Trusting the signs to assign: assigning causes of action of trustee companies
When a corporate trustee goes into liquidation, there is often uncertainty about how it is to be wound up which requires Court intervention. On 15 October 2021, the Federal Government initiated a consultation process relating to trusts and insolvency, which looks to consider, amongst other things, what powers an external administrator has to administer trust property.
Relevantly, liquidators generally have the power to assign causes of action belonging to a company, or claims conferred on the liquidator by the Corporations Act 2001 (Cth) (Act). However, a liquidator’s power to sell or assign causes of action has certain limitations which were recently considered in Anderson v Canaccord Genuity Financial Limited  NSWSC 58 (Anderson Judgment). In particular, limitations may arise in circumstances where the company acted in a capacity as trustee of a trust, which highlights the complexities that arise when a corporate trustee is placed in liquidation.
In the Anderson Judgment, the Court found that where the causes of action arose from breaches of duty owed to a company in its capacity as a trustee of a trust, and the company in liquidation ceased to act as trustee (as is often the case), the proper plaintiff was the new trustee of the trust.
Contrary to some previous cases, the Court also seems to suggest that liquidators can assign rights which are proprietary in nature (such as, for example, judgment debts) and personal rights (such as, for example, claims for misleading and deceptive conduct).
The Court's judgment creates some uncertainty about whether personal rights to sue which are held by a company are also capable of assignment, and if so what rights can be assigned. In circumstances where there are conflicting judgments, practitioners should seek legal advice prior to negotiating the assignment of claims which might be considered 'personal' to the company.
In general, when considering whether to assign any claims or rights to sue, practitioners should carefully consider the nature and merits of the claims sought to be assigned. Practitioners should also be wary if any complicating factors might arise in the purported assignment, such as if the claims are those of the company itself or if they are claims only available to the trustee of a trust.
How does an assignment of a cause of action work?
A liquidator has the power to sell or dispose of a company’s property, which relevantly includes a ‘chose in action’ (such as potential claims). This is a useful power as assigning a cause of action may realise funds in circumstance where a liquidator might not be able to fund potentially valuable pieces of litigation. Additionally, a liquidator may assign any right to sue which is conferred on them under the Act provided the following conditions are met:
- If legal proceedings have already commenced, the right to sue cannot be assigned without the approval of the Court.
- Before assigning any right to sue, the liquidator must give written notice to the creditors of the proposed assignment.
The assignment of a cause of action is usually documented in a Deed of Assignment. Depending on the terms of the deed, the assignment might also be subject to additional conditions such as approval of creditors or the Court. This is particularly the case if the assignment is intended to last more than three months.
Once a cause of action has been assigned, the liquidator should generally issue a notice of assignment that complies with the relevant State property law acts (Assignment Notice). It is worth noting that in the Anderson Judgment, an Assignment Notice was not issued. This was not fatal as the assignors of the causes of action were joined as parties to the proceeding, binding them to any judgment.
Assignment of claims of a trustee company
The key issue in the Anderson Judgment was whether there was a valid assignment of claims broadly described as ‘Conspiracy Claims’ made up of claims for breach of fiduciary duties and breach of the obligations of good faith and honesty arising from employment contracts.
The key considerations addressed in the Anderson Judgment on the assignment of causes of action are briefly summarised below.
Were the ‘Conspiracy Claims’ claims of the company or of the trust?
The Court held the assignee had standing to sue for any breach of obligation owed to the companies in liquidation, but only to the extent that the claims related to each company in its own right. Where the company entered into any agreement in its own capacity, and not as trustee of any trust, the assignment of any rights and obligations arising under those agreements was effective.
Conversely, the assignee could not sue for any breaches of obligations which were owed to a company in its capacity as trustee. The liquidator could not assign these rights because the company was not the proper plaintiff (it was the trustee of the trusts at the time claims were sought to be made).
Could a bare right to litigate or personal chose in action by assigned?
Many statutory causes of action are incapable of assignment, because they are personal to the company rather than proprietary in nature. Personal claims are claims which are only available to the person who suffered the relevant loss or damage. Common examples are claims for misleading and deceptive conduct under the Australian Consumer Law and breaches of director duties under the Act.
Relying on past judgments of the Supreme Courts of New South Wales and Western Australia, the Court:
- found breaches of fiduciary duty are claims capable of assignment under the Act
- seemed to suggest that there is no reason to limit the assignment of claims to only those which are proprietary in nature in view of the wording of the Act.
This approach conflicts with judgments of the Supreme Court of Victoria and the Supreme Court of New South Wales. Relevantly in:
- Pentridge, the Court found that statutory causes of action for misleading and deceptive conduct under the Trade Practices Act 1974 (Cth) were unassignable
- Re Colorado Products, the Court found that statutory causes of action for breaches of directors duties under the Act were not assignable.
The Court’s judgment leads to some uncertainty about the extent to which personal rights to sue, which are held by a company, are capable of assignment. In general, when considering whether to assign any legal claims or rights to sue proceedings, practitioners should carefully consider the nature of the claims sought to be assigned. Practitioners should be wary if any complicating factors might arise in the purported assignment, such as if the claims are those of the company itself or if they are claims only available to the trustee of a trust.
 See for example section 134 of the Property Law Act 1958 (Vic), section 12 of the Conveyancing Act 1919 (NSW), Civil Law (Property) Act 2006 (ACT) s 205, Law of Property Act 2000
(NT) s 182, Property Law Act 1974 (Qld) ss 199, 200, Law of Property Act 1936 (SA) s 15, Conveyancing and Law of Property Act 1884 (Tas) s 86 and Property Law Act 1969 (WA) s 20.
 Re Colorado Products Pty Ltd (In Prov Liq) (2014) 101 ACSR 233;  NSWSC 789 (Re Colorado Products).
 EC Dawson Investments Pty Ltd v Crystal Finance Pty Ltd (No 3)  WASC 183.
 Pentridge Village Pty Ltd (in liq) v Capital finance Australia Ltd  VSC 633 (Pentridge).
 Re Colorado Products.
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