Judge rejects surplus solution as “cop out”

Receivers wondering about the best course to take in dealing with a surplus might, depending on their circumstances, take note of the recent experience of Smith Hancock’s Peter Hillig and Mike Smith.

The pair were appointed receivers and managers of the J & Lee Property Group Trust by court order in August 2017, some seven months after the court appointed Hillig liquidator of J & Lee Property Investment Pty Ltd upon the application of petitioning creditor, the Chief Commissioner of NSW Revenue.

“I’m not going to release you. Not a chance. You can’t just leave this hanging. This is what is commonly called in legal terminology as a cop out.” NSW Chief Judge in Equity David Hammerschlag.

The pair needed to be appointed receivers and managers because as usual, J & Lee Property Investments was a corporate trustee and its hold over the assets of the underlying trust passed to a new trustee the moment the court ordered the company be wound up.

Given there were several properties worth many millions that could potentially underwrite a 100 cents in the dollar dividend Hillig and Smith were very keen to secure possession, particularly in circumstances where the company had bankrolled its lucrative property investment activities via monies that had been found in other courts to constitute proceeds of crime.

Once the properties were secured and sold, the pair were left with approximately $8.8 million, which is where the the issue of judges differing in their view as to the best solution for dealing with surplus comes in.

On Monday NSW Supreme Court chief justice in equity David Hammerschlag heard that the Australian Taxation Office (ATO) had proved in the liquidation for more than $5 million but upon payment of this sum and the receivers and managers’ fees and expenses, a considerable surplus would remain.

Justice Hammerschlag also heard that Hillig and Smith wanted to retire but there was a fly in the ointment in the form of the law firm which had acted for the J & Lee Property Investments director and his father in the criminal proceedings brought by the NSW Crime commission.

Nyman Gibson Miralis had originally lodged a proof of debt for $1.5 million in the liquidation, claiming to be a creditor by virtue of the firm having been instructed by sole director Seong Won Lee and acting for him and his father Do Young Lee (aka Jason Lee) in proceedings which saw Jason Lee gaoled for drug and firearms offences.

On Monday the court heard that while the law firm had not proved in the liquidation it did have a judgment debt against the director from the District Court in the order of $550,000 for unpaid legal expenses.

Appearing on behalf of the Nyman Gibson Miralis was barrister Frank Tao, who was seeking to have a charging order imposed to capture any rights to the surplus that the director and trust beneficiary against whom the judgment debt was ordered might have.

As Jason Lee was also a unit holder in the underlying trust and as Hillig and Smith had had trouble identifying all the unit holders the receivers’ barrister Adam Gerard told Justice Hammerschlag that one solution could be to allow the receivers to retire and for the court to appoint a new trustee with responsibility for managing the surplus.

The trustee proposed was Sydney liquidator Alan Hayes but his honour wasn’t having it.

“I’m not going to release you,” the judge told Gerad. “Not a chance. You can’t just leave this hanging. This is what is commonly called in legal terminology as a cop out.”

The judge said it would not be right for the court to order that the receivers be discharged “while the major controversy is left hanging” and then allow a new trustee to drain the surplus.

Instead, the judge ordered that the surplus be paid into court so that Tao’s client could then make application for full satisfaction of its judgment debt and any others who wanted to claim against the surplus could apply via the same route.

What neither his honour or Gerard or Tao said out loud was that the proposal to appoint a new trustee had come not from Hillig and Smiths’ legal advisors but from the judge’s Supreme Court colleague Justice Guy Parker. A legal eminence advocating for a cop out? Surely not.