Creditors
claiming against central Auckland properties associated with Mark Lyon,
currently in jail on sex and drug charges, are being held at bay after assets
held in trust were shifted across to new trustees.
In 2010 the Footsteps
Trust was established. It owned 25 of
the 28 units in a now derelict building in Karaka Street, Newton, which were
originally intended for use as residential accommodation. The Trust operated through a corporate
trustee, Footsteps Trustee Company Ltd having Mark Lyon and his son Richard as
directors. This corporate trustee was the registered owner of Karaka Street. In March 2017, Footsteps Trustee was put into
liquidation, insolvent. It owes some
$343,000, primarily overdue council rates and unpaid body corporate levies. Footsteps Trustee told liquidators it no
longer owns the Karaka Street properties.
The High Court was told Footsteps Trustee sold in April 2016 four top
floor units to LSF Trustee Ltd, a company controlled by Mark Lyon and his
solicitor Rick Phillips. No money was
paid to Footsteps Trustee; LSF Trustee instead agreed to pay some $46,700 to
clear outstanding rates and body corporate levies due on the four units. Also in April 2016, Footsteps Trustee was
removed as trustee of the Footsteps Trust.
It handed over the balance of the Karaka Street units to a new trustee:
TAL 41 Ltd. Mr Phillips is TAL’s only
director. A common transfer provision
requiring a new trustee to indemnify a retiring trustee for any existing trust
debts was left out of the legal documentation.
Liquidators of
Footsteps Trustee were left with an asset-less company owing over $343,000 with
the company’s only assets now in the hands of LSF Trustee and TAL. They sued the two companies alleging as new
trustees they took the trust properties subject to the former trustee’s
liability to pay overdue rates and levies.
Associate judge Bell
ruled new trustees LSF Trustee and TAL are not creditors of the former trustee. They do not owe Footsteps Trustee Co Ltd
anything. There is no legal rule
requiring a new trustee to personally pay the debts of a retiring trustee, in
the absence of a contractual agreement to do so. Judge Bell said any liquidation claim in
trust law would be to claim an equitable lien over the Karaka Street units held
by TAL Ltd. That requires a separate
court hearing to prove an equitable right against the properties and to force a
sale. Recovery against LSF Trustee would
require a further court application by the liquidators, if the purchase has
been at an undervalue, Judge Bell said.
LSF
Trustees Ltd v. Footsteps Trustee Co Ltd, TAL 41 Ltd v. Footsteps Trustee Company
Ltd. – High Court (8.11.17)
17.148