Background
Fresh Cheese Co (Aust) Pty Ltd (“the Company”) acted as the corporate trustee for the Fresh Cheese Co (Aust) Unit Trust. In March 2026, the Company was placed into liquidation, and liquidators were appointed. The liquidators quickly determined that the Company’s sole function had been to act as the trustee and, consequently, all of its assets were actually property of the Unit Trust.
This created a legal problem for the liquidators. Under Australian law, a liquidator’s power of sale generally extends only to “property of the company.” Assets held on trust are not considered the company’s property. The liquidators had already sold perishable stock to prevent it from spoiling and had a conditional contract to sell the business, but they lacked the legal authority to complete these transactions.
To remedy this, the liquidators made an urgent application to the Federal Court. They asked to be appointed as receivers of the trust property and sought an order nunc pro tunc, which would backdate their appointment to the beginning of the liquidation. This would retroactively validate the sale of the perishable goods and empower them to finalize the sale of the business.
The Court’s Holding
Justice Wheatley granted the application, appointing the liquidators as receivers of the trust property. The Court affirmed that the evidence overwhelmingly showed the Company had operated solely as a trustee. As such, its assets were trust property, and the Company merely held a right of indemnity and an equitable lien over those assets for liabilities incurred in its trustee capacity.
The Court reiterated the established principle that a liquidator of a former corporate trustee cannot sell trust assets without a specific court order or an appointment as a receiver. The standard power of sale under section 477(2)(c) of the Corporations Act 2001 (Cth) is insufficient for this purpose. To facilitate an orderly realization of the assets for the benefit of the trust’s creditors, the appointment of a receiver was deemed just and convenient.
Crucially, the Court made the appointment order nunc pro tunc (with retrospective effect) to the date the liquidators were appointed. This had the effect of validating the sale of perishable stock that had already occurred, protecting the liquidators from potential liability and ensuring the value of the assets was preserved for creditors. The Court also provided directions justifying the liquidators in treating all company debts as trust debts and proceeding with the distribution of assets under the statutory priority scheme.
Key Takeaways
- Liquidators of an insolvent company that acted as a trustee do not have the power to sell trust assets under their general powers of sale.
- To realize trust assets, liquidators must apply to a court to be appointed as receivers of the trust property.
- Courts can make orders appointing receivers nunc pro tunc (retrospectively) to validate urgent actions taken to preserve assets, such as the sale of perishable goods.
- Where a company acts exclusively as a trustee, all of its liabilities are treated as trust liabilities, and the proceeds of trust assets are distributed to creditors according to the priorities set out in the Corporations Act.
Why It Matters
This decision provides a clear and practical confirmation of the legal process required when dealing with an insolvent corporate trustee in Australia. It reinforces the fundamental legal distinction between a company’s own property and assets it holds on trust, a critical concept in insolvency law. For insolvency practitioners, the case serves as a vital reminder of the need to seek court intervention by way of a receivership application to properly administer and sell trust assets.
The Court’s willingness to grant a retrospective order highlights a pragmatic approach that allows liquidators to take necessary, urgent steps to protect asset value without being exposed to personal liability. This ultimately benefits creditors by ensuring that the value of perishable or time-sensitive assets is not lost while legal formalities are being addressed, promoting efficiency and fairness in the winding-up process.