SHOULD ASIC PROVIDE THE INTERIM RECEIVERS WITH ANY INDEMNITY?
14 The orders made in Marco (No 3) accorded with the decision in Carey (No 5) in that the question of the receivers' indemnity and costs was deferred with leave granted for ASIC to apply at a later time (Carey (No 5) at [60]). I indicated in Marco (No 3) (at [184]) that any indemnity should be provided by ASIC having regard to the need to mitigate the depletion of the defendants' assets by the appointment of interim receivers.
15 There are few authorities dealing directly with the question of any receivers' indemnity (i.e. by equitable or statutory appointment) separately from the question of their remuneration and/or costs. For obvious practical reasons of potential exposure to receivers, the considerations are similar. From the cases discussed below, the conventional position in relation to receivers appointed in the equitable jurisdiction, is undoubtedly that they are entitled to have their remuneration and an indemnity borne by the defendants' assets.
16 However there is clear divergence from this position in the case of interim receivers appointed by a corporate regulator, culminating in French J's comments in Carey (No 5) (at [22]) distinguishing appointments under s 1323 of the Act from appointments under the equitable jurisdiction.
17 The interim receivers and ASIC rely on the following passage from Boehm v Goodall [1911] 1 Ch 155 per Warrington J (at 161):
Such a receiver and manager is not the agent of the parties, he is not a trustee for them, and they cannot control him. He may, as far as they are concerned, incur expenses or liabilities without their having a say in the matter. I think it is of the utmost importance that receivers and managers in this position should know that they must look for their indemnity to the assets which are under the control of the Court. The Court itself cannot indemnify receivers, but it can, and will, do so out of the assets, so far as they extend, for expenses properly incurred; but it cannot go further. It would be an extreme hardship in most cases to parties to an action if they were to be held personally liable for expenses incurred by receivers and managers over which they have no control.
18 Boehm v Goodall concerned the dissolution of a partnership in which a receiver was appointed by consent. The receiver made payments which the assets of the partnership were insufficient to satisfy in full and so sought an indemnity from the partners personally for the shortfall. Warrington J refused the application holding that the receiver could only look to assets the subject of the receivership for an indemnity.
19 The case was discussed at length in Rosanove v O'Rourke [1987] 1 Qd R 275 and the appeal in Rosanove v O'Rourke [1988] 1 Qd R 171. In the first instance decision, McPherson J said (at 277) that 'the right of a trustee to indemnity out of the assets is so well settled as to need no exposition.'
20 Both that decision, and the appeal however, were concerned strictly with the same question that was decided in Boehm v Goodall: whether the parties to a partnership could be held personally liable for the receiver's indemnity where the partnership assets are insufficient to meet the costs and charges.
21 Although Boehm v Goodall has stood the test of a considerable amount of time, for reasons observed in Carey (No 5) it pertains to an entirely different appointment regime.
22 Admittedly, in Australian Securities Commission v Berona Investments Pty Ltd (1995) 18 ACSR 772, Cooper J followed the first instance decision of McPherson J above in relation to the question of the costs and remuneration of interim receivers appointed by the Australian Securities Commission under s 1323 of the Act who were subsequently discharged without final relief being sought. Cooper J said (at 778):
The conduct established by the concessions and the conflict of duty and interest of Mrs Bell-Bradbury in her dealings with the property of the seventh and eighth respondents made the appointment and maintenance in office of the interim receiver not only reasonable but necessary… As the conduct of the seventh and eighth respondents and their controllers was the event which necessitated the appointment, there is no reason to depart from the ordinary rule which is stated by McPherson J in Rosanove v O'Rourke [1987] 1 Qd R 275 (at 278-9).
23 However, in Australian Securities Commission v Aust-Home Investments Limited (1993) 44 FCR 194, which was an earlier decision in the same proceedings concerning other parties to the claim brought by the Australian Securities Commission, Hill J determined that the costs of the receivers should be borne by the Commission. As was the case in Berona Investments the interim receivers had also been discharged and the matter did not proceed to final hearing. Hill J said (at 205):
I do, however, think that the Commission should bear the costs of the receiver and thus indemnify Mr and Mrs Bunt in respect of those costs. In so saying I am influenced by the fact that there has been no investigation into the merits and that ordinarily the costs of the receiver should be the responsibility of the Commission, pending a determination of the question as between the parties who should bear those costs. The consent order does not seem to me to alter the position.
…
In my view, the ordinary order should require the Commission to be responsible for payment at the outset, leaving the ultimate responsibility as between the Commission and the person whose assets are to be seized, to be dealt with at a later time. If the occasion be appropriate to order that at first instance the receiver's costs should be paid out of the assets (and the receiver would, in any event, have a lien over those assets for his proper costs) the Court should specifically reserve the question of how the costs are to be borne as between the parties for determination at a later time.
(Emphasis added.)
24 In Aust-Home Investments, Hill J also had regard to the reasoning of Waddell J in Corporate Affairs Commission (NSW) v Smithson [1984] 3 NSWLR 547 (at 555-556) (also cited in Carey (No 5) (at [21])):
The remedy of appointing a receiver under s 573 may have severe effects on a defendant. The Court is precluded, by subs (2) from requiring the Commission to give any undertaking as to damages as a condition of granting an interim order before considering the application pursuant to subs (1). This appears to indicate that an order made after considering the application is not to be regarded as an interim order and that, as a consequence, the Court is not entitled to require the Commission to give any undertaking as to damages as a condition of appointing a receiver after considering the application. If this is so, and an order for the appointment of a receiver in respect of the property of a relevant person is made, as security for claims for which ultimately he may be held not liable, the relevant person will have suffered Unjustifiable damage for which he will have no right to compensation from the Commission or from anyone else. If a receiver is appointed on terms which permit him to take his remuneration out of the assets received by him, the unjustified damage caused to the relevant person would be so much greater. It should not be thought that in every case the property of a relevant person may be taken over by a receiver and his financial affairs investigated in order to provide security for claims against him, which may or may not succeed, on the basis that in any event the relevant person will have to pay the receiver's remuneration. It may well be that in a particular case, in order to avoid such a consequence, no order should be made permitting the receiver to take his remuneration out of the assets received, thus leaving it to the Commissioner to be responsible for such remuneration pending a determination of the liability of the relevant person.
(Emphasis added.)
25 None of these cases suggests that statutorily appointed interim receivers should be denied their remuneration, disbursements or an indemnity but in the unusual circumstances of statutorily appointed interim receivers, it is not appropriate at least in the first instance that the possibly innocent party whose assets are controlled by the appointment should necessarily be the source of the costs and consequences of doing so. Although Berona Investments followed the ordinary rule as articulated in Rosanove, Cooper J's reasoning focused particularly on the serious conduct of the respondents which had been established such that the appointment of receivers was not only reasonable, but also necessary. That is not the standard of satisfaction that I reached regarding the appointment of interim receivers in this case and nor was I required to by the Act. For the reasons in Marco (No 3) the appointment was desirable but as I indicated at [184], 'it should be borne in mind that, at least as far as my assessment of the matter is concerned at this stage, there would have been doubt as to the desirability of the appointment of an interim receiver if the receiver's costs were to be, in effect, borne by the investors through reduction in the value of the assets of the defendants.'
26 In terms of distinguishing the rights of a receiver in the equitable jurisdiction from the situation where a receiver is appointed on application to the Court by ASIC under statute, as noted above, the statement of French J in Carey (No 5) (at [22]) (repeated for convenience), is persuasive:
… In my opinion the position of a receiver appointed in the exercise of equitable jurisdiction differs from that of a receiver appointed in the exercise of the statutory power conferred by s 1323. There is no entitlement that goes with the appointment, to recover remuneration from the assets of the relevant person. The appointment under s 1323 when made on the application of ASIC and based on an ongoing investigation, aids the public regulatory and protective functions conferred upon ASIC by the Corporations Act and by the Australian Securities and Investments Commission Act 2001 (Cth). That is a foundation for such an appointment which differs from that which underpins the private equitable remedy.
27 Regarding the Court's power to order a party to provide an indemnity or meet the receivers' costs, Carey (No 5) (at [19]-[20]) (also repeated for convenience) is apt:
19 The Corporations Act does not expressly authorise the Court to make an order that the persons or companies who are the subject of the orders appointing receivers to their property pay the costs of those receivers in discharging their function. The Court may confer upon the receivers 'such powers as the Court orders'. Such powers necessarily relate to the ways in which the receivers can deal with a relevant person's property. The imposition of a costs liability by the Court is not readily accommodated by words authorising it to confer powers on the receivers. Absent any express power in the Corporations Act the relevant provision can be found in s 23 of the Federal Court Act or in the implied incidental power - Jackson v Sterling Industries Ltd (1987) 162 CLR 612.
20 Although, in my opinion, the existence of a power to impose a liability to pay receivers' remuneration out of the defendants' assets can be found in s 23 as an incident of the powers conferred on the Court by s 1323 of the Corporations Act, it is not lightly to be exercised.
28 The receivers have been appointed on an interim basis to identify, preserve and secure assets. Their powers do not extend to the sale, letting or encumbering of the property and in this case their appointment is distinct from that of a receiver entrusted with realising assets for the immediate repayment of creditors. The risk of the receivers' actions incurring a significant shortfall is arguably reduced by the nature of their appointment.
29 The interim receivers initially sought indemnity under s 419 and s 419A of the Act but now accept that the latter provision is the appropriate section. In this instance, the defendants have voluntarily accepted liability for an indemnity under that latter provision which in the circumstances of this case is appropriate, as it pertains to events, circumstances and agreements which were pre-existing and under the defendants' control. The defendants contend that if any other indemnity is needed for liability beyond that given under s 419A, that ASIC should give it in the circumstances of this case. The interim receivers have now sought a conventional general indemnity for matters beyond those addressed by s 419A of the Act.
30 There was no suggestion the Court did not have the power to order such an indemnity under s 23 of the Federal Court of Australia Act 1976 (Cth).
31 There was no suggestion that the interim receivers should not have an indemnity. As s 57(2) of the Federal Court Act makes clear, they may be liable for actions taken.
32 Usually in exercise of equitable jurisdiction, the indemnity to a receiver would be supported by the assets of the affected party but for all the reasons given above, I do not consider that is appropriate in the present instance, in the case of an interim appointment under s 1101B(5) of the Act, rather than under an equitable appointment.
33 The interim receivers of course make clear, as might be expected, that they are not troubled who indemnifies them as long as they are indemnified.
34 In my view, it is both valid and appropriate in this case to require ASIC to meet any further indemnity beyond that given by the defendants under s 419A.