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[2025] NSWSC 936
General information, not legal advice.
Supreme Court of NSW
2025-08-19
Faulkner J
Original judgment source is linked above.
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Source: NSW Caselaw (www.caselaw.nsw.gov.au). Converted to plain text by ZoeLaw. Not the official version.
Medium Neutral Citation: BHG Investment 100 Pty Ltd v Nanevski Developments Pty Ltd [2025] NSWSC 936
Hearing dates: 1 August 2025
Date of orders: 19 August 2025
Decision date: 19 August 2025
Jurisdiction: Common Law
Before: Faulkner J
Decision: 1. The parties have leave to file amended pleadings for the purposes specified in [48] of these reasons.
2. The Plaintiff’s Interlocutory Process filed on 15 May 2025 be stood over to 9 September 2025.
Catchwords: PROPERTY – proceedings by secured creditor for possession of land under registered mortgage – receiver appointed to assets of the corporate mortgagor – directors purport to exercise residual authority to cause corporate mortgagor to defend proceedings and bring cross-claim – directors offer indemnity to compensate mortgagor against costs and adverse costs order – whether directors required to give security for their indemnity
Legislation Cited: Civil Procedure Act 2005 (NSW), s 98
Corporations Act 2001 (Cth), s 418A
Uniform Civil Procedure Rules 2005 (NSW), rr 6.26, 42.21
Cases Cited: Aboughattas v Oak Capital Mortgage Fund Pty Ltd [2021] VSC 577
Deangrove Pty Ltd (Receivers and Managers appointed) v Commonwealth Bank of Australia (2001) 108 FCR 77
Mainland Property Holdings Pty Ltd (Receivers and Managers Appointed) v Naplend Pty Ltd [2022] FCA 1305
Newhart Developments Ltd v Co-operative Commercial Bank Ltd [1978] QB 814
Pearsall v National Australia Bank Ltd [2024] NSWSC 1493
Category: Procedural rulings
Parties: BHG Investment 100 Pty Ltd (Applicant)
Nanevski Developments Pty Ltd (Respondent)
Representation: Counsel:
D Pritchard SC / J Parrish (Applicant)
J Simpkins (Respondents)
Solicitors:
Independent Legal (Applicant)
Everingham Solomons Solicitors (Respondents)
File Number(s): 2025/00055034
This judgment addresses a discrete issue which has arisen in this case about the Directors’ conduct of the corporate Defendant’s Defence and Cross-Claim. The Plaintiff has appointed a receiver for the assets of the Defendant. There is no dispute that the Directors nonetheless have residual powers which permit them to cause the Defendant to conduct the Defence and Cross-Claim. They have agreed personally to be added as additional parties and they have agreed to give an indemnity to the Defendant in respect of costs. The issue is whether the Court ought to order the Directors to give security for the indemnity.
Having regard to the facts, absent security from the Directors, the position of the Plaintiff will be impinged prejudicially by the Directors’ conduct of these proceedings threatening or imperilling the assets which are the subject of the receivership. The proceedings should be adjourned for a short period to allow the Directors to address that position.
The dealings out of which this case arises are complex but it is not yet necessary to set out the detail. In November 2022 the Defendant entered into a written Facility Agreement with a company called PF 459 Pty Ltd. The Defendant needed finance to complete its development of an aged care facility on a parcel of land in New South Wales. I will refer to the land, including the aged care facility, as the “Land”. The Defendant was (and still is) the registered proprietor of the Land and gave a registered Mortgage to PF 459 to secure payment of monies due under the Facility Agreement. In these proceedings the Plaintiff does not rely on any security documents other than the Mortgage and the Facility Agreement.
No guarantees were given to PF 459.
At the time (and still today) the Directors of PF 459 were an elderly couple, Ivan Nanevski and Makedonka Nanevski. They are the only shareholders in the Defendant.
Money said to be due and payable under the Facility Agreement has not been paid. PF 459 issued a Notice of Default on 22 August 2023. The Defendant did not pay.
On 5 November 2024 PF 459 made a Deed by which it assigned to the Plaintiff all of its rights, title and interest in the Facility Agreement. The Defendant was formally notified of the assignment. A transfer of the Mortgage to the Plaintiff has been registered.
Payment still not having been made, on 27 November 2024 the Plaintiff made a Deed of Appointment with the Receiver by which he was appointed as a receiver of assets of the Defendant (see more precisely below).
All the while the Defendant’s development of the aged care facility was completed. The Defendant has granted a lease of the Land to a company called Sans Souci Aged Care Pty Ltd which is directed and owned by the same Directors. It is operating the aged care facility, apparently at 50% occupancy.
The Plaintiff claims that the amount due to it is approximately $24 million.
The evidence on the application includes a confidential exhibit which comprises a recent valuation of the Land. It demonstrates (and there is no dispute) that a sale of the Land will leave the Plaintiff with a shortfall which Counsel for the Plaintiff described, in terms both measured and fair, as “substantial”. Such a shortfall will occur whether or not account is taken of the Plaintiff’s enforcement costs, including the costs of these proceedings.
On 11 February 2025 the Plaintiff commenced these proceedings by filing a Statement of Claim. Apart from one matter, the Statement of Claim is a conventional pleading by a secured lender seeking an order for possession. The Plaintiff pleads the Facility Agreement, the Mortgage, a drawdown, a default and a debt. The only allegations which are out of the ordinary are the assignment from PF 459 to the Plaintiff (which is pleaded in paragraph 5) and the transfer of the Mortgage (which is pleaded in paragraph 9).
The claims in the Statement of Claim are limited to enforcement of the Plaintiff’s rights as mortgagee under the Mortgage. The Mortgage and the Facility Agreement are the only two documents relied upon in the pleading.
The relief claimed in the Statement of Claim is limited:
(a) an order for possession of the Land; (b) leave to issue a writ of possession in respect of the Land; and (c) indemnity costs.
In these proceedings the Plaintiff makes no allegation that the Defendant owns any property other than the Land. There is no allegation that the Plaintiff holds security over any property other than the Land. The Plaintiff does not seek any relief in relation to any property other than the Land.
The Defendant is the only defendant named in the Statement of Claim and the only person against whom the Plaintiff seeks relief.
On 24 February 2025 a solicitor filed a Notice of Appearance on behalf of the Defendant. He did so on the instructions of the Directors.
On 10 March 2025 the Defendant filed two documents, namely a Defence and a Cross-Claim. The Defence firstly responds to the allegations in the Statement of Claim. There are some admissions and non-admissions, but the drawdown, default and debt are all denied. The second part of the Defence is a lengthy narrative of positive allegations. The details are not relevant for present purposes. The burden of the pleading is that the Facility Agreement between the Defendant and PF 459 was but the latest chapter in a broader financial arrangement between the Defendant, PF 459 and other companies in a corporate group conveniently referred to as “Gemi”. The broader financial arrangement commenced in 2019. It allegedly includes substantive wrongdoing by Gemi and an agreement by the Defendant to forebear. To an extent the Defendant alleges that, in context, the Facility Agreement and the Mortgage do not mean what they say. By virtue of the entire financial arrangement, the present assertion of rights in accordance with the written terms of the documents is said to be the product of misleading or deceptive conduct, unconscionable and estopped.
The Defendant alleges that PF 459 assigned its rights under the Facility Agreement to the Plaintiff “subject to all the equities which the Defendant has or had against PF 459”. As far as the Defence is concerned, the present Plaintiff is alleged to be estopped from asserting the rights upon which it sues in these proceedings. That contention is reliant upon the Defendant proving that the Plaintiff’s claims are vitiated by the wrongdoing alleged against PF 459 and the other Cross-Defendants. No allegation of wrongdoing is made directly against the Plaintiff.
The Cross-Claim names six Cross-Defendants. The Plaintiff is the first, the Receiver is the second and there is a company called GM Solutions and Investments Pty Ltd which is not materially relevant to the current issue. The other three Cross-Defendants are companies and officers in the Gemi group including PF 459.
The allegations set out in the Cross-Claim are coextensive with those in the Defence. On this application, the Plaintiff did not attempt to identify any substance in the Cross-Claim which enlarged upon the Defence.
The substantive relief claimed in the Cross-Claim is:
(a) orders under s 232 of the Australian Consumer Law permanently to restrain the Plaintiff from enforcing the Facility Agreement, the Mortgage or any rights in relation to the Land; (b) orders under ss 238 and 243 of the Australian Consumer Law that the loan under the Facility Agreement “is void ab initio”; (c) orders against another Cross-Defendant in relation to a different loan; (d) damages; and (e) a declaration under s 418A of the Corporations Act 2001 (Cth) that (for reasons in common with the other claims) the appointment of the Receiver was not valid.
A reading of the Defence and the Cross-Claim as a whole makes clear that the Defendant’s allegations are in substance a defence, in the sense that success on the allegations may in theory relieve the Defendant of any obligation it otherwise has to the Plaintiff. If the Defendant is right, the Plaintiff is not entitled to the relief it seeks in these proceedings and they should be dismissed. The Defendant’s claims are not limited to asserting a set off in diminution or reduction of the amount of the debt.
A solicitor has now appeared for the Gemi parties and another for GM Solutions and Investments Pty Ltd. The Receiver appears to be inactive.
The Plaintiff has served its evidence in chief. It is confined and documentary. Having regard to the allegations in the Defence and Cross-Claim, it may reasonably be assumed that the Defendant’s evidence will be otherwise. Over the last couple of months orders have twice been made for the Defendant to file its evidence but the Defendant has not complied. At the hearing of the present application, the Defendant adduced some evidence of work being undertaken and sought an extension of two further weeks. Without prejudice to the fact of prior defaults, the other parties more or less consented to the extension but sought the imposition of a guillotine order, which was made.
The Plaintiff says that the Defendant has failed to comply with other obligations in these proceedings, including answering a Notice to Produce.
(a) each of the Directors is added as a further party to the proceedings (to which they consent); and (b) each of the Directors gives an indemnity for the costs of the Defendant in these proceedings (to which they also consent);
the Plaintiff seeks the following orders:
“4. An order that Ivan Nanevski and Makedonka Nanevski provide security for the indemnity in favour of the Defendant/Cross-Claimant.
- An order that the security referred to in order 4 above be provided within 21 days, or such further or other period as the Court determines to be appropriate.
…
- An order staying the defence and cross-claim until such time that Ivan Nanevski and Makedonka Nanevski have complied with any and all orders for the provision security.
- An order granting leave to the Plaintiff/First Cross-Defendant to apply for the dismissal of the defence and or cross-claim in the event that the orders for the provision of security are not complied with.”
The Directors resist these orders.
In addition to the matters set out above, the evidence which was read on the application and which is relevant to the remaining issue establishes that:
(a) the Directors have not co-operated with the receivership, including by failing to provide a Report on the Company’s Activities and Property; (b) Sans Souci Aged Care Pty Ltd is obliged to pay rent to the Defendant under the lease, which is currently in arrears by approximately $1,000,000; (c) an Affidavit from the Defendant’s solicitor states that, apart from the Land, the Defendant “holds a 50% equitable share” in two properties in New South Wales; (d) another Affidavit records the solicitor’s instructions that “the defendant/cross-claimant’s legal costs of these proceedings are not being funded by the defendant/cross-claimant”; (e) the estimated costs which the Plaintiff will incur in prosecuting its claim and defending the claims for relief in the Cross-Claim will be approximately $475,000; (f) the Directors are personally in financial distress; (g) the Directors have not adduced evidence to demonstrate that they will or will not be able to provide security if they are ordered to do so.
“Dear Ivan Nanevski and Makedonka Nanevskl
Finance offer
We are pleased to let you know that we have approved your request for finance and offer you the facility as set out in the Finance Offer Schedule. This offer is made to you on the terms of the Finance Offer Schedule document (“offer”) and the terms set out In the Kingston & Partners Memorandum of Common Provision Version 1 (LFMCPV1) ("memorandum”).
You will have received a copy of the memorandum with this offer. The meaning of certain words (printed like this) is explained In Part I of the memorandum.
How to accept this offer
You should carefully read this offer together with the memorandum and the other documents and information we have given you. If you would like to accept this offer, please sign and return a copy of it.
This offer will remain available for acceptance for 30 days. If not accepted by, 5.00pm (Sydney time) on the 30th day after the date shown above, the offer is automatically withdrawn. If you need more time, please let us know as we may be able to agree to a longer a period. We can withdraw this offer at any time before you sign it we will let you know if we do this.
Before you can use the facility
Before you can use your facility, there may be some documents (for example, securities) and information you need to give to us. You may also need to pay some upfront fees. Each of these things is set out in this offer. If you cannot provide us with these things, you may not be able to use your facility.
If we require security
lf we require you to give us security over all your assets, you grant us this security when you sign this offer and do this on the terms of this offer and the memorandum.
If we require you to give us a mortgage over land, you grant us the mortgage on the terms of the national mortgage form and the memorandum.
We appreciate the opportunity to support your business. If you have any questions, please do not hesitate to contact us on 02 9056 9998,
Your sincerely
Gemi Investments”
“Security
You must give us the security listed in this section before you can use the facility. Each security must be in the form and substance satisfactory to us.
Security by you in favour of us over all assets.
Mortgages by the grantor over the land detailed below:”
| Land# | mortgage type | land address | grantor | | 1. | 1st registered mortgage | [redacted] | Nanevski Developments Pty Ltd | | • If a person is required to give up as a guarantee or security over all their assets, they grant that guarantee or security on the terms of this offer and the memorandum. • If a person is required to give us a mortgage over the land, they mortgage the land on the terms of the national mortgage form and the memorandum. |
…
Borrower acknowledgment and signing
By signing this offer you:
…
If we require you to give us security over your assets, grant us a security over all assets on the terms of this offer and the memorandum of common provisions;
If we require you to give us a mortgage over land, grant us a mortgage over the land on the terms on the national mortgage form and the memorandum of common provisions;”
The Finance Offer Schedule was signed by the Defendant on 18 November 2022.
As set out above, the Mortgage provides security over the Land. After identifying the Land, the cover page for the Mortgage contains the following provision:
“The mortgagor mortgages the estate and/or interest in land specified in this mortgage to the mortgagee as security for the debt or liability described in the terms and conditions set out or referred to in this mortgage and covenants with the mortgage to comply with those terms and conditions.
Terms and Conditions of the Mortgage
(a) Document Reference NIL
(b) Additional terms and conditions
Finance Offer Schedule
Facility term 6 months from the date of the first drawdown
Lender PF 459 Pty Ltd ACN 662 579 188
Borrower Nanevski Developments Pty Ltd ACN 082 897 087
Facility Limit $14,773,327.92
Lower rate 12.5% per annum
Higher rate 17.5% per annum”
“8.1 Costs
You and the guarantor must pay or reimburse:
(e) (transaction costs) our reasonable costs in connection with the preparation, negotiation and execution of this agreement, making searches and enquiries in connection with you and your assets, taking advise in relation to our rights in connection with you and your assets and, giving and considering consents, waivers, variations, discharges and releases, and providing documents and other information in connection with this agreement;
(f) (other costs) our and any attorney’s or receiver’s costs of exercising, enforcing or preserving rights, powers or remedies (or considering doing so) in connection with this agreement or doing anything in connection with any enquiry by an authority involving you or any of your related entities, your assets, this agreement, or anything in connection with them; and
(g) (taxes) all stamp duty, registration fees and similar taxes or fees payable or assessed as being payable in connection with this agreement or any other transaction contemplated by this agreement (including any fees, fines, penalties and interest in connection with any of those amounts). However, you need not pay or reimburse any fees, fines, penalties or interest to the extent they have been imposed because of our delay.”
“14.5 What can happen if there is a default
If an event of default is continuing, we may immediately do one or more of the following:
(a) require payment of all amounts owing to us under the finance documents (including the secured money);
(b) take legal action (e.g., sue you for unpaid amounts, enforce any encumbrance you have given us, and take any other enforcement proceedings);
(c) appoint one or more receivers;
(d) do anything that a receiver could do under clause 15.5 (“Receiver’s powers”).”
“15.2 Terms of appointment of a receiver
In exercising our power to appoint a receiver, we may:
(a) appoint a receiver to all or any part of the collateral, the land or its income;
(b) either before or after we have taken possession of any collateral, appoint any one or more persons to be a receiver of the collateral or a part of it;
(c) appoint a different receiver for different parts of the collateral;
(d) if more than one person is appointed as receiver of any collateral or land, empower them to act jointly or jointly and severally;
(e) remove the receiver, appoint another in his or her place if the receiver is removed, retires or dies, and reappoint a receiver who was retired or been removed; and
(f) set a receiver’s remuneration at any figure we determine appropriate, remove a receiver, and appoint a new or additional receiver.”
“15.5 Receiver’s powers
Unless the terms of appointment restrict a receiver’s powers, the receiver may do one or more of the following:
(a) improve the collateral;
(b) sell, transfer or otherwise dispose of the collateral or any interest in it;
(c) lease or licence the collateral or any interest in it, or deal with any existing lease or licence (including allowing a surrender or variation);
(d) take or give up possession of the collateral as often as it chooses;
(e) sever, remove and sell fixtures attached to the collateral;
(f) obtain registration of the collateral in our nominee’s name;
(g) collect rent and other income from any collateral;
(h) If you or the guarantor are not a corporation to which the Corporations Act applies, do anything that the law would allow a receiver to do if you were a corporation incorporated (or deemed to be incorporated) under the Corporations Act;
(i) do anything else the law allows an owner or a receiver of the collateral to do.”
“17.1 Security Interest
(a) You grant a security interest in the collateral to use to secure payment of the secured money.
This security interest is a mortgage of the land and the water rights and a charge over the other collateral.
This security interest is an encumbrance.
…”
“the following property:
(a) if the grantor has signed the offer and is required to give us security over all their assets – all assets; and
(b) if their the grantor has signed a national mortgage form – the land; and
(c) if the grantor has signed the offer and is required to give us security over specific assets – specific assets; and
(d) if the grantor has signed the offer and is required to give security over water rights – the water rights.”
The word “offer” includes the Finance Offer Schedule referred to above. The term “all assets” is defined to include all of the Defendant’s present and after-acquired property and/or assets. The terms “national mortgage form” and “land” are defined respectively to mean the Mortgage and the Land.
The Mortgage was executed by the Defendant on 18 November 2022. It was subsequently registered.
The Receiver was appointed pursuant to a Deed, the substantive terms of which are:
“2. Appointment
(a) Pursuant to the Security, the Security Holder hereby appoints the Receiver as receiver of the Secured Property.
(b) The Receiver accept this appointment by execution of this deed.
3. Powers of Receiver
The Receiver has all the powers, authorities and discretions conferred upon, vested in and otherwise available to receivers, including those available under the Security, the Corporations Act 2001 (Cth) and otherwise at law.”
“The Security Interest (identified by PPSR registration number 2022 112100 76170).
First registered mortgage number AS651789 over the Property and which is dated about 18 November 2022.”
There is no evidence about the first item referred to in the definition of “Security”. The second item is the Mortgage.
The “Secured Property” is defined as the Land plus:
“all of the present and after-acquired property and/or assets of the Security Provider wherever located and however described including, without limitation, all real and leasehold property, personal property and anything in respect of which the Security Provider has ay any time a sufficient right, interest or power to grant a security interest.”
“6. Agency
The Receiver is the agent of the Security Provider and the Security Provider alone is responsible for the Receiver’s acts, defaults and remuneration.”
The Directors consent to being added as parties to the proceedings. Their consent, as communicated in correspondence on 18 June 2025 and restated in Court runs both to being defendants and to being cross-claimants. The most efficient way to bring about the agreed position is to grant the Plaintiff leave to file an amended statement of claim in the same terms as the current pleading, but with the Directors named as additional defendants. The Defendant and the Directors will be granted leave to file an amended defence and an amended cross-claim, each in the same terms as the current pleadings but with the Directors named as additional defendants or cross-claimants as applicable.
The purpose of addressing this matter through the mechanism of granting leave to amend it is to enable these proceedings to progress as quickly and cheaply as possible.
Joinder is appropriate because it removes an issue between the parties which would otherwise involve time and expense to determine. By granting leave for the joinder, I am deciding no more than that, on the facts of this case including the procedural history and the Directors’ consent, the joinder of the Directors is not contrary to principle or the Rules. Uniform Civil Procedure Rules 2005 (NSW) r 6.26 provides that a party may not join another person as a party to proceedings for the purpose of making an application for costs against the other person. The prohibition operates harmoniously with s 98 of the Civil Procedure Act 2005 (NSW) which expressly empowers the Court to make costs orders against non-parties. Joinder for the sole purpose of obtaining a costs order is unnecessary. The circumstances in which the Court will make a costs order against a non-party, including a director or shareholder of a corporate party, are the subject of a body of established principles which ought not be vulnerable to circumvention by the joinder of a person who is not otherwise a proper party for the sole purpose of making an application for costs against that person.
However, the present application is not so much directed to future costs orders against the Directors as to the granting of an indemnity to the Defendant. The indemnity is not limited to costs orders which may be made against the Defendant but includes costs which the Defendant might otherwise have to pay its own solicitors which would not ordinarily be the subject of an order of the Court. Given the consent of the Directors, it is also doubtful that they are being joined by the Plaintiff in the sense proscribed by UCPR 6.26. There are also exceptions to the prohibition in UCPR 6.26, including where the non-party would otherwise be a proper party. For reasons which include the Defendant seeking an order under s 418A of the Corporations Act 2001 (Cth), that exception is likely to apply in this case, if not immediately then in the future.
Given the Directors’ consent, I can see no prejudice to the administration of justice from granting the leave referred to above. The grants of leave will assist to facilitate the just, quick and cheap resolution of the real issues in these proceedings.
(a) any costs incurred by the Defendant in these proceedings; and (b) any costs order made against the Defendant in these proceedings.
“In my view, the authorities clearly support the proposition that, where a company in receivership has a claim against the debenture holder and the receiver declines to pursue the claim, the directors are entitled to initiate and maintain proceedings in the name of the company, provided the directors offer the company a satisfactory indemnity against costs. The latter requirement is designed to ensure that the interests of the debenture holder, qua debenture holder, are not prejudiced: O'Donovan, Company Receivers and Administrators (2nd ed, 1992), at [8.30]. The entitlement of the directors reflects the fact that, as Street J observed in Hawkesbury Development, at 210, it borders on the absurd to contemplate that a receiver would institute proceedings in the name of the company challenging the very debenture to which he or she owes office. It is almost as absurd to contemplate the receiver instituting proceedings against the debenture holder or chargee claiming damages for misleading and deceptive conduct or breach of duty. In any event, an action conducted by the receiver against his or her appointor is likely to encounter a variety of practical difficulties: Kerr on Receivers (2nd Cum Supp to 17th ed, 1997), at 77.”
In the Deangrove case, the corporation and its sole shareholder, Mr Jeans, commenced proceedings against a secured lender in order to set aside Mr Jeans’ guarantee and to obtain an order for damages. Mr Jeans was a plaintiff and had expressly agreed to grant an acceptable indemnity to the corporate plaintiff. The issue before the Court was whether Mr Jeans ought to give security for the indemnity. Sackville J held that security was required. Instead of making an order for security, Sackville J adjourned the case for a period so that the security could be provided directly between Mr Jeans and the defendant.
At paragraph [42], Sackville J said:
“Assuming the indemnity to be satisfactory (an issue to which I shall return), in my view the director of Deangrove has power and authority to give instructions for proceedings to be instituted by the company against CBA.”
“In my view, the governing principle is that those giving instructions on behalf of Deangrove, in order to continue the proceedings, must demonstrate that "nothing in the course of the proceedings which they institute is going in any way to threaten the interests of the debenture holders" (Newhart Developments [Ltd v Co-Operative Commercial Ltd [1978] 1 QB 814], at 821). Had there been evidence that Mr Jeans has sufficient resources to satisfy an indemnity, it might not be necessary for any security to be provided in support of the indemnity. But no such evidence has been adduced. Nor is there evidence as to Deangrove's financial position. In these circumstances, it seems to me that Mr Jeans should provide appropriate security to support his indemnity to Deangrove if the company is to pursue its claim against CBA.”
(a) the exercise of the residual authority is subject to the proviso that the Directors give the Defendant an indemnity against costs: the Deangrove case at [40]; (b) the requirement of an indemnity is mandatory and not discretionary: Pearsall v National Australia Bank Ltd [2024] NSWSC 1493 at [22] (Ball J). (c) the indemnity must be “satisfactory”: the Deangrove case at [40] and [42]; and (d) the Defendant (or the Directors) bear the onus of satisfying the Court that the indemnity which has been offered is satisfactory: the Deangrove case at [47].
(a) the Plaintiff is owed a large amount (approximately $24 million) and there is no dispute that there will be a substantial shortfall even before costs are taken into account; (b) whilst the proceedings were previously of narrow compass, the issues which the Directors have caused the Defendant to raise are extensive; (c) the Defendant’s claims have resulted in multiple other parties being added and multiple other legal teams being engaged; (d) by reason of the two previous factors, the Plaintiff will incur an estimated $475,000 in costs in order to address the Defence and Cross-Claim; (e) the Plaintiff’s costs are covered by the Mortgage with the result that the amount of the debt secured by the Land will increase significantly; (f) the Defendant will also dissipate its resources in legal expenses in prosecuting the claims it makes in these proceedings, although in light of the evidence that the Defence and Cross-Claim are not being funded by the Defendant. This factor was only pressed faintly; (g) the Directors have failed to co-operate with the Receiver with the result that the Receiver’s ability to obtain payment from other sources has been frustrated; (h) the Defendant has been delinquent in its conduct of the proceedings which has caused delay to the Plaintiff obtaining an order for possession and thereby realising its security over the Land; (i) delay prejudices the Plaintiff because the tenant under the lease is in default which deprives the Plaintiff of rents whilst the issues in these proceedings are resolved; (j) the Directors are not guarantors of the Defendant’s debt but they are the ultimate financial beneficiary of the Defendant’s success in these proceedings; (k) the Directors are in financial distress with the result that their indemnity is unlikely to be satisfied unless security is ordered now; (l) there is no suggestion that the Defence and Cross-Claim will be stultified if the Directors are required to give security; (m) the Directors have not offered an undertaking not to dissipate their assets prior to the resolution of these proceedings; and (n) the claims contemplated by the Defence and Cross-Claim lack merit as against the Plaintiff.
The Plaintiff further submits that there are many cases where the Court has required directors to give security for their indemnity for the company’s legal costs. Apart from the Deangrove case, the Plaintiff relies on a nunber of cases including Mainland Property Holdings Pty Ltd (Receivers and Managers Appointed) v Naplend Pty Ltd [2022] FCA 1305 and Aboughattas v Oak Capital Mortgage Fund Pty Ltd [2021] VSC 577.
The Plaintiff submits that the Defendant (and the Directors) have not demonstrated that an unsecured indemnity from the Directors is satisfactory.
The submissions for the Defendant and the Directors do not identify any dispute about the applicable principles.
The Defendant and Directors rely upon the recent application of the principles in Pearsall v National Australia Bank Ltd [2024] NSWSC 1493. In that case, Mr and Ms Pearsall were the directors and shareholders of a number of corporations to which NAB had lent money. The loans were secured by mortgages over real property and general security agreements over “all the Corporate Plaintiff’s property”. Upon default, NAB appointed receivers “of the Corporate Plaintiffs”. The Pearsalls caused proceedings to be commenced in which the Pearsalls and their corporations were all plaintiffs. By those proceedings the plaintiffs made claims similar to those made in the present case. The plaintiffs sought orders which would vitiate the security documents relied upon by NAB plus orders challenging the appointment of the receiver under s 418A of the Corporations Act 2001.
NAB made an application to stay the proceedings. Relevantly, it submitted that the proceedings ought to be stayed in the absence of the Pearsalls agreeing to indemnify the corporate plaintiffs in respect of costs and providing appropriate security from the indemnity.
Ball J set out the principles distilled by Sackville J in the Deangrove case. At paragraph [22] Ball J said:
“The plaintiffs submit that, in accordance with those principles, the Court has a discretion whether to require directors (or former directors) to give an indemnity. I do not accept that submission. The plaintiffs do not point to any case where a court has not required the directors to give an indemnity. The requirement is not stated in discretionary terms by Sackville J in Deangrove and the purpose of the requirement – to prevent the value of the security-holder’s security being diminished by legal costs incurred by the company in challenging the exercise of the security – counts against the requirement being discretionary.”
“In the particular circumstances of this case, I have concluded that they should not be required to give security. Mr and Mrs Pearsall have not led any evidence concerning their financial position and their ability to make good on any indemnity that they give. I accept that in the normal course of events that provides a strong discretionary ground for requiring security to be given. However, the purpose of the security is to protect the security-holder against a diminution in the value of its security. It is not to improve the security-holder’s position.”
“However, in this case, the evidence is that NAB obtained security over all the Corporate Plaintiffs’ property and that security is insufficient to discharge the secured debt. As a result, there can be no question of the security being diminished by a costs order. It will be exhausted by enforcement of the secured debt in any event. Consequently, there can be no question of the indemnity protecting NAB as a security-holder.”
The order made by Ball J to dispose of NAB’s application was to stand the proceedings over to a future date with the express intention of dismissing NAB’s application if an indemnity was given by the Pearsalls in the meantime.
Like the Pearsall case, in the present case the Plaintiff will suffer a shortfall upon the sale of the Land whether or not the costs of these proceedings are taken into account. The Defendant and the Directors submit that the security held by the Plaintiff is the Land and no more. If the Directors are now required to give security for their indemnity, the Plaintiff’s position will be improved. The Defendant and the Directors submit that there is no material distinction between this case and the Pearsall case. Consistent with Ball J’s judgment, they ought not to be required to give security.
The starting point for the question whether the Directors ought to be required to provide security is to observe that the issue would not arise if it were not for the appointment of the Receiver. Absent that circumstance, the Plaintiff is suing a corporate defendant in order to obtain an order for possession of certain land owned by the corporation. The Defendant contends that the Plaintiff is not entitled to possession because the loan documents are vitiated by unlawful conduct which may be laid at the Plaintiff’s door. Although the Defendant’s allegations expand the dispute by an order of magnitude, they constitute a defence in the sense referred to above. The Defence having been put forward, the Cross-Claim against the Defendant is both necessary and appropriate to vindicate the Defendant’s positive entitlement to relief which will materially affect the enforcement of the rights upon which the Plaintiff sues. Any cost consequences adverse to the Plaintiff will arise in the ordinary course of the Plaintiff commencing the proceedings. In the usual way, the Plaintiff may be able to manage the costs consequences by seeking costs orders against the Directors personally or any other non-party in accordance with the principles which apply to third party costs orders under s 98 of the Civil Procedure Act 2005 (NSW).
Other considerations may have arisen had the Plaintiff sought security for its costs of the Cross-Claim under UCPR 42.21 or some other power. Whilst the Plaintiff’s Interlocutory Application originally contemplated such an application, it was not pressed at the hearing. Other considerations may arise if any of the other Cross Defendants seek security for costs, but that is not an issue which is presently before the Court.
The fact that the Receiver has been appointed means that there may be a restriction on the ability of the Directors to cause the Defendant to take steps in these proceedings. To use the language of Shaw LJ in Newhart Developments Ltd v Co-operative Commercial Bank Ltd [1978] QB 814 at 821, the Directors’ authority is inhibited. It is inhibited to the extent that the exercise of their authority will impinge prejudicially upon the position of the Plaintiff by threatening or imperilling the assets which are subject of the receivership.
The question before the Court is one about the capability of the Directors to cause the Defendant to act. That capability is variously described in the cases as “power” or “authority”.
In each case, the existence, extent and content of the power or authority of the directors to cause the company to act will depend upon the facts. Specifically, it is necessary to identify the interests of the secured creditor which it is entitled to have protected by the appointment of the receiver. The secured creditor’s interests are not to be considered at large but by reference to the appointment of the receiver. It is also necessary to identify the conduct which the directors intend to cause the company to undertake to determine whether that conduct will infringe the protected interests of the secured creditor. If so it will be beyond the authority of the directors: Mainland Property Hildings Pty Ltd (Receivers and Managers Appointed) v Naplend Pty Ltd at [35] (McElwaine J). The questions about the precise interest protected and conduct the company is to be caused to undertake are related. To paraphrase Street J in Hawkesbury Development Co Ltd v Landmark Finance Pty Ltd (1969) 92 WN (NSW) 199 at 209, there is a direct inverse relationship between the scope of the receivership and the directors’ residual authority.
As for the Plaintiff’s interest in this case, it relies on the Facility Agreement and the Mortgage. It does not rely, either for this application or in the substantive proceedings, on a general security agreement. No such document is in evidence, although there is a reference in the Receiver’s Deed of Appointment to a “Security Interest” with a PPSR registration number.
The Deed of Appointment provides that the Receiver has been appointed to the fullest extent possible. The Facility Agreement and the Mortgage therefore needs to be construed to determine the purpose for which the Receiver has been appointed. By cl 17 of the Mortgage, the Defendant granted a security interest in the collateral. Clause 17.1(a) contemplates that, depending on the circumstances, the collateral is not limited to the Land and that the security interest is not limited to a mortgage. There may be a charge over other assets. The word “collateral” means all assets of the Defendant. In addition to cl 17, the Facility Agreement independently (but consistently) provides that the Defendant granted a “security” over all its assets upon signing the Finance Offer Schedule.
I make the following orders:
The parties have leave to file amended pleadings for the purposes specified in [48] of these reasons.
The Plaintiff’s Interlocutory Process filed on 15 May 2025 be stood over to 9 September 2025.
Correction of formatting error at [27]. Correction of typographical error at [81].
BHG Investment 100 Pty Ltd
Nanevski Developments Pty Ltd [2025] NSWSC 936
(2001) 108 FCR 77
Properly construed, the indemnity sought in the Plaintiff’s Interlocutory Process is an indemnity against:
It follows that, upon the appointment of the Receiver, the Directors’ authority has been inhibited to the extent that the exercise of their authority will prejudice the Plaintiff’s interests in relation to any of the assets of the Defendant, not just the Land.
The issue then arises whether the Directors’ causing the Defendant to conduct the Defence and Cross-Claim may prejudice the Plaintiff’s interest in the assets of the Defendant. This is another question of fact.
The evidence suggests that the solicitor for the Defendant is being paid by a third party and presumably any other expenses of the Defence and Cross-Claim are being funded in the same way. To that extent, the Plaintiff’s interest in the assets of the Defendant will not be prejudiced by Directors causing the Defendant to participate in these proceedings as contemplated by those documents. However, an adverse costs order against the Defendant is likely to be different. If it is satisfied by the Defendant, it’s assets will be diminished. Given the substantial shortfall with which the Plaintiff is already confronted on sale of the Land, a diminution of any other assets which the Defendant has will prejudice the Plaintiff. On the facts of this case, an indemnity from the Directors is necessary to remove that prejudice.
It is in this sense that the statement about discretion in paragraph [22] of Ball J’s judgment in the Pearsall case is to be understood. An issue about the directors giving an indemnity will arise as part of the factual inquiry by the Court into prejudice to the secured creditor’s interest as a result of the conduct which the directors cause the company to take. If, absent an indemnity, the secured creditor may be prejudiced then the directors do not have the authority to cause the company to bring the proceedings. On those facts, the response of the Court is to dismiss (as in the Deangrove case) or stay (as in the Pearsall case) the proceedings. It is not for the Court to make some form of order to remediate the factual situation, such as an order that the directors give an indemnity. In each of the Deangrove and Pearsall cases, the Court made no such order but instead stood the proceedings over so that the parties and directors would have a chance to change the facts if so advised. Absent change, the company’s proceedings might be dismissed or stayed on the next occasion rather than continue as proceedings which the directors lacked the authority to cause the company to take. The alternative approach is for the Court to order that the indemnity and security be provided and stay the proceedings until they are provided (as in Mainland Property Holdings Pty Ltd v Haplend Pty Ltd) which is in substance the same approach.
In Aboughattas v Oak Capital Mortgage Fund Pty Ltd at [36], Garde J described an order that directors provide an indemnity and security as discretionary, but that approach conflicts with the approach taken by Ball J in the Pearsall case and by Sackville J in the Deangrove case. It is also difficult to reconcile with the factual analysis of McElwaine J in Mainland Property Holdings Pty Ltd v Haplend Pty Ltd.
The Plaintiff’s application in this case requires a judgment to be made about whether the indemnity to be given by the Directors will be satisfactory. More precisely, the question is whether, on the facts of this case, the interests of the Plaintiff will be prejudiced by the assets of the Defendant being threatened or imperilled if no security is given for the Directors’ indemnity.
As a matter of fact I make that finding. The indemnity is worth no more than the Directors’ ability to pay if called upon. The estimate of the Plaintiff’s costs, which is not challenged, means an adverse costs order may be approximately $475,000. In the face of that figure the Directors concede that they do not have any assets with which to provide security for their indemnity. Beyond that concession it is not necessary to consider the evidence about the Directors’ assets, or the lack thereof. Nor is it necessary to consider whether the Directors bear the onus of proving the facts upon which their authority depends in the circumstances in which the issue has been raised before the Court by the Plaintiff.
The finding of fact having been made, the other factors relied upon by the Plaintiff do not need to be considered. A number of the Plaintiff’s factors are in the nature of discretionary considerations and do not touch upon the factual issue which has arisen on this application.
In light of the Directors’ willingness to give an indemnity and in the absence of evidence that security will not be forthcoming, there may be utility in standing the proceedings over for a short period. That approach will be consistent with the approach taken by the Court in the Pearsall case. The Plaintiff’s Interlocutory Process, including paragraphs 7 and 8, will be adjourned for 21 days. If on the next occasion the Plaintiff’s interests are no longer prejudiced by the Defendant continuing with the Defence and Cross-Claim, the Interlocutory Process can be dismissed.
A further issue which arose at the hearing of the Interlocutory Process was whether the Directors ought to be required to provide security for their indemnity, or even required to give the indemnity, where they wish to cause the Defendant to mount a defence to the proceedings commenced by the Plaintiff. Unlike most cases in this area (but not all: Aboughattas v Oak Capital Mortgage Fund Pty Ltd), this is not a case where a director causes a company to commence proceedings. In the ordinary course, security will not be ordered for the costs of defending proceedings brought by another. That issue passes away when the provision of the Directors’ indemnity and security is viewed as a question of the Directors’ authority to cause the Defendant to take steps in the proceedings. If the Directors lack authority, the Defence and Cross-Claim are to be stayed or dismissed. The proceeding will then be like any other undefended proceedings and the Plaintiff will have available to it the usual options which arise in such circumstances.