In the matter of Inavas Pty Ltd

1. [1]

   The company Inavas Pty Ltd was registered in New South Wales in 1986, and deregistered, pursuant to (CTH) Corporations Law 1990, s 574, on 13 June 1996. At that time, its shareholders were the plaintiff Robert Ihab Rafidi, his brother Iyad Rafidi, and Robert Steven Proctor; the directors were the plaintiff and his brother; Mr Proctor had earlier been, but had ceased to be, a director.

Background

1. [2]

   Prior to its deregistration, Inavas had carried on a motor vehicle wholesaling business, in which the plaintiff was engaged. Inavas was the holder of a life insurance policy, number 02063587, with Zurich Australian Life Insurance Limited, under which the life insured was that of the plaintiff, whose date of birth was 27 September 1964. The policy itself is not in evidence and apparently has not been able to be found, but it appears from the application for the policy, which is dated 22 June 1987, that Inavas applied for the policy in its capacity as trustee of an “Employer Sponsored Superannuation Plan – 23F” (a reference to (then) s 23F of the (CTH) Income Tax Assessment Act 1936) (“ITAA”). In an “Application and Declaration” subscribed to the application form, which was required to be completed “if applying for the 23F Superannuation Fund”, Mr Rafidi, as a director of Inavas, declared that he was an officer of the trustee company; that the trust deed had been approved by the Deputy Commissioner of Taxation as acceptable “for the purposes of s 23F of the Income Tax Act”; and that he would make available to Zurich a copy of the approved trust deed and rules on request.

2. [3]

   In February 2015, Zurich paid to ASIC the sum of $28,475.15, presumably the proceeds of the policy upon maturity. Mr Rafidi sought to procure payment of that fund by ASIC to him, but as ASIC correctly pointed out, the policy owner (Inavas) and not the life insured (Mr Rafidi) was entitled to the proceeds.

Application

1. [4]

   Mr Rafidi then applied, by originating process filed on 22 February 2017, for an order, pursuant to (CTH) Corporations Act 2001, s 601AH, that ASIC reinstate Inavas; and alternatively an order (said to be pursuant to s 601AD(2) and (4)) that ASIC transfer the Zurich policy proceeds held by it to the plaintiff. In his supporting affidavit, Mr Rafidi deposed that his object was to obtain the moneys from ASIC and pay them to himself, and then once again deregister the company, as a solvent company, via a “creditor’s voluntary winding up”; in a later affidavit he corrected this to a “members’ voluntary winding up”. Thus the application was still advanced on the misconceived basis that Mr Rafidi was entitled to the proceeds of the policy because he was the life insured.

2. [5]

   In a letter dated 3 April 2017, ASIC indicated that it would not oppose the reinstatement of the company, on its usual conditions. However, when the application came before the court on 1 May, I was not then prepared to accede to it – chiefly because it seemed to me that, on the plaintiff’s own case, it was intended to deal with the company’s property in a manner inconsistent with the legal obligations of directors, and of the company as trustee of the Inavas Superannuation Fund, [1] by paying the proceeds of the policy, being its only known asset, to Mr Rafidi, rather than holding it on the trusts of the superannuation fund to which they appeared to belong; [2] and secondly on the basis that it might be possible, if as seemed likely the fund was a trust asset, to appoint a new trustee of the fund without reinstating Inavas.

3. [6]

   Subsequently, on 17 June 2017, Mr Rafidi established a new superannuation account (number 10767XX) under the umbrella of the Netwealth Superannuation Master Fund, of which Netwealth Investments Limited is the trustee. This fund appears to be a compliant resident regulated superannuation fund, to which an existing superannuation interest could be rolled over; the Product Disclosure Statement contains the following statement:

4. [7]

   On 18 August, the plaintiff lodged submissions which proposed orders, said to be pursuant to (NSW) Trustee Act 1925, s 70 and s 71, to the effect that:

   1. (1)

      the fund held by the Commonwealth on account of the trust of which Inavas was the trustee vest in Netwealth as trustee of the Netwealth Superannuation Master Fund, account 1076790;

   2. (2)

      consequentially or alternatively, Netwealth as trustee of the Netwealth Superannuation Master Fund, be appointed new trustee of the fund held by the Commonwealth on account of the trust of which Inavas was the trustee.

5. [8]

   As such orders would have affected ASIC, on 21 August I directed that the originating process be amended and served on ASIC. An amended originating process claiming orders under the Trustee Act was filed and served on ASIC on 28 August; it sought orders to the effect that:

   1. (1)

      the fund held by the Commonwealth on account of the trust of which Inavas was the trustee vest in Netwealth as trustee of the Netwealth Superannuation Master Fund, account 1076790;

   2. (2)

      consequentially or alternatively, Netwealth as trustee of the Netwealth Superannuation Master Fund, be appointed new trustee of the fund held by the Commonwealth on account of the trust of which Inavas was the trustee; and

   3. (3)

      ASIC pay the fund to Netwealth as trustee of the Netwealth Superannuation Master Fund, account 1076790.

6. [9]

   In a letter of 1 September 2017, ASIC responded that:

   1. (1)

      all trust property of a deregistered company belonged to the Commonwealth;

   2. (2)

      all non-trust property of a deregistered company belonged to ASIC;

   3. (3)

      ASIC was the only party legally able to deal with the property of Inavas;

   4. (4)

      ASIC did not intend to take any steps on behalf of Inavas to assert, exercise, enforce or waive any rights of the company; if the company wished to do so, it must first be reinstated;

   5. (5)

      because Inavas was deregistered, the proceeding as against it was a nullity; [3]

   6. (6)

      para (3) of the relief sought was an order compelling ASIC to transfer trust property to Netwealth. While ASIC had a discretion under s 601AF to do an act on behalf of a deregistered company, an order compelling it to do so would not be made; [4]

   7. (7)

      the better approach would be to seek orders under the Trustee Act – which ASIC would not oppose - that:

7. [10]

   The plaintiff’s solicitor replied that orders would be sought to the effect suggested by ASIC, and those were the orders sought when the matter came before me on 4 September 2017.

The current status of the policy proceeds

1. [11]

   It is necessary to bear in mind that this application concerns a fund of less than $29,000, and for that reason too strict insistence on proof of every matter, when there does not appear to be any interest adverse to that of the plaintiff, would risk incurring costs entirely disproportionate to the issue.

2. [12]

   From the life insurance policy application form, referred to above, it can reasonably be concluded that Inavas was the trustee of an employer-sponsored superannuation fund which was intended to comply with ITAA s 23F, of which Mr Rafidi was a member; and that Inavas insured his life and held the policy in that capacity. Upon maturity of the life policy, the proceeds were payable to Inavas as trustee of the superannuation fund, and would be held by the trustee and on the trusts of the fund. For the sake of convenience, I shall refer to that superannuation fund as the “Inavas Superannuation Fund”.

3. [13]

   ITAA, s 23F – which was introduced in 1964, repealed and replaced in 1965, [5] and ultimately repealed in 1987 – conferred tax-free status on employer sponsored superannuation funds that complied with its requirements. [6] ITAA s 23F granted an exemption from tax [7] for the income of a superannuation fund established by an employer for the benefit of employees [8] or their dependants on their retirement where the fund satisfied all the section’s specified requirements. The exemption applied to all income of the fund, other than private company dividends and other non-arm’s length income. Any employer could establish a superannuation fund for employees, governed by a trust deed or rules and vested in a trustee; the employer could be the trustee.

4. [14]

   Although s 23F was repealed in 1987, its repeal did not affect the existence or terms of any superannuation fund which had previously complied with its requirements and thus enjoyed tax exempt status; the repeal of s 23F meant only that such a fund was no longer entitled to tax exempt status under s 23F. For present purposes, the significance of this is that the existence and terms of the Inavas Superannuation Fund was unaffected by the repeal of s 23F; in particular, Inavas continued to hold the policy on Mr Rafidi’s life upon the trusts of the Inavas Superannuation Fund.

5. [15]

   In order to understand the current status of the Zurich policy proceeds held by ASIC, it is necessary to appreciate the effect of the legislation in force at the time of the deregistration. Inavas was deregistered under the Corporations Law of 1990. Corporations Law, s 574(1), as then in force, had the effect that upon the Australian Securities Commission (as it then was) cancelling the registration of a defunct company, the company was dissolved. It thereupon necessarily ceased to be the trustee of any trust of which it was formerly trustee. Upon its deregistration, the property of Inavas – including the Zurich life policy – vested in the ASC. Corporations Law, s 576(1), as then in force, provided:

6. [16]

   In distinction from the present regime, s 576 did not make separate provision in respect of the vesting of property which had been held by the company on trust. However, that there was some difference in respect of trust property was recognised in s 577, which relevantly provided:

7. [17]

   In other words, the Commission was not empowered to deal with and dispose of property of the deregistered company that was “merely held in trust”; such property remained vested in the Commission.

8. [18]

   On 1 July 1998, s 576(1) (and the related provisions in Div 8 of Pt 5.6 of the Corporations Law) were superseded by a new Ch 5A of the Corporations Law, and ASIC was authorised to deal with property which had vested in it prior to the commencement of Chapter 5A – which included property which had vested in ASIC by operation of s 576(1) – as if the property were vested in it under (new) section 601AD. [9] Thus from 1 July 1998, ASIC had, in relation to the property of the Inavas Superannuation Fund (including the Zurich life policy) which vested in ASIC on 4 March 1996, “all the powers of an owner” (s 601AD(4)). Section 601AE(1) provided that if property vested in ASIC under subsection 601AD(2) was held by the company on trust, ASIC may continue to act as trustee; or apply to a court for the appointment of a new trustee; while s 601AE(2) provided that property not held by the company on trust was to be dealt with as unclaimed moneys under Pt 9.7. As Barrett J observed in Danich Pty Ltd; Re Cenco Holdings Pty Ltd, s 601AE as a whole made more explicit the message in the former s 577 that ASIC’s powers of dealing and disposal, as well as ultimate resort to the unclaimed moneys provisions, did not apply to property held in trust by the dissolved company, which was to remain in ASIC indefinitely, still impressed with the relevant trusts. [10] Upon commencement of the (CTH) Corporations Act 2001, the ownership of and rights, powers and duties in relation to the relevant property arising in ASIC by virtue of the Corporations Law provisions became the equivalent ownership, rights, powers and duties under the corresponding provisions of the Corporations Act. [11]

9. [19]

   In 2007, the relevant provisions of the Corporations Act were further amended, by the (CTH) Governance Review Implementation (Treasury Portfolio Agencies) Act 2007, [12] so that s 601AD (Effect of deregistration) now relevantly provides that trust property of a deregistered company vests in the Commonwealth, and non-trust property in ASIC:

10. [20]

    However, while trust property is now vested in the Commonwealth and not ASIC, 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 assets held on trust by the Commonwealth. [13]

11. [21]

    Section 601AE (What the Commonwealth or ASIC does with the property) relevantly provides that in respect of trust property, the Commonwealth can continue to act as trustee, or apply for the appointment of a new trustee:

12. [22]

    Section 601AF (The Commonwealth's and ASIC's power to fulfil outstanding obligations of deregistered company) relevantly permits, but does not require, the Commonwealth to do an act on behalf of the company which the company if it still existed would have been bound to do:

13. [23]

    The transitional provisions for the Governance Review Implementation (Treasury Portfolio Agencies) Act 2007, in Schedule 2, Part 2, Division 2 (Transitional provisions for ASIC) relevantly included the following:

14. [24]

    Prior to the commencement of the Governance Review Implementation (Treasury Portfolio Agencies) Act 2007, the Zurich life policy was held on trust by ASIC, on the trusts of the Inavas superannuation fund. Thus by force of clause 4 of Schedule 2, Part 2, Division 2, the policy thereupon ceased to be held on trust by ASIC and became held on trust by the Commonwealth, but ASIC was empowered for and on behalf of the Commonwealth to perform all the duties and exercise all the powers of the Commonwealth as such trustee.

15. [25]

    Accordingly:

    1. (1)

       upon deregistration of Inavas, its trust property, including the Zurich life policy, initially vested in ASC, but subject to the trusts on which it was held, relevantly, those of the Inavas Superannuation Fund;

    2. (2)

       in 2007, such property vested in the Commonwealth as trustee;

    3. (3)

       on payment to ASIC of the policy proceeds in 2015, they were vested in the Commonwealth, on the trusts of the Inavas Superannuation Fund; but

    4. (4)

       ASIC may, for and on behalf of the Commonwealth, perform the duties and exercise the powers of the Commonwealth as trustee.

16. [26]

    The point of this is that the proceeds of the policy, though held by ASIC, remain impressed with the trusts of the Inavas Superannuation Fund. If Inavas were reinstated, it would resume the office of trustee of the Inavas Superannuation Fund, and hold the Zurich policy proceeds now held by ASIC upon those trusts. [14] Alternatively, without reinstating Inavas, a new trustee could be appointed of the Inavas Superannuation Fund; [15] however, a replacement trustee would hold the policy proceeds on the trusts of the Inavas Superannuation Fund, not those of some other trust (such as the Netwealth Fund), and because the trust deed cannot be found, the terms of that trust are not ascertainable.

Rolling over the policy proceeds

1. [27]

   In those circumstances, there is considerable attraction in the proposal that Mr Rafidi’s superannuation entitlement be transferred to another compliant superannuation fund. The plaintiff Mr Rafidi has indicated that he wishes and intends that the Zurich policy proceeds be paid to his newly-established Netwealth superannuation account. However, Netwealth is not a trustee of the Inavas Superannuation Fund, and while, at least theoretically, it could (subject to its consent) be appointed as trustee of that fund, that would be a separate trust and fund from the Netwealth fund; the effect would not be to “merge” the Inavas fund into the Netwealth fund. In any event, there is no evidence of any consent on the part of Netwealth to be appointed as trustee of the Inavas fund, and it is unlikely that it would so consent.

2. [28]

   The mechanism by which a member’s superannuation interest is transferred from one superannuation fund to another is colloquially referred to as a “rollover”. While the Inavas trust deed is not available, nonetheless bearing in mind the considerations to which I have referred about the value of the interest at stake, the absence of any apparent adverse interest, and the risk of disproportionate costs, and taking notice of the usual provisions of superannuation funds, it is reasonable to infer that the terms of the Inavas Superannuation Trust Deed would have permitted the “rolling over” of a member’s superannuation interest to another compliant fund. I am prepared to infer that the rules of the Inavas Superannuation Fund would have permitted, if not required, the trustee to “roll-over” a member’s interest to another compliant fund at the request of the member. As has been mentioned, the Netwealth Superannuation Master Fund appears to be a compliant resident regulated superannuation fund, to which an existing superannuation interest could be rolled over.

3. [29]

   A “rollover” from the Inavas Fund to the Netwealth Fund would ordinarily involve a payment by the trustee of the Inavas Fund to the trustee of the Netwealth Fund, which is a different concept from appointment of Netwealth as trustee of the Inavas Superannuation Fund. The plaintiff proposes that, Inavas having been dissolved, it be effected by vesting order.

4. [30]

   The Court may, in its jurisdiction under the Trustee Act, make a vesting order where a corporate trustee has been dissolved. [16] Any doubt in this respect was removed by (NSW) Trustee Act 1925, s 71(2)(h), which provides that the Court may make a vesting order “where a trustee being a corporation is dissolved”. The effect of a vesting order is stated in Trustee Act, s 78, which relevantly provides:

5. [31]

   It is subsection (2) that is relevant here. Essentially, the function of a vesting order is to give effect to the rights and obligations of beneficiaries and trustees, in circumstances where a trustee’s non-existence, incapacity or recalcitrance frustrates them. Typically, but not invariably, this will involving vesting in a new trustee, or in a beneficiary who is absolutely entitled, where the trustee or former trustee has ceased to exist, is incapable, or has been removed.

6. [32]

   The effect of vesting the proceeds held by ASIC in Netwealth would be to implement a rollover, as if Inavas were an existing legal entity of full capacity and had executed whatever instrument was necessary to effect a rollover of Mr Rafidi’s superannuation interest, at his request, to the Netwealth Fund. Because Mr Rafidi is entitled to have the trustee of his superannuation fund rollover his superannuation interest to another compliant fund, making a vesting order would be entirely consistent with the purpose of such orders: it would effect what Inavas, if it still existed, would be bound to do. It also avoids any need to reinstate Inavas, [17] while ensuring that the asset is invested in and managed by a compliant superannuation fund.

Conclusion

1. [33]

   My conclusions may be summarised as follows:

2. [34]

   The existence and terms of the Inavas Superannuation Fund were unaffected by the repeal of ITAA, s 23F; in particular, Inavas continued to hold the policy on Mr Rafidi’s life upon the trusts of the Inavas Superannuation Fund. Accordingly, the trust property of Inavas upon deregistration, including the Zurich life policy, initially vested in ASC, but subject to the trusts on which it was held, relevantly, those of the Inavas Superannuation Fund; in 2007, such property vested in the Commonwealth as trustee; and on payment to ASIC of the policy proceeds in 2015, they were vested in the Commonwealth, on the trusts of the Inavas Superannuation Fund.

3. [35]

   The function of a vesting order is to give effect to the rights and obligations of beneficiaries and trustees, in circumstances where a trustee’s non-existence, incapacity or recalcitrance frustrates them. Because Mr Rafidi is entitled to have the trustee of his superannuation fund rollover his superannuation interest to another compliant fund, making a vesting order would be entirely consistent with the purpose of such orders: it would effect what Inavas, if it still existed, would be bound to do, while avoiding any need to reinstate Inavas, and ensuring that the asset is invested in and managed by a compliant superannuation fund.

4. [36]

   I do not see why the costs should be borne by the trust property, let alone how such an order could be made in the absence of the joinder of Netwealth, which will become the trustee of that property upon making of the vesting order.

Orders

1. [37]

   Accordingly, the Court orders that:

   1. (1)

      Pursuant to (NSW) Trustee Act, s 71(2)(h), the assets of the Inavas Superannuation Fund, including the proceeds of Zurich Life policy 02063587 currently held by ASIC consequent upon the deregistration of Inavas Pty Ltd, and any interest accrued thereon, vest in Netwealth Investments Limited as trustee of the Netwealth Superannuation Master Fund, account number 10767XX.

   2. (2)

      There be liberty to apply in the event of any difficulty arising in connection with the implementation of this order.