In February 2012 we wrote an article about an interesting case being undertaken in our Canberra office. The case involved a solar product retailer who had created Small-scale Technology Certificates (STCs) on behalf of its customers.
When the company was placed into administration it held approximately 21,000 STCs in its name. The two main issues we faced were:
- The STCs were held in the name of the company and not the customers, although the customers had been led to believe that the STCs would be held on their behalf. Therefore, there was a question as to whether the STCs were held on trust. 238 customers were affected.
- Our review of the records of the company indicated that the company should have been holding approximately 37,000 STCs in order to meet all customer claims but held only 21,000. If the STCs were held on trust, there was then a question as to how to deal with the existing STCs given the apparent shortfall of approximately 16,000. The approximate value of the STCs held was $675,000 in 2012.
Given the complexity of the issues, as liquidators of the company we filed an application in the Federal Court of Australia seeking directions under section 479 of the Corporations Act that we would be justified in treating the STCs held as trust assets and not as assets of the company which would form part of the broader liquidation.
The customers and creditors of the company were informed of our application to Court and some of the customers participated in the hearing and were able to put their views to the Court regarding how they believed the STCs should be treated.
On 20 August 2013 the Court handed down its judgment. The Court directed that:
- We would be justified in deciding that the remaining STCs were held on trust for the customers.
- That we be appointed Receivers & Managers of the trust and that we would be justified in pooling the trust STCs and selling them.
- From the proceeds of the sale of the STCs, that our reasonable costs and expenses be paid and that we would be justified in distributing the remainder of the proceeds to the customers on a pro-rata basis according to the number of STCs which they were entitled.
A review of the reasons for the judgment indicates that the judge recognised that books and records relating to the STCs were not well kept and considerable work had been undertaken in our role as liquidators and effectively concluded that it would make sense to appoint us as Receivers & Managers of the trust funds from the sale of the STCs.
The judgment is a reminder that liquidators and bankruptcy trustees need to be on their guard to recognise that assets which are registered in a company’s or bankrupt’s name may be held in trust.