 2015

FEDERAL CIRCUIT COURT OF AUSTRALIA

ARAVANIS & ANOR v STUDWELL PTY LTD & ORS


Catchwords:
BANKRUPTCY – Application by trustees in bankruptcy for declaration that equipment used in a business conducted through a trustee company was vested in the trustees in bankruptcy – whether the equipment was purchased in the name of the trustee company using money provided by the bankrupt – whether that gave rise to a presumption that the bankrupt did not intend to make a gift of the money or of the equipment to the trustee company – whether presumption rebutted – whether notice of application given to all interested parties – whether it is appropriate to grant declaratory relief – declarations granted.


Legislation:


CGU Insurance Limited v One.Tel Limited (In Liquidation) (2010) 242 CLR 174; [2010] HCA 26
Westdeutsche Landesbank Girozentrale v Islington LBC [1996] UKHL 12; [1996] AC 669; [1996] 2 WLR 802


First Applicant:
ANDREW ARAVANIS

Second Applicant:
RONIL PRAKASH ROY

First Respondent:
STUDWELL PTY LTD

Second Respondents:


Third Respondent:
RHONDA LEE STUDWELL & MICHAEL JOHN STUDWELL

CAMERON JOHN STUDWELL

File Number:
SYG 2018 of 2015

Judgment of:
Judge Manousaridis

Hearing date:
29 July 2015

Delivered at:
Sydney

Delivered on:
7 August 2015


REPRESENTATION

Solicitors for the Applicants:
Ms S Nash of O’Neil Partners

No appearance on by the First, Second, or Third Respondents.

ORDERS

(1) The application is amended by:
(2) Service of the amended application is dispensed with.

DECLARATIONS

(3) Immediately before he became bankrupt on 22 April 2015, Cameron John Studwell held the beneficial interest in each of the goods (Goods) described in the schedule to these orders (Schedule) as the sole beneficiary under resulting trusts then existing in relation to each of the Goods.
(4) Upon his becoming bankrupt, pursuant to s.58(1) of the Bankruptcy Act 1966 (Cth) the beneficial interest Cameron John Studwell held in each of the Goods vested in the trustees in their capacity as trustees of the bankrupt estate of Cameron John Studwell.
(5) As a consequence of the trustees having on or about 9 June 2015 taken possession of the Good described in paragraph (d) of the Schedule, the resulting trust in relation to that Good was terminated, and the legal property in the Good was and remains vested in the trustees in their capacity as trustees of the bankrupt estate of Cameron John Studwell.
(6) Upon the trustees obtaining possession pursuant to orders 7 and 8 of these orders of the Goods described in paragraphs (a), (b), and (c) of the Schedule, the resulting trusts that exist in relation to those Goods shall terminate, and the legal property in those Goods will vest in the trustees in their capacity as trustees of the bankrupt estate of Cameron John Studwell.

ORDERS

(7) Upon the request of the applicants or their nominated representative, Glenn Martin make available for collection by the trustees or their nominated representative the Excavator Kabelco 1.0 Ton – serial number PAO2-03498, being the Good described in paragraph (a) of the Schedule.
(8) Upon the request of the applicants or their nominated representative, the second respondents make available for collection by the trustees or their nominated representative:
(9) The applicants would be justified in selling the Goods by private treaty or by auction, including by auction conducted online.
(10) The applicants have liberty to apply to the Court for any orders or directions in relation to the recovery of possession of the Goods, or the management, or realisation of the Goods.
(11) The trustees’ costs of the application be a cost and expense of the applicants as trustees of the estate of Cameron John Studwell.
(12) By 5.00 pm on 10 August 2015 the applicants serve a sealed copy of these orders on each of the Australian Securities and Investments Commission, the second respondents, and Mr Glen Martin, in the manner by which the applicants’ solicitor has communicated with each of ASIC, the second respondents, and Mr Glenn Martin in connection with these proceedings.

SCHEDULE

(a) Excavator Kabelco 1.0 Ton – serial number PAO2-03498;
(b) 2006 Used Bobcat S130 – serial number 529211303;
(c) GAL Tandem Trailer/Ezi Loader Ramps – model EL30306 – serial number LR12262 – capacity 3.0 Ton – VIN: 6T9T20ABM807DK225 – registration number 155-QQA; and
(d) Excavator Airman Ax50UC-5f 5.0 Ton – serial number INVDO5064 – engine number C5108 – includes attachments as described tax invoice S3224 BMES 21 December 2009.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT SYDNEY

SYG 2018 of 2015

ANDREW ARAVANIS

First Applicant

RONIL PRAKASH ROY
Second Applicant

And

STUDWELL PTY LTD

First Respondent

RHONDA LEE STUDWELL & MICHAEL JOHN STUDWELL

Second Respondent

CAMERON JOHN STUDWELL
Third Respondent

REASONS FOR JUDGMENT

Introduction

  1. Before the Court is an application brought by the trustees of the bankrupt estate of the third respondent, Mr Cameron John Studwell. The trustees seek a declaration that four items of equipment that were used in a plant hire business managed by Mr Studwell are vested in them as trustees of the bankrupt estate of Mr Studwell. The trustees also seek an order for the delivery up to the trustees of three of the four pieces of equipment.
  2. Although the application has been served on persons who potentially have an interest in the equipment, no person has asserted any interest in the equipment, and no person has asserted that the equipment was not the property of Mr Studwell. The trustees, however, acquired financial records of a trust known as the Cameron Studwell Xcavations Trust (Trust) that suggest Studwell Pty Ltd, the trustee of the Trust, could be the owner of equipment. The trustees, therefore, are in doubt about whether the equipment is property of the bankrupt estate of which the trustees are obliged to take steps to recover under s.19(1)(f) of the Bankruptcy Act 1966 (Cth) (Act).

Jurisdiction

  1. The source of the Court’s jurisdiction in bankruptcy is s.27(1) of the Act, which provides that the Court has “jurisdiction in bankruptcy”. The word “bankruptcy”, when used in relation to jurisdiction or proceedings, is defined in s.5(1) of the Act to mean “any jurisdiction or proceedings under or by virtue of this Act”.
  2. In my opinion, these proceedings are made under or by virtue of the Act. The proceedings relate to property which the trustees, notwithstanding their doubts, claim belong to the bankrupt estate of Mr Studwell. That claim can only be made under or by virtue of the Act; it is only under or by virtue of the obligations imposed on the trustees by s.19(1)(f) of the Act that the question of whether the trustees, as trustees of the bankrupt estate of Mr Studwell, are entitled to the ownership of the equipment can arise. The Court, therefore, has jurisdiction to entertain the trustees’ claims.

Facts

  1. Mr Studwell, on his own petition, became bankrupt on 22 April 2015. Before that date the Trust conducted an earthmoving business under the name of “Cameron Studwell Xcavations”. Mr Studwell was the sole director of Studwell Pty Ltd, and was the controller of the Trust and the business it conducted. Mr Studwell also conducted a business on his own account under the name of “Earthmoving Plant Hire”.
  2. On 1 July 2015 Studwell Pty Ltd was deregistered pursuant to s.601AA of the Corporations Act 2001 (Cth) (Corps Act). Subsection 601AA(1) of the Corps Act provides that an application to deregister a company may be lodged by the company, by a director of the company, or by a liquidator of the company. Subsection 600AA(2) provides that a person may apply to deregister a company under s.600AA(1) of the Corps Act only if, among other things, the company is not carrying on business, and the company’s assets are worth less than $1,000.
  3. Studwell Pty Ltd was deregistered as a result of Mr Studwell signing and submitting an “Application for voluntary deregistration of a company”. Mr Studwell apparently signed, and in any event submitted the application to deregister Studwell Pty Ltd, as a director of the company. He declared, among other things, that the assets of Studwell Pty Ltd are worth less than $1,000, and that it has ceased carrying on business. Mr Studwell applied for the deregistration of Studwell Pty Ltd purportedly as a director of Studwell Pty Ltd after he was made bankrupt. Under s.206B(3) of the Corps Act, Mr Studwell was automatically disqualified from managing any corporation as a result of his having been made bankrupt on 22 April 2015. Nothing, however, turns on this because Studwell Pty Ltd has been deregistered.
  4. In the course of their investigations into the examinable affairs of Mr Studwell, the trustees became aware of two documents. The first is a deed named “Deed of Acknowledgment of Debt” (Deed), and is dated 12 February 2010. It is made between Mr Studwell as “Debtor”, and Michael John Studwell and Rhonda Lee Studwell as “Lender”. Michael John Studwell and Rhonda Lee Studwell (Parents) are the parents of Mr Studwell, and are the second respondents in these proceedings. The Deed recites that on 12 February 2010 the Lender lent to Mr Studwell $191,820.96, and that Mr Studwell “utilised the monies to purchase outright all goods as described in the attached schedule”. Mr Studwell acknowledges he is solely indebted to the Lender for the principal debt, and that he will extinguish the debt “in accordance with the Lenders Five Year/60 Monthly Payment Loan Amortization Schedule. (Attached)”. No such schedule is attached to the copy of the Deed that is in evidence. Nor is there attached to that Deed the schedule which describes any goods, although there is in evidence a schedule that describes items of equipment. I will return to that schedule shortly.
  5. The second document is a deed named “Amended Deed of Acknowledgement of Debt” (Amended Deed), and is dated 1 September 2010. It is made between the same parties as the Deed. It provides that the Lender “has loaned” on or about 1 September 2010 to Mr Studwell $187,553.79, and that Mr Studwell has “utilised the monies to purchase outright all goods as described in the attached schedule”. Mr Studwell acknowledges he is solely indebted to the Lender for the debt, and that he will extinguish the debt “in accordance with the Lenders Five Year/60 Monthly Payment Loan Amortization Schedule. (Attached)”. As with the Deed, no repayment schedule is attached to the copy of the Amended Deed that is in evidence.
  6. There is in evidence a document titled “Plant & Hire Shedule” (sic) (Schedule) which lists nine pieces of equipment. The Schedule includes the four pieces of equipment that are the subject of these proceedings. These are the Excavator Kabelco 1.0 Ton, serial number PAO2-03498 (Excavator Kabelco); the 2006 Used Bobcat Skid Loader and attachments, serial number 529211303 (Bobcat); the GAL Tandem Trailer (GAM Trailer) registration number 155-QQA VIN:6T9T20ABM807DK225; and the Excavator Airman Ax50UC-5f 5.0 TON and attachments, serial number INVDO50182 - Engine Number C5710 (Excavator Airman). I find that the Schedule is the schedule to which either the Deed or Amended Deed refers, although it is not possible to determine whether the Schedule was attached to the Deed or to the Amended Deed. That, however, will have no bearing on the matters I need to consider.
  7. At around the time Mr Studwell went bankrupt, the Bobcat, the GAM Trailer, and the Excavator Airman were located on the Parents’ property at Cootharaba in Queensland. The Parents have made available for collection by the trustees these three pieces of equipment. On 9 June 2015 the trustees collected the Excavator Airman from the Cootharaba property. They have not, however, collected the Bobcat and the GAM because the trustees are in doubt about whether the four pieces of equipment form part of the estate of Mr Studwell. The fourth piece of equipment, the Excavator Kabelco, is situated at a property at Helensvale apparently occupied by Mr Glenn Martin. Mr Martin has indicated that he will make available the Excavator Kabelco for collection by the trustees, provided there is an order of the Court to that effect.
  8. In addition, the trustees have carried out a search of the Personal Property Securities Register maintained under the Personal Property Securities Act 2009 (Cth). That search did not reveal the registration of any security interest over any of the four items of equipment.

Evidence of Ownership

  1. The trustees’ doubts about the ownership of the equipment arise from the following evidence. First, there is a tax invoice dated 21 September 2009 for the purchase of the Excavator Airman. The invoice is issued to “CSX – Cameron Studwell Xcavations”. That suggests Studwell Pty Limited, not Mr Studwell, acquired the Excavator Airman. Second, there is a draft balance sheet for the Trust for the year ended 30 June 2014. It records that the Trust held plant and equipment of $819,795.78 at cost less accumulated depreciation of $460,022.15. Under the heading “Financial Liabilities”, the balance sheet records:
Loans from other persons 58,277.73
Machinery Loans 432,027.06
Working Capital Loan M & R 128,820.72
  1. Third, there are a number of items from the Trust’s general ledger for the twelve-month period ended 30 June 2014. Item 2-2150 of the General Ledger, “Machinery Loan Dad”, has a beginning balance of $90,277.73 and an ending balance of $58,277.73. The ending balance is the amount the balance sheet describes as “Loans from other persons”. Item 2-2216 of the General Ledger, “M & R Loan Account”, has a beginning balance of $0.00, but an ending balance of $76,538.55. This may be part of the $128,820 recorded in the balance sheet as “Working Capital Loan M & R”, although it is not possible to say with any certainty.
  2. Fourth, there are the Trust’s depreciation worksheets for the years 2010, 2011, 2012, and 2013. These include the four items of equipment. Fifth, there is Mr Studwell’s statement of affairs. It states the Parents are unsecured creditors in the amount of $213,050.72. Under the heading “Nature of debt”, Mr Studwell recorded “PL/DEED”. I find this is a reference to the Deed and to the Amended Deed, and that Mr Studwell intended to represent in his statement of affairs that he was indebted to the Parents in the amount of $213,050.72.

Is the equipment part of the Bankrupt Estate?

  1. I find that Excavator Airman was not purchased in the name of Mr Studwell; it was purchased in the name of “CSX – Cameron Studwell Xcavations”. I base that finding on the invoice that was issued for the Excavator Airman, and the Excavator Airman’s having been included in the Trust’s depreciation worksheet. I also find that the other three items of equipment were purchased in the name of “CSX – Cameron Studwell Xcavations”. I base that finding on the three items of equipment having been included in the Trust’s depreciation worksheet.
  2. Although the equipment was not purchased in the name of Mr Studwell, I find the equipment was purchased with money Mr Studwell provided. He provided the money from the loans referred to in the Deed and the Amended Deed. The Deeds make it clear that Mr Studwell, not Studwell Pty Limited, was the borrower of the money, and that it was Mr Studwell, not Studwell Pty Limited, who used the money to acquire the equipment referred to in the Schedule. In those circumstances, Mr Studwell’s purchase of the equipment in the name of “CSX – Cameron Studwell Xcavations” gave rise to a presumption that Mr Studwell did not intend to make a gift of the equipment to the Trust or to Studwell Pty Limited, and that Studwell Pty Limited, therefore, held the equipment as trustee under resulting trusts. That presumption is based on the following principle of law:[1]
  3. The next question is whether, on the evidence that is before me, the presumption is rebutted. In my opinion, it is not. First, although at least some of the indebtedness Mr Studwell acknowledged in the Deeds is recorded in the Trust’s financial records as a debt owing to the Parents, there is no evidence Mr Studwell, Studwell Pty Limited, and the Parents agreed to novate the debts referred to in the Deeds so as to make Studwell Pty Limited the debtor under the Deeds. That means that although the Trust’s financial records indicate the Trust owes the Parents at least some of the debt referred to in the Deeds, the true position is that Mr Studwell remained the debtor of the loans he acknowledged in the Deeds. That is confirmed by Mr Studwell’s statement of affairs to which I have already referred where Mr Studwell states he owes the Parents $213,050.72, and that he owes that amount under the Deeds. If, as I find, Mr Studwell remained the debtor under the Deeds, it is unlikely he would have intended to make a gift of the equipment; for he would have given away the very assets for which he incurred debts to purchase. It is unlikely that Mr Studwell would have borrowed money to purchase business assets, only to give the assets away and remain liable on the debt he incurred.
  4. A second reason why, on the evidence before me, the presumption Mr Studwell did not intend to make a gift to Studwell Pty Limited of the four pieces of equipment is not rebutted, is the declarations Mr Studwell made in the application for the voluntary deregistration of Studwell Pty Limited. Mr Studwell declared that the assets of Studwell Pty Limited are worth less than $1,000. From that declaration, and from the trustee’s belief that the equipment may have a combined value of at least $25,000, I infer Mr Studwell did not intend to include in the assets of Studwell Pty Limited the four items of equipment. That, in turn, supports the conclusion that Mr Studwell intended to hold the beneficial interest in the equipment.
  5. If, as I have concluded, the presumption that Mr Studwell did not intend to make a gift of the equipment to the Trust or Studwell Pty Limited is not rebutted, Studwell Pty Limited held the equipment as a bare trustee under resulting trusts of which Mr Studwell was the sole beneficiary. Studwell Pty Limited, as bare trustee of the trusts, had “no active duties to perform other than those which exist by virtue of the office of the trustee, with the result that the property awaits transfer to the beneficiaries or awaits some other disposition at their direction”.[2] Mr Studwell, therefore, had the right to terminate the resulting trusts simply by obtaining possession of the equipment from Studwell Pty Limited or from any other person who held the equipment. That right was vested in the trustees under s.58(1) of the Act as a result of Mr Studwell’s becoming bankrupt. The trustees exercised that right when they obtained possession of the Excavator Airman on 9 June 2015. By exercising that right, the legal property in the Excavator Airman vested in the trustees in their capacity as trustees in bankruptcy of the bankrupt estate of Mr Studwell. It is open to the trustees, as it was open to Mr Studwell immediately before he became bankrupt, to do the same in relation to the other three items of equipment; that is, the trustees may terminate the resulting trusts in relation to the other three pieces of equipment, simply by taking possession of the equipment. By exercising that right and obtaining possession of the other three items of equipment, the legal property in that equipment will vest in the trustees in their capacity as trustees in bankruptcy of the bankrupt estate of Mr Studwell.

Has notice of claims been given to all interested parties?

  1. The trustees have given notice of their application to Mr Studwell, to the Parents, and to the Australian Securities and Investment Commission (ASIC). The trustees also gave notice of the proceedings to Mr Martin even though he is not a party to the proceedings.
  2. The trustees gave notice to ASIC because, under s.601AD(2) of the Corps Act, on deregistration of Studwell Pty Limited, all of the property of that company, other than property it held on trust, vested in ASIC. Under s.601AD(1A) of the Corps Act, on deregistration of Studwell Pty Limited, all property it held on trust immediately before deregistration vested in the Commonwealth. Where property of a deregistered company is vested either in ASIC or in the Commonwealth, s.601AD(3) of the Corps Act provides that ASIC and the Commonwealth take only the same property rights that the company held. Subsection 8(6) of the Australian Securities and Investments Commission Act 2001 (Cth) provides, however, that ASIC may, for and on behalf of the Commonwealth, perform all the duties and exercise all the powers of the Commonwealth as trustee in relation to any real or personal property or money held on trust by the Commonwealth.
  3. I am satisfied that ASIC was the proper entity to whom the trustees ought to have given notice of these proceedings so far as the interests of the Trust and Studwell Pty Limited are concerned. ASIC has indicated it does not wish to be heard in relation to the trustees’ application in these proceedings.

Relief

  1. The trustees seek declaratory relief in relation to the ownership of the equipment. They do so even though there is no live controversy between the trustees and any person about whether the equipment was owned by Mr Studwell.
  2. In most cases, the absence of any live controversy would be a reason for not granting declaratory relief. The absence of controversy would normally suggest that the question for which the declaration is sought is purely hypothetical. That, however, cannot be said of the circumstances which have led the trustees to seek declaratory relief in this case. The evidence before me has given rise to a serious question about whether Mr Studwell held the beneficial interest in the equipment. That question is not hypothetical; unless the question is resolved, the trustees might, with justification, be unwilling to take the risk of possessing and selling the equipment or, if they would be so willing, the trustees might have to accept a price for the equipment which would incorporate a discount reflecting the doubtful title in the equipment the trustees would have in the absence of a judicial determination that the beneficial interest Mr Studwell held in the equipment was vested in the trustees in their capacity as trustees in bankruptcy of Mr Studwell’s estate. In these circumstances, it would be a proper exercise of the Court’s jurisdiction to grant the trustees declaratory relief because it will substantially increase the trustees’ prospects of realising the equipment for its true value. I propose, therefore, to grant declaratory relief.
  3. In their application the trustees sought a declaration that they are entitled to the beneficial ownership of the equipment. The trustees now seek a declaration that the equipment vested in the applicants as trustees of the bankrupt estate of Mr Studwell. I propose, however, to make more extensive declarations to reflect my findings and what those findings imply. In particular, I propose to make declarations to the following effect:
    1. immediately before he became bankrupt, Mr Studwell held the beneficial interest in the equipment as a sole beneficiary under resulting trusts then existing in relation to the equipment;
    2. upon his becoming bankrupt, pursuant to s.58(1) of the Act the beneficial interest Mr Studwell held in the equipment was vested in the trustees;
    1. as a consequence of the trustees having on or about 9 June 2015 taken possession of the Excavator Airman, the resulting trust that existed in relation to Excavator Airman terminated, and the legal property in the Excavator Airman became and is vested in the trustees as trustees in bankruptcy of the estate of Mr Studwell; and
    1. upon the trustees obtaining possession of the other three items of equipment, the resulting trusts that exist in relation to those three items of equipment will terminate, and the legal property in them will vest in the trustees as trustees in bankruptcy of the estate of Mr Studwell.
  4. The trustees seek an order that Mr Martin be joined as a respondent, but that I dispense with service of the application on him, and that I make an order directing Mr Martin to deliver up possession of the Excavator Kabelco. I have been informed by Ms Nash, the solicitor for the trustees, that Mr Martin consents to the Court making such orders. The trustees also seek an order that the Parents deliver up possession of the Bobcat and the GAM Trailer that are located at their property at Cootharaba. I propose to add Mr Martin as a fourth respondent, and order that he and the Parents make available the equipment they possess for collection by the trustees or the trustees’ nominated agent.
  5. The trustees also seek what in effect are directions concerning the holding and realisation of the equipment. There is nothing in the material before me that immediately suggests there is any need for the trustees to obtain any direction about the manner in which they will hold and sell the equipment. Nevertheless, I propose to give the direction the trustees seek.
  6. Finally, the trustees seek an order that the costs of the application be a cost of the trustees as trustees of the estate of Mr Studwell. It is appropriate that I make an order to that effect. I will also order that the trustees serve on ASIC, the Parents, and Mr Martin a sealed copy of the orders I will make on the publication of these reasons.

I certify that the preceding twenty-nine (29) paragraphs are a true copy of the reasons for judgment of Judge Manousaridis

Associate:

Date: 7 August 2015

[1] Westdeutsche Landesbank Girozentrale v Islington LBC [1996] UKHL 12; [1996] AC 669; [1996] 2 WLR 802 at 708 (Lord Browne-Wilkinson)
[2] CGU Insurance Limited v One.Tel Limited (In Liquidation) (2010) 242 CLR 174; [2010] HCA 26 at [36]

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