Cathro, in the matter of Stormon Industries Pty Ltd (in liq)

This case is about what happens when an insolvent business has been run through a company acting only as trustee of a trust. Stormon Industries Pty Ltd had been trustee of the D & G Stormon Family Discretionary Trust since 3 March 1995. According to the liquidators’ evidence, the company operated the business solely in that trustee capacity and did not act in any other capacity.

That detail became critical when the company went into liquidation. On 9 May 2025, creditors resolved that the company be wound up in insolvency and joint liquidators were appointed. Under the trust deed, the appointment of liquidators triggered an ipso facto clause that automatically removed the company as trustee. So the same event that started the insolvency process also stripped the company of the ordinary trustee powers it had used to run the business and deal with trust assets.

The Court recorded that the company was then reduced to the position of a bare trustee. The liquidators said the trust deed contained broad powers to purchase, acquire, sell, transfer, hire, lease, dispose of, manage, divide, encumber or otherwise deal with trust property, but they could not exercise those powers because the company had ceased to be trustee. They also gave evidence that they were not aware of any replacement trustee being appointed, even though the principals of the trust had power to appoint one.

That left a practical insolvency problem. The liquidators said the company’s management accounts showed liabilities far greater than debtors owing and retentions. They wanted to recover those debtors and retentions, account to creditors and distribute any remaining assets. But before they could do that, they needed a lawful mechanism to control and realise the trust property.

The main question was whether it was just and convenient under section 57 of the Federal Court of Australia Act 1975 (Cth) to appoint the liquidators as joint and several receivers and managers of the property of the D & G Stormon Family Discretionary Trust and any other property held by the company on trust.

The Court also had to deal with related directions and orders about how the trust property should be treated and distributed. The liquidators sought directions that they were justified in treating all assets of the trust as assets beneficially held by the company as bare trustee, subject to any charge or lien the company had over those assets to secure debts properly incurred as trustee. They also sought directions that debts and liabilities incurred by the company in the conduct of its business were liabilities of the trust.

In practical terms, the Court was being asked to put in place a workable legal structure for the insolvency. Without that structure, the liquidators said they could not properly recover trust assets, pay claims or distribute any remaining value. The issue was therefore narrow in legal form but commercially important in effect.

Acting Chief Justice Collier explained the legal position by referring to established authority on insolvent corporate trustees. The Court said that where a corporate trustee enters external administration, the company’s right of indemnity and accompanying equitable lien over trust assets survive the appointment. But that does not mean the external administrator automatically has power to sell trust assets once the company has been removed as trustee under the trust deed.

The Court noted that, in that situation, the company retains the trust assets as bare trustee. The administrator or liquidator may then need court orders before trust assets can be sold to satisfy the indemnity. The judgment referred to earlier authority showing two available paths. One is to seek an order conferring power to deal with the trust assets. The other is to seek appointment as receiver and manager of the trust. The liquidators chose the second path in this case.

The Court also accepted the liquidators’ evidence about the commercial need for the orders. They said they needed to recover debtors and retentions, account to creditors and distribute any remaining assets to beneficiaries. They further submitted that if debtors and retentions were not recovered, there was unlikely to be any significant asset recovery through the winding up process. That evidence helped explain why the application was directed to the protection and preservation of property for those interested in it.

The application was granted. The Court held it was just and convenient to appoint the liquidators as joint and several receivers and managers of the trust property and any other property held by the company on trust. The reasons were practical and tied closely to the evidence. The company had not acted in any capacity other than as trustee of the trust. It was now bare trustee of the trust. It was not otherwise empowered to deal with trust property. The trust property needed to be preserved for the benefit of creditors. And the liquidators had no other way to deal with the trust property except by orders of the Court.

The orders gave the receivers all of the powers that receivers have in respect of the business and property of a company under section 420 of the Corporations Act 2001 (Cth), except for the specific exclusions listed in the order, and applied those powers as if references to the corporation were references to the trust. The orders specifically included power to do all things necessary and convenient to effect the sale of trust property, determine and make payment of claims against the trust property, distribute sale proceeds to creditors of the trust in accordance with the priorities set out in section 556 of the Corporations Act after payment of relevant costs, expenses and remuneration, and distribute any surplus to beneficiaries of the trust.

The Court also made directions under section 90-15 of Schedule 2 to the Corporations Act. Those directions stated that the receivers were justified in treating all assets of the trust as assets beneficially held by the company as bare trustee, subject to any charge or lien securing debts properly incurred by the company as trustee. The Court further directed that all debts and liabilities incurred by the company in the conduct of its business were to be treated as liabilities of the trust.

On costs and remuneration, the Court ordered that the applicants’ costs of the application be paid out of the trust property on an indemnity basis. It also ordered that the costs, expenses and remuneration of the receivers in acting both as liquidators of the company and as receivers of the trust assets be paid from the trust property. Future remuneration was made subject to court approval. The Court also gave liberty to creditors and other persons with sufficient interest to apply to vary the orders on three days’ notice.

This is a structural case, not an industry-specific one. It is especially relevant to businesses that trade through a company as trustee of a family or discretionary trust. In ordinary trading conditions, that structure can feel invisible. Customers contract with the business, invoices are issued, staff are engaged and assets are used in the business. But if insolvency occurs, the trust deed can suddenly become one of the most important documents in the file.

The case shows that an insolvency-triggered removal clause can create a serious control issue. The company may still have a right of indemnity and lien, but the liquidator may not automatically have power to sell trust assets. That can mean delay, extra cost and a court application before debtors, retentions or other trust assets can be realised. If the business has few assets outside the trust, that issue can materially affect creditor recoveries.

For directors and owners, the practical message is to understand the trust deed before financial distress arises. Check whether the deed automatically removes the trustee on liquidation, who can appoint a replacement trustee, and whether the business is in fact trading only through the trustee company. For creditors and advisers, the message is to identify early whether the company acted solely as trustee and whether trust assets are central to the expected recoveries. If they are, a court application may be a necessary step rather than an optional one.

The judgment points to a practical review list for businesses and advisers. First, confirm the legal capacity in which the company actually traded. In this case, the liquidators gave evidence that the company operated the business solely as trustee of the trust and in no other capacity. That fact supported the Court’s treatment of the assets and liabilities.

Second, review the trust deed carefully. The deed here contained an ipso facto clause that automatically removed the company as trustee when liquidators were appointed. It also gave the principals power to appoint an additional or replacement trustee. Whether that power has been exercised can matter because the existence of a replacement trustee may affect how trust assets are controlled and administered.

Third, identify the asset pool and liability pool with precision. The liquidators relied on management accounts showing liabilities far greater than debtors owing and retentions. The Court’s directions about treatment of assets and liabilities depended on the evidence that the company’s business was conducted as trustee of the trust.

Fourth, gather evidence early if a court application is likely. The successful application here was supported by evidence about the trust deed, the company’s role, the absence of a replacement trustee, the financial position, service on ASIC and the need to preserve trust property for creditors.

The company was incorporated on 17 July 1987 and became trustee of the trust on 3 March 1995. The creditors’ resolution to wind up the company in insolvency and appoint the liquidators was passed on 9 May 2025. ASIC was served with the originating application and supporting affidavit on 3 July 2025, and on 4 July 2025 ASIC stated that it did not intend to intervene or make submissions. The hearing was conducted on the papers. Acting Chief Justice Collier delivered judgment and made orders on 18 December 2025.

The decision sits squarely in corporate insolvency and trust administration. It should be read as guidance on the administration of trust assets after a corporate trustee has been removed under the trust deed, rather than as a case about commercial leasing.