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The Presbyterian Church of Queensland Incorporated by Letters Patent v Attorney-General for the State of Queensland[2021] QSC 219

The Presbyterian Church of Queensland Incorporated by Letters Patent v Attorney-General for the State of Queensland[2021] QSC 219

SUPREME COURT OF QUEENSLAND

CITATION:

The Presbyterian Church of Queensland Incorporated by Letters Patent v Attorney-General for the State of Queensland [2021] QSC 219

PARTIES:

THE PRESBYTERIAN CHURCH OF QUEENSLAND INCORPORATED BY LETTERS PATENT

(Applicant)

v

ATTORNEY-GENERAL FOR THE STATE OF QUEENSLAND

(Respondent)

FILE NO/S:

BS 5437 of 2021

DIVISION:

Trial Division

PROCEEDING:

Application

ORIGINATING COURT:

Supreme Court of Queensland at Brisbane

DELIVERED ON:

31 August 2021

DELIVERED AT:

Brisbane

HEARING DATE:

23 August 2021

JUDGE:

Brown J

ORDER:

The order of the Court is:

  1. Order as per the draft order.
  2. That these reasons only be provided to the parties and to the Catalyst Group (provided no confidential information needs to be redacted), until a further application of the Catalyst Group is determined, in relation to a claim of confidentiality by it over affidavit material provided to the Court or until further order.

CATCHWORDS:

CHARITIES – TRUSTEES OF CHARITIES – ADMINISTRATION AND CONTROL BY COURT – GENERALLY 

CHARITIES – CHURCHES AND RELIGIOUS ASSOCIATIONS – CONSTITUTION, MANAGEMENT AND POWERS – CHURCH PROPERTY AND TRUSTS – DISPOSITIONS OF, AND DEALINGS WITH, CHURCH PROPERTY

CORPORATIONS – RECEIVERS, CONTROLLERS AND MANAGERS – POWERS – TO APPLY TO COURT FOR DIRECTIONS

EQUITY – TRUSTS AND TRUSTEES – POWERS, DUTIES, RIGHTS AND LIABILITIES OF TRUSTEES – PRESERVATION, INSURANCE, REPAIR AND IMPROVEMENT OF TRUST PROPERTY – DUTY TO PRESERVE TRUST PROPERTY

CORPORATIONS – RECEIVERS, CONTROLLERS AND MANAGERS – DUTIES AND LIABILITIES – DUTIES – GENERALLY – where the Applicant is a body corporate established by letters patent issued under the Religious Educational and Charitable Institutions Act 1861 (Qld) – where receivers have been appointed on an interlocutory basis with a power of sale – where the receivers and managers have been appointed as receivers and managers, of the assets, property and undertaking of the Applicant – where the receivers and managers of the assets, property and undertaking of the Applicant seek directions – whether the receivers are justified in entering into and causing the Applicant to enter into, a sale and purchase agreement for three residential aged care facilities – whether the receivers justified in causing the Applicant to complete the sale and purchase agreement – whether the receivers are justified in taking all steps that are necessary or convenient to complete the sale and purchase agreement

Religious Educational and Charitable Institutions Act 1861 (Qld)

Uniform Civil Procedure Rules 1999 (Qld)

Bailey v Uniting Church in Australia Property Trust (Qld) [1984] 1 Qd R 42

The Presbyterian Church of Queensland Incorporated by Letters Patent v Attorney-General for the State of Queensland [2021] QSC 136

COUNSEL:

A M Pomerenke QC with M J Hafeez-Baig for the Receivers and Managers of the assets, property and undertaking of the Applicant

B McEniery for the Respondent

P McQuade QC for the Applicant

D C Clarry the non-party comprising of Catalyst Townsville SPV No. 1 Pty Ltd, Catalyst Carina SPV Pty Ltd, Catalyst Corinda SPV No. 2 Pty Ltd and Carnegie Catalyst Pty Ltd

SOLICITORS:

Allens for the Receivers and Managers of the assets, property and undertaking of the Applicant

Crown Law for the Respondent

Neumann & Turnour for the Applicant

Corrs Chambers Westgarth for the non-party comprising of Catalyst Townsville SPV No. 1 Pty Ltd, Catalyst Carina SPV Pty Ltd, Catalyst Corinda SPV No. 2 Pty Ltd and Carnegie Catalyst Pty Ltd

  1. [1]
    Mr Carter and Mr Owen were appointed as joint and several receivers and managers (“the Receivers”) to all the assets, property and undertaking of the applicant, The Presbyterian Church of Queensland Incorporated by Letters Patent (“PCQ”), by this Court on 12 May 2021. They seek directions from this Court, pursuant to r 272 of the Uniform Civil Procedure Rules 1999 (Qld) (“UCPR”) or pursuant to the Court’s inherent jurisdiction, that they are justified in causing PCQ to enter into and complete a Sale and Purchase Agreement dated 29 July 2021 (“SPA”) with St Vincent’s Care Services Ltd (“St Vincent’s”), who is an experienced aged care provider, as well as other transactions that are necessary or convenient to complete the SPA. 
  2. [2]
    The SPA relates to the sale of three residential aged care businesses known as Vela (in Carina), Protea (in Townsville) and the facilities at WRB (in Corinda).
  3. [3]
    I set out the background that led to the appointment of the Receivers in a previous judgment, in which the Receivers sought directions in relation to the sale of three residential aged care facilities operated by PCQ, including the real property on which the aged care facilities are located, which was owned by PCQ . [1]
  4. [4]
    There are several commercially sensitive issues in relation to the present negotiations and the sale. A confidentiality application by Catalyst Townsville SPV No. 1 Pty Ltd, Catalyst Carina SPV Pty Ltd, Catalyst Corinda SPV No. 2 Pty Ltd and Carnegie Catalyst Pty Ltd (each forming part of the “Catalyst Group”) is to be determined after the publication of these reasons. In framing these reasons, I have sought to avoid referring to factual detail which appears to be commercially sensitive.

Leased RACFs

  1. [5]
    The land on which Vela, Protea and WRB are located are leased by PCQ from various companies within what is described as the Catalyst Group (“Leased RACFs”).
  2. [6]
    Vela and Protea are operational facilities, which have been operated by PresCare,[2] and currently provide care to a number of residents. The Vela facility presently has 157 staff employed by PCQ and 125 residents.  The Protea facility presently has 130 staff employed and 97 residents. The registered proprietor of the real property at Protea is Catalyst Townsville SPV No. 1 Pty Ltd. The registered proprietor of the real property at Vela is Catalyst Carina SPV Pty Ltd.
  3. [7]
    Construction of the aged care facilities at WRB were completed in April 2020, but to date, the facilities have not been operational. There are, however, residential care placements allocated in relation to the WRB facility. The registered proprietor of the real property at WRB is Catalyst Corinda SPV No. 2 Pty Ltd.

Nature of the transaction for which approval is sought

  1. [8]
    The SPA provides for the sale to St Vincent’s of the residential aged care businesses operated by PCQ through PresCare at Vela and Protea, as well as assets associated with those businesses, and certain property associated with WRB. The SPA is conditional on Court approval.
  2. [9]
    It was determined that the most economically advantageous way to sell the businesses as going concerns and the property associated with WRB as a package. To that end agreement from the Catalyst Group was sought so as to sell not only PCQ’s businesses and associated property, but the real property on which the Leased RACFs are located.
  3. [10]
    Separate land sale agreements have been entered into by St Vincent’s and the Catalyst Group, which is the registered proprietor of the land (“Land Sale Agreements”). The Land Sale Agreements and the SPA are interdependent.
  4. [11]
    One of the hurdles to being able to reach a negotiated agreement for the sale of the Leased RACFs together with the land is the added legal complexity of a dispute between PCQ and the Catalyst Group. This relates to agreements entered into between PCQ and the relevant companies in the Catalyst Group for each of the respective Leased RACFs which included for Vela and Protea the sale of the land to Catalyst and the lease of the properties by PCQ from the Catalyst Group, together with funding arrangements and an option to purchase (“the Catalyst Transactions”).
  5. [12]
    As a result, PCQ entered into a Second Heads of Agreement with the relevant entities in the Catalyst Group to facilitate the sale of the Leased RACFs and the real property of the Catalyst Group. As part of that agreement, if the consideration was not less than a minimum amount to be paid to the Catalyst Group, PCQ and the Catalyst Group would enter into a sale agreement.  As a result of the agreement, none of the cash consideration payable by St Vincent’s, which is a significant amount, will be paid to PCQ in respect of the overall sale. Instead, the whole of the cash consideration will be paid to the companies in the Catalyst Group. St Vincent’s will, however, assume liabilities of PCQ including employee liabilities.
  6. [13]
    The Catalyst Group has asserted a potentially large claim for damages against PCQ. PCQ has asserted it also has legal claims against the Catalyst Group by which it is entitled to an account of profits which may capture a portion of the cash consideration to be paid by St Vincent’s.[3] Due to the risk of the whole of the monies paid to the Catalyst Group being paid to its investors, the Receivers negotiated for one of the entities within the Catalyst Group to provide a guarantee and some additional assurances to protect PCQ’s ability to recover judgment from any of the relevant entities in the Catalyst Group as a result of the Catalyst Group’s conditions.
  7. [14]
    The agreement reached with the Catalyst Group in the Second Heads of Agreement in relation to both the payment of proceeds of sale and how the legal claims of each of the parties is to be dealt with forms part of the considerations taken into account by the Receivers in reaching a view as to whether the SPA is in the interests of PCQ as a whole.

Power to give directions

  1. [15]
    The Court has broad powers to provide directions to Receivers. The power to do so is expressly referred to in r 272(3) of the UCPR with respect to Court appointed Receivers. It is also recognised as part of the Court’s general equitable jurisdiction.  The relevant principles in that regard were briefly summarised in my previous reasons.[4]  I will not repeat them. 
  2. [16]
    PCQ is a body corporate established by letters patent issued under the Religious Educational and Charitable Institutions Act 1861 (Qld) (“RECI Act”).  The Presbyterian Church of Queensland is an unincorporated association.  PCQ is the repository of property for the Church. PresCare is the social ministry division established by the Church to provide aged care services.
  3. [17]
    In the previous application, it was submitted by the Receivers that, broadly speaking, PCQ was a repository of property held on trust for the uses and purposes of the unincorporated association known as The Presbyterian Church of Queensland. Section 1 of the RECI Act was also said to impose potential constraints upon the disposal of property by PCQ for the uses or purposes of the Church. PCQ was described as holding property on trust, which was said would ordinarily be for charitable purposes, that accords with the purposes and constitution of the unincorporated association as stated by McPherson J in Bailey v Uniting Church in Australia Property Trust (Qld).[5]  The Receivers, however, noted that the precise factual and legal characterisation of PCQ’s property, and the property associated with PresCare Ministry, is under an investigation and is a matter on which the Receivers are to report to the Court.
  4. [18]
    Since the previous application, the Catalyst Group, who were not party to that application or the present application, have challenged the notion that the property, at least the property that is the subject of the present application, is the subject of a charitable trust or that there are any restraints upon PCQ in relation to its power of alienation.  The Receivers and PCQ dispute that position. It is a significant point of controversy that may well have to be determined in other proceedings. In any event, the Receivers do not, as part of this application, seek to have the Court make any determination on the merits of the claims and counterclaims advanced in the dispute between PCQ and the Catalyst Group, which includes the charitable status or otherwise of the property in question.  It is not necessary for the Court to do so. In any event, the Receivers are to investigate and provide a report as to the extent to which PCQ holds property on trust and the nature of the trusts. Provision is made in paragraph 2 of the Originating Application for a determination of the trust or trusts affecting the assets and property held by PCQ.
  5. [19]
    For present purposes, it is only relevant for the Court to take into account that there is a genuine dispute between PCQ and the Catalyst Group as to the status of property held by PCQ and to take into account how that bares upon the Receivers’ judgment as to whether the transaction, the subject of this application, is in the interests of PCQ.  Given the possibility that it may be subsequently determined that the property which is the subject of the present application may be found to be property which is impressed with a charitable trust,[6] or at least  constrained by the provisions of the RECI Act, the Court must be satisfied that the Receivers have at least taken into account the relevant considerations that would apply in that instance, and have acted consistently with those constraints, should the matter be resolved in that way.
  6. [20]
    In any event, regardless of whether PCQ holds the property on charitable trust or subject to statutory constraints, I accept the submissions of the Receivers that it is appropriate for the Receivers to seek the directions from the Court. The SPA is conditional on the Court’s approval. The transaction involves the sale of property. There is a further added dimension of complexity given the claims and potential claims made by companies in the Catalyst Group, as well as the potential counterclaims of PCQ arising out of the Catalyst Transactions. The solution that the Receivers have agreed to with the Catalyst Group to resolve those issues in order to allow the sale of the Leased RACFs to go ahead carries with it a degree of legal risk.

Submissions

  1. [21]
    Counsel for the Receivers submits that the Court should reach the view that the Receivers are justified in entering into the SPA because:
  1. It is not sustainable for PCQ to remain as the operator of the businesses or begin to operate WRB, and the sale is in the interests of PCQ, the residents and the employees of PCQ at the residential aged care facilities;
  1. The transaction is the product of an appropriate sales process;
  1. While PCQ will not receive any cash from the transaction, it will be relieved of liabilities and potential liabilities that may arise in the future; and
  1. The Receivers have managed to reach an agreement with the Catalyst Group in relation to legal proceedings to preserve the legal claims of both parties in relation to the Catalyst transaction which serves to minimise PCQ’s potential exposure to damages and give it protection should it be entitled to recover monies from a relevant member of the Catalyst Group in any legal action.
  1. [22]
    PCQ supports the directions sought being made by this Court. Counsel on behalf of the respondent did not contest or oppose the directions sought.
  2. [23]
    I have reached the view that the Receivers have considered and weighed up the competing considerations in determining entry into the SPA and replacement leases are in the best interests of PCQ and are justified in entering into the transactions in question.

Matters considered by the Receivers

  1. [24]
    Mr Carter provided a detailed affidavit setting out the background to the relevant transactions, the different options that the Receivers have considered and the basis upon which he has reached the view that the proposed entry into the SPA is in the best interests of PCQ notwithstanding the lack of cash consideration as opposed to St Vincent’s assumption of obligations.  The views expressed are said to be agreed with by Mr Owen.
  2. [25]
    The evidence supports Mr Carter’s view that it is not sustainable for PCQ to continue to operate the Protea and Vela facilities. As addressed in my previous judgment, PCQ was in some financial distress when the Receivers were appointed. As PCQ submitted, the Receivers were appointed when, inter alia, the previous Heads of Agreement negotiated on PCQ’s behalf, with the assistance of McGrathNicol, could not proceed in relation to the Protea and Vela facilities. The Receivers’ investigations to date and management accounts show that both Protea and Vela have significant overall operating losses for the year ending 30 June 2021.  The evidence supports the fact that that position is only likely to deteriorate.
  3. [26]
    While the Commonwealth Department of Health is providing some funding support for the Protea and Vela facilities pending sale, there is doubt as to whether that will continue in the future.[7]
  4. [27]
    The Catalyst Transactions provide for PCQ to pay, in addition to rent, all outgoings as well as a payment referred to as the “advanced equity funding instalment payment” in the case of Protea and WRB. Having analysed the terms of the agreements in respect of all the Leased RACFs, Mr Carter considers it would not be commercially sensible for PCQ to exercise the right to repurchase and that, based upon his analysis of the terms of the agreements that constitute the Catalyst Transactions, it will be difficult for PCQ to generate the revenue needed to meet the relevant costs under the agreements in the longer term. If the Receivers were to seek to continue to operate the Protea and Vela facilities, that will give rise to additional costs of the Receivers.
  5. [28]
    PCQ has significant liabilities for Refundable Accommodation Deposits (“RADs”) and employee entitlements for both Protea and Vela. Decommissioning the facilities would give rise to significant costs, including decommissioning and redundancy costs. In addition, it would involve the relocation of residents, some of whom have significant health issues.
  6. [29]
    In relation to WRB, although the facility has not been operative, PCQ has retained 60 residential care places that were allocated to PCQ by the Commonwealth and which attach to WRB. PCQ sold the property on which the WRB facility is located to a third party.  Subsequently, a company in the Catalyst Group purchased the property from that third party and PCQ was provided with funding by the Catalyst Group for the costs payable to the builder to construct buildings and other improvements upon the property, from which PresCare could operate a residential care facility.  PCQ leased the property from the Catalyst Group and had an option to repurchase the WRB property. The agreements entered into included obligations to pay not only rent, but all outgoings and an “advanced equity funding instalment payment”. Mr Connelly of McGrathNicol advised PCQ that it did not have sufficient funds to open the facilities in May 2020. Only an establishment fee has been paid to the relevant company in the Catalyst Group, and there are possible defaults by PCQ of other payments that were to be made to the relevant company in the Catalyst Group.
  7. [30]
    The evidence therefore supports Mr Carter’s view that it is not sustainable for PCQ to continue to operate Vela and Protea.
  8. [31]
    Mr Carter’s analysis in relation to WRB demonstrates that there is doubt that sufficient revenue could be generated to meet PCQ’s obligations. The evidence again supports Mr Carter’s view that it is not viable for PCQ to commence operating WRB under the existing arrangements with the relevant entity of the Catalyst Group.
  9. [32]
    The Receivers’ assessment in that regard is supported by similar conclusions reached by McGrathNicol. McGrathNicol had been engaged in March 2020 by PCQ to, inter alia, negotiate a forbearance from the Catalyst Group in order to implement a turnaround plan for PCQ and PresCare, which included a plan to market and sell its RACFs, including the Leased RACFs. McGrathNicol had similarly reached the view that it was not viable for PCQ to continue to operate the Leased RACFs, and recommended that they be sold. A Heads of Agreement was entered into between PCQ, with the assistance of McGrathNicol, and the Catalyst Group. However, although McGrathNicol had progressed matters for the sale of the Leased RACFs with two entities, a condition precedent to the Heads of Agreement which required assistance from the Department of Health was not satisfied and the sales could not be progressed.
  10. [33]
    Entry into the SPA in conjunction with the Catalyst Group entering the Land Sale Agreements will minimise PCQ’s ongoing liabilities in respect of the Leased RACFS. In addition to St Vincent’s agreeing to take over the employee liabilities as part of the SPA, the Receivers have also negotiated with the Department of Health to allow for the transfer to St Vincent’s to occur and the RAD liability of PCQ to be addressed in a way which effectively does not worsen PCQ’s position in terms of liability from what it otherwise would be without the sale, if the Vela and Protea centres were to close. The future ability of the residents to remain at Vela and Protea is also assured from a high-quality care provider.

Catalyst claims and PCQ proposed counterclaims

  1. [34]
    The position of PCQ is potentially also adversely affected as a result of legal disputes with the Catalyst Group.
  2. [35]
    In May 2021, Catalyst Townsville SPV No. 1 Pty Ltd (“Catalyst Townsville”) issued proceedings in relation to the Protea facility, which includes a claim for an amount of $12,390,000.00 plus interest and costs. By agreement, PCQ has provided a draft defence and counterclaim to Catalyst Townsville by which it claims an account of profits. Mr Carter considers that PCQ may have similar claims in relation to Vela and WRB. WRB is different insofar as PCQ did not sell the land to the Catalyst Group, having already sold it to a third party. The Receivers have taken account of the fact that successful claims in relation to the Catalyst Transactions for WRB may not result in any significant account of profits.
  3. [36]
    In a letter of 4 June 2021, the solicitors acting on behalf of the Catalyst Group outlined, in a summary form, the various claims that the Catalyst Group alleges the companies hold against PCQ in respect of the Protea and Vela leases and WRB Development Agreement.  The claims were significant. The letter foreshadowed the prospect of substantial damages being claimed if the RACF leases were terminated as a result of PCQ’s default or repudiation.
  4. [37]
    On 26 July 2021, the relevant companies in the Catalyst Group purported to terminate the leases for each of Vela, Protea and WRB, foreshadowing significant claims against PCQ in relation to the loss of the bargain damages. PCQ has continued in possession, with the relevant entities from the Catalyst Group agreeing to forbear re-entering into possession until the sales process expires on 31 August 2021 or an agreed date.
  5. [38]
    PCQ is therefore potentially exposed to large claims when it is already in a distressed financial state. Those legal claims, and the legal claims which PCQ asserts that it has, cannot be resolved in the near future and certainly not before the proposed sale.
  6. [39]
    The Receivers have therefore negotiated a solution with the Catalyst Group to allow the sales to proceed as outlined below.

Offers to Purchase

  1. [40]
    Mr Carter considers the present sale is one for market value reached after a proper sales process had been undertaken.
  2. [41]
    As set out above, McGrathNicol had been engaged by PCQ to develop a turnaround plan for PCQ and PresCare. This led to them being engaged to market and sell the residential care facilities operated by PresCare, including the Leased RACFs. That sales process was reviewed by the Receivers who assessed the sales process that was carried out as an appropriate one.[8]
  3. [42]
    After the appointment of the Receivers, PCQ sought to identify and negotiate with prospective purchasers for the Leased RACFs, including by instructing McGrathNicol to contact the parties who had previously indicated an interest in the RACFs during their sales campaign.  As a result of that contact, further offers were received, which were discussed with the Catalyst Group for the reasons discussed below. Negotiations were pursued with two of the parties who had previously engaged in the sales process of McGrathNicol in June and July. In late June 2021, a representative of St Vincent’s contacted Mr Carter expressing an interest in purchasing the Leased RACFs.  Subsequently, an offer was quickly submitted by St Vincent’s which provided for all of the Leased RACFs to be purchased and included a credible offer for Protea. While no net proceeds will be paid to PCQ as a result of the sale, St Vincent’s would assume, inter alia, liability for employee entitlements. The offer included an offer to purchase all three Leased RACFs. At the time the St Vincent’s offer was made Protea was not included in the offer of the alternative buyer and the Receivers would have been required to enter into a further sales process or would have been liable to pay significant costs if Protea was to be decommissioned. The Catalyst Group supported a sale to St Vincent’s.
  4. [43]
    Although  a second offer made by the alternative buyer after the St Vincent’s offer included the purchase of all the Leased RACFs, by the time it was received considerable progress had been made in agreeing the terms of the sale with St Vincent’s, by both the Receivers and the Catalyst Group. While Mr Carter considered that the second offer by the alternative buyer provided for a generally comparable financial outcome for PCQ, additional costs would have been required to document the sale, and it included conditions to the sale completing that were regarded by the Receivers as a material risk. The Catalyst Group agreed with the concerns of the Receivers in relation to the timing proposed by the alternative buyer and did not think the higher purchase price offered by them for the sale of the RACF properties, compared to the offer from St Vincent’s, justified assuming the extra execution risk associated with the second offer from the alternative buyer.  While further enquiries with St Vincent’s did not result in it increasing its offer, St Vincent’s agreed to make every effort to sign that day.  Accordingly, the Receivers determined to pursue the SPA with St Vincent’s.
  5. [44]
    Mr Carter reviewed the marketing process of McGrathNicol originally and was satisfied that it was an appropriate sales process. Negotiations continued with three and then two alternative buyers which appear to have been competitive as to terms and price. The offer by St Vincent’s shows the sales process was known in the industry. The factors identified by Mr Carter support his judgement that the sale is a result of a diligent sales process and represents market value or the best price possible in the circumstances for PCQ. While the book value of the stock, plant and equipment on their face exceed the liabilities being assumed by St Vincent’s, Mr Carter’s experience is that significantly less is received in an actual sales process. In addition if a sale was to be made of only those assets and the facilities at Vela and Protea were to cease operating significant liabilities of PCQ would remain or be triggered.
  6. [45]
    Mr Carter did consider the merits of engaging in a second marketing process however Mr Carter has, for sound reasons based on his experience, concluded that would not be advantageous to PCQ or likely to result in a better price. This was based on the fact that he considered the first marketing process that was carried out was an appropriate one and therefore, a second marketing process is unlikely to produce a higher offer, particularly given the stigma of the Receivers having been appointed, and would instead result in the incurring of additional costs. The evidence of Mr Carter supports his view that a packaged sale of all three Leased RACFs with sale of the real property ensured the businesses could be sold as going concerns to achieve the best return, and that the process engaged in to sell the Leased RACFs has been a competitive one resulting in market value. The offer accepted followed the consideration of competing offers, supporting the fact that the terms of sale accord with market value or was the best possible price given PCQ’s circumstances. I consider the evidence supports his judgement in that regard.

Agreement with the Catalyst Group

  1. [46]
    In order for PCQ to sell the Protea and Vela businesses as going concerns, it was necessary for Catalyst to agree to the terms on which its real property would also be sold to a prospective purchaser as a package with those businesses, or otherwise agree on terms on which the relevant lease agreements could be novated. The Receivers reached a view that the former was the best way to maximise the return. During their engagement, McGrathNicol had reached the same view. As circumstances have unfolded, particularly given the purported notices of termination in relation to the leases held by PCQ, the latter option would not appear viable.
  2. [47]
    Significant negotiations have taken place with the Catalyst Group, both when McGrathNicol was involved and since the Receivers’ appointment. Given the legal proceedings issued and foreshadowed by the Catalyst Group, which raised the prospect of significant damages claims against PCQ, the Receivers were required to engage in a difficult exercise to determine whether and how a sale could proceed.  Notwithstanding the potential legal disputes between PCQ and the Catalyst Group, both parties have acted with good will to secure an agreement to permit the sale to occur, including the sale of the freehold on which Protea, Vela and WRB are placed.
  3. [48]
    The proceeds of sale are proposed to be paid to the Catalyst Group, and not PCQ. That was a proposal raised by lawyers for the Catalyst Group in June 2021 when indicating that the Catalyst Group desired to facilitate the urgent sale of Vela and Protea. While that is, on the face of it, an unattractive and unusual outcome, the Receivers have had to consider the possibility of PCQ being exposed to large claims foreshadowed by the Catalyst Group. Having assessed that risk and the potentially destructive effect on PCQ’s longevity, they determined that directing the proceeds of the sale to the Catalyst Group would minimise PCQ’s exposure by assisting the Catalyst Group to minimise its alleged losses.
  4. [49]
    However, the Receivers also had concerns that if the sale proceeded in the way proposed by the Catalyst Group, whereby the full purchase price would be paid to the relevant entity within the Catalyst Group without deduction, set off or withholding, the companies within Catalyst Group may distribute the proceeds and would not have the financial means to satisfy any judgment that may be ordered in favour of PCQ as a result of potential claims which the Receivers have identified that PCQ may have arising out of the Catalyst Transactions.  The Receivers have the assistance of experienced lawyers in that regard.  The claims of PCQ for an account of profits may capture part of the net proceeds proposed to be paid to the Catalyst Group.
  5. [50]
    The Receivers instructed its solicitors to seek an agreement with the solicitors for the Catalyst Group to protect PCQ from the risk that it would not recover any judgment against the Catalyst Group in relation to the Vela and Protea transactions, but which would allow the sale to proceed.  As a result, an agreement was reached with the Catalyst Group whereby the net proceeds, which accorded with the minimum threshold agreed for the sales to proceed, will be paid to the companies in the Catalyst Group.[9] Under the Second Heads of Agreement, the parties’ rights and claims are preserved, which accords with the fact that those issues could not be resolved prior to the completion of the sales transaction.  However, the Catalyst Group agrees to provide a guarantee from one of the entities in the Catalyst Group.[10] Mr Carter considers that entity, which is a trustee, has substantial assets,[11] and could meet the guarantee in respect of any judgment obtained against any of the relevant companies in the Catalyst Group in respect of any of the Catalyst Transactions. In addition, the Second Heads of Agreement provides that the entity in the Catalyst Group providing the guarantee will provide its audited financial reports to PCQ and will not make distributions which would reduce its assets below a certain amount without prior notice being given to PCQ.
  6. [51]
    However, as acknowledged on behalf of the Receivers, the agreement reached with Catalyst Group carries a legal risk.
  7. [52]
    Only an excerpt, and not full disclosure, of the Trust Deed of the entity in the Catalyst Group has been given.  While an extract of the Trust Deed was provided, which supports the fact the entity in the Catalyst Group has the power to enter into the transaction, the Receivers have not been able to ascertain whether the validity or enforceability of the guarantees is affected by other provisions in the Trust Deed. However, an assurance from a director of the entity in the Catalyst Group has been provided by email. That was provided in the context of knowing that the approval of the Court would be sought for the transaction and that it would be placed before the Court to give assurance that the guarantees would be enforceable.  That said, the assurance given is not in the precise terms to that which was sought and was in the form of an email from one of the directors, rather than a formal document.
  8. [53]
    Counsel for the Receivers submitted that while there is risk associated with the guarantee, the guarantee was the best protection that the Receivers could negotiate in the circumstances and the time allowed to address a risk which may not eventuate. Mr Carter, on the basis of his review of the information provided, was satisfied that the entity in the Catalyst Group has sufficient assets to meet the guarantee and that the proposal to distribute the net proceeds to the Catalyst Group under the Second Heads of Agreement will not substantially impact on PCQ’s ability to recover any judgment. While the provision of the guarantee and the payment of all cash proceeds from the sale to the Catalyst Group does carry some risk that PCQ may not be able to recover judgment from any of the companies within the Catalyst Group, should it be successful in the future, the Receivers were under significant time and financial constraints to reach an agreement so that the sale could proceed. Mr Carter appears to have taken account of the relevant legal risks and obtained and considered the available trust information and financial information in relation to the entity in the Catalyst Group, such that his view that the guarantee provided is sufficient is a rational view which is sound in the circumstances.
  9. [54]
    After the Second Heads of Agreement was entered into, the relevant companies in the Catalyst Group provided notices of termination in respect of the Leased RACFs, making PCQ’s position even more difficult in attempting to negotiate a sale of the Leased RACFs in the future, and placing greater pressure on PCQ, particularly time pressure, to be able to successfully sell Vela and Protea as going concerns while it is financially possible.
  10. [55]
    Under the agreements reached, however, continuity of PCQ’s position as lessee has been assured. Replacement leases are to be entered into between PCQ, the Receivers and the Catalyst Group. Provision is made for the assignment of the leases to the new purchaser without the further consent of the lessor, and for the release of PCQ upon the leases being assigned, thus ensuring continuity of PCQ’s position up until the sale is completed.  The entry into the leases are necessary to complete the sale, and Mr Carter considers they protect PCQ’s position as to the previous leases and do not contain any onerous or unusual conditions.
  11. [56]
    The Receivers have identified that they have a difficult balancing exercise to preserve the interests of PCQ in any legal proceedings and to be able to recover any judgment that may be awarded, but also to minimise PCQ’s exposure to large claims that have been asserted by the Catalyst Group.  The Receivers consider the solution provided for under the Second Heads of Agreement is a satisfactory one, pending the resolution of the legal disputes between the Catalyst Group and PCQ. The evidence supports the fact that they have engaged in a proper reasoning process in reaching that view and there is a reasonable basis for reaching that view.
  12. [57]
    Mr Carter deposes to the fact that he considers that the proposed course is in the best interests of PCQ and its stakeholders because the sale:
    1. (a)
      is the result of a diligent sale process and represents market value;
    2. (b)
      is taking place in a context in which PCQ is in a poor cash position;
    3. (c)
      ensures the value of the assets are maximised by packaging the sales with the land on which the Leased RACFs are located;
    4. (d)
      should reduce the amount of any claim that the Catalyst Group may have or make against PCQ because:
      1. the sale ensures the immediate provision of funds to the Catalyst Group which will assist it to mitigate its alleged loss; and
      2. the sale of the land on which the Leased RACFs are located as a package with the Leased RACFs will maximise the Catalyst Group’s return;
    5. (e)
      ensures the continuity of care to residents at Vela and Protea by transferring the operation of the Leased RACFs to an experienced provider;
    6. (f)
      will not, as a result of the Second Heads of Agreement, substantially impact PCQ's ability to recover any judgment it may be awarded in the proceedings regarding Protea Proceedings or any other proceedings brought by PCQ in relation to the Catalyst Transactions; and
    7. (g)
      is, assessed as a whole and given the current financial position of PCQ, prudent and beneficial to PCQ and its financial position.

Other parties to the application

  1. [58]
    Counsel appearing on behalf of PCQ supported the course sought by the Receivers.  PCQ submitted that the appointment of the Receivers was made in the context of a previous attempt for sale of the Leased RACFs, negotiated through McGrathNicol by PCQ, having failed.  It was submitted on behalf of PCQ that it was not sustainable for PresCare to continue to operate the Leased RACFs. PCQ submits that the transactions achieve the purpose of PCQ in applying for the appointment of the Receivers and is consistent with the terms of the order which gives the Receivers the power to sell PresCare property, ensure the maintenance of the welfare and care of the residents (which is fundamental to PCQ and its social mission), and are supportive of the interests of PCQ, particularly given the adverse financial position of PCQ and the losses and costs associated with the operation of the Leased RACFs.
  2. [59]
    PCQ takes issue with the suggestion that PCQ holds the property absolutely in its own right as a body corporate and, inter alia, that it does not hold all of the property that is vested in it on a general charitable trust.  However, as it points out and as outlined above, it is not necessary for that issue to be resolved, as the relevant relief is not the subject of the present application and the actual designation of property is pending a report being provided by the Receivers.
  3. [60]
    The Attorney-General for the State of Queensland does not cavil with any of the submissions made.  Counsel for the Attorney-General for the State of Queensland noted that the evidence presented by the Receivers supports the fact that it is not sustainable for PCQ to continue to operate the Leased RACFs, and that the solution that has been found protects the position of the residents. Further, Counsel for the Attorney-General for the State of Queensland submitted that the evidence shows that the sales process that had occurred had been an appropriate one by McGrathNicol, and that the further sales process that the Receivers had engaged in has resulted in an experienced provider now having entered into the SPA in circumstances where the evidence supported the fact that a second sales campaign is unlikely to lead to any further potential offerors being identified, unlikely to lead to a greater purchase price and would be at a significant cost.

Are the Receivers justified in entering into the SPA?

  1. [61]
    The evidence supports the conclusion of the Receivers that the proposed SPA is in the best interests of PCQ.
  2. [62]
    Vela and Protea are loss making businesses and there is a reasonable basis for the Receivers to conclude that will continue to be the case, and that it is not sustainable for PCQ to continue the operations under the arrangements it had entered into, given its distressed financial state. WRB has not been able to commence operations and there is no evidence that PCQ is in a position to finance that operation. The evidence reveals a proper sales process has been undertaken to achieve an offer of market value, and that the packaging of the Leased RACFs and the sale of Vela and Protea as going concerns is the most advantageous way to sell the relevant businesses.
  3. [63]
    To ensure the success of that sales process, the co-operation of the Catalyst Group is required. The SPA has been entered into by the Receivers against the background of the Catalyst Group and PCQ having entered into a Second Heads of Agreement. That will result in the net proceeds being paid, as a result of the whole sales process, to the relevant entities in the Catalyst Group involved in the Protea, Vela and WRB facilities. That carries legal risk for PCQ. There are considerable legal issues that need to be resolved between the Catalyst Group and PCQ that could result in PCQ being exposed to significant damages. Conversely, resolution of the legal issues could result in PCQ being able to recover a substantial sum as an account of profits. The Receivers have formed the view that the transactions will assist PCQ to minimise any exposure in relation to the large claims asserted by the Catalyst Group, in providing for the sales proceeds to be paid to the Catalyst Group to potentially mitigate any alleged losses being incurred by the Catalyst Group.  There is a sound basis for the Receivers forming the view that the guarantees to be provided by an entity in the Catalyst Group will protect PCQ’s ability to recover any judgment against any of the companies in the Catalyst Group. As is evident, it has been acknowledged by the Receivers that the arrangements are not perfect and are not without risk, but have been reached to allow the SPA to go ahead. However, the risk has been minimised by the steps taken to verify that the guarantees can be given, and any liability met. The arrangements with Catalyst must be viewed in the context of the financially stressed position PCQ is in, where it is unlikely it is financially sustainable for it to continue to operate Vela and Protea, or operate WRB at all, and where the Receivers are satisfied that a proper sales process has been carried out and the SPA represents market value.
  4. [64]
    In the circumstances, I am satisfied that the Receivers have investigated and considered all the appropriate considerations and have pursued all the appropriate avenues to achieve market value for the facilities. I am satisfied that although PCQ will receive no cash consideration, and all proceeds arising out of the sale will be paid to the Catalyst Group, the view of the Receivers that the arrangement is in the best interests of PCQ is justified. I am also satisfied that the view of the Receivers that the arrangement with the Catalyst Group will limit PCQ’s exposure to potentially large damages claims but will also preserve PCQ’s  legal rights and provide it with an ability to recover any judgment, given the other benefits of the sale, is justified.
  5. [65]
    The SPA will ensure that PCQ does not have to continue to operate the Leased RACFs in circumstances where it is not sustainable for it to continue to do so when it is still able to sell Vela and Protea as going concerns and has the co-operation of the Catalyst Group and the Department of Health.  Given the circumstances PCQ finds itself in, maintaining and continuing to operate the facilities is not a viable option, or in its long-term interests. The evidence supports the conclusion of Mr Carter that the proposed course is in the best interests of PCQ.  It is also consistent with and furthers the uses and the purposes of PCQ and its permanent and lasting interests, to the extent that is relevant depending on the capacity in which it may be determined that it holds the property or the constraints of the RECI Act to which it may be found to be subject.
  6. [66]
    I am satisfied that the Receivers are justified in entering into and executing the SPA, as well as other transactions that are necessary or convenient to complete the SPA.
  7. [67]
    I will make the order in accordance with the proposed draft.
  8. [68]
    I further order that these reasons only be provided to the parties and to the Catalyst Group (provided no confidential information needs to be redacted), until a further application of the Catalyst Group is determined, in relation to a claim of confidentiality by it over affidavit material provided to the Court or until further order.

Addendum

  1. [69]
    On the delivery date of these reasons, I published the reasons to the parties only. Orders had been made on an interim basis that certain information be kept confidential, including from the Catalyst Group. I directed that the parties to the application were to review the reasons on the day they were delivered and to advise me whether they considered the reasons referred to information which was confidential in relation to the Catalyst Group. If there were no concerns, I directed that the applicant provide the reasons to the Catalyst Group. As the Catalyst Group foreshadowed it would not necessarily pursue its application for confidentiality, I further directed that the parties and the Catalyst Group were to review the reasons and notify me whether there was any confidential information in the reasons that may need to be redacted prior to the reasons being published.
  2. [70]
    The parties and the Catalyst Group subsequently confirmed that there were no issues, and they were each satisfied that these reasons could be published. Accordingly, I have published these reasons. 
  3. [71]
    The applications in respect of the confidentiality of materials relied upon for the hearing of this matter are still to be resolved.

Footnotes

[1]The Presbyterian Church of Queensland Incorporated by Letters Patent v Attorney-General for the State of Queensland [2021] QSC 136.

[2]Which is part of PCQ, and which operates the aged care facilities in accordance with the social mission of The Presbyterian Church: see The Presbyterian Church of Queensland Incorporated by Letters Patent v Attorney-General for the State of Queensland [2021] QSC 136 at [3]-[4].

[3]Which appears to be on the basis of the inter-relationship between the claim to the sale of land by PCQ to the Catalyst Group at least in respect of Vela and Protea.

[4]The Presbyterian Church of Queensland Incorporated by Letters Patent v Attorney-General for the State of Queensland [2021] QSC 136 at [11]-[13].

[5][1984] 1 Qd R 42 at 46-7. That was said by McPherson J in obiter, with whom Sheahan J agreed. Those submissions were not dissented from in the previous application by PCQ or on behalf of the Attorney-General for the State of Queensland. While the constraints that arise in relation to property held on trust for charitable purposes was discussed in the previous application, no specific finding was made in that regard, although the Court proceeded to consider whether the alienation of property did promote the permanent or lasting interests of PCQ consistent with the property being held on trust for a charitable purpose.

[6]Which in the present case is not real property but a business and the assets of a business. The cases previously referred to by the Receivers were generally directed to real property and may not apply to the same extent in the present case. However, the sale must at least be in the best interests of PCQ and at least consistent with the purpose of the trust, assuming there is one. As I found in my previous decision, if the sale accords with the assumed purposes of the charitable trust, they will generally be within the uses and purposes prescribed by the RECI Act.

[7]The arrangements of which are confidential.

[8]The Presbyterian Church of Queensland Incorporated by Letters Patent v Attorney-General for the State of Queensland [2021] QSC 136 at [43].

[9]With PCQ being paid the amount allocated by the purchaser in respect of PCQ’s business or plant and equipment.

[10]Clause 9 of the Second Heads of Agreement.

[11]Based on financial information given to the Receivers for 2019-2021 and searches carried out.

Close

Editorial Notes

  • Published Case Name:

    The Presbyterian Church of Queensland Incorporated by Letters Patent v Attorney-General for the State of Queensland

  • Shortened Case Name:

    The Presbyterian Church of Queensland Incorporated by Letters Patent v Attorney-General for the State of Queensland

  • MNC:

    [2021] QSC 219

  • Court:

    QSC

  • Judge(s):

    Brown J

  • Date:

    31 Aug 2021

Appeal Status

Please note, appeal data is presently unavailable for this judgment. This judgment may have been the subject of an appeal.

Cases Cited

Case NameFull CitationFrequency
Bailey v Uniting Church in Australia Property Trust (Qld) [1984] 1 Qd R 42
2 citations
Jump To
Cite 1 - [1984] 1 Qd R 42
Cite 2 - [1984] 1 Qd R 42
The Presbyterian Church of Queensland Incorporated by Letters Patent v Attorney-General for the State of Queensland(2021) 7 QR 794; [2021] QSC 136
5 citations
Jump To
Cite 1 - [2021] QSC 136
Cite 2 - [2021] QSC 136
Cite 3 - [2021] QSC 136
Cite 4 - [2021] QSC 136
Cite 5 - [2021] QSC 136

Cases Citing

Case NameFull CitationFrequency
The Presbyterian Church of Queensland Incorporated by Letters Patent v Attorney-General for the State of Queensland [2022] QSC 382 citations
1

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