Receivers' duties, liabilities, functions and powers
71 Receivers or receivers and managers may be appointed out of court under an instrument conferring power on a secured party to appoint the receivers or by the Court in the exercise of its powers under s 23 and s 57 of the Federal Court of Australia Act 1976 (Cth). Receivers, which includes receivers and managers and other controllers, appointed in respect of property of a corporation are regulated by Pt 5.2 of the Act. (For ease of reference, 'receivers' is used in these reasons to refer to receivers, receivers and managers, or any other controller of property of a corporation.)
72 Sections 416, 417 and 418 deal with application of Pt 5.2, the property to which it applies, and persons qualified to be receivers. In general, where two or more receivers (whether receivers, receivers and managers, controllers, or managers) are appointed they may act severally: ss 434D - 434G. In general, after the appointment of receivers, third-party rights cannot be enforced against the corporation for reasons connected to the appointment of the receivers and (or) the financial position of the corporation: ss 434J - 434M.
73 Receivers generally act as agent of the company and are able to deal with its property and manage its business in that capacity. The agency is of a special character in that the receivers are not subject to the company's control. In Carey v Korda [2012] WASCA 228; (2012) 45 WAR 181 (Murphy JA, Martin CJ and Newnes JA, agreeing) summarised the principles applicable to the position of a receiver appointed out of court, relevantly, as follows:
45 The essential elements of the law of modern receivership are generally regarded as deriving from the dissenting judgment of Rigby LJ in Gaskell v Gosling [1896] 1 QB 669, which was affirmed in the House of Lords (Gosling v Gaskell [1897] AC 575), and referred to with evident approval in Australian Mutual Provident Society v George Myers & Co Ltd (in liq) (1931) 47 CLR 65 at 82, 95. Rigby LJ described the "almost penal liabilities" imposed on a mortgagee in possession at law and observed that courts favoured "any means which would enable the mortgagee to obtain the advantages of possession without its drawbacks" (at 691). In order to overcome the disadvantages, mortgagees began to include, in the mortgage, a covenant requiring the mortgagor to appoint a receiver with wide powers of management, to receive income from the mortgaged property in order to effect payments to the mortgagee. The covenant was enforceable at the suit of the mortgagee.
46 Mortgage instruments later evolved to include a stipulation that the mortgagee itself, and not the mortgagor, should have the right to appoint the receiver. Though it was the mortgagee who appointed the receiver, the object of the parties was that the receiver should act as agent of the mortgagor. It was a term of the contract that the mortgagor would not revoke the appointment of the receiver. Rigby LJ observed (at 692):
Of course the mortgagor cannot of his own will revoke the appointment of a receiver, or that appointment would be useless. For valuable consideration he has committed the management of his property to an attorney whose appointment he cannot interfere with. The appointment so made will stand good against himself and all persons claiming through him, except incumbrances having priority to the mortgagee who appoints the receiver.
47 Under the general law, the existence of the agency also assisted the receiver by imposing liability in respect of his or her dealings with third parties upon the mortgagor, rather than upon the receiver personally: Sheahan v Carrier Air Conditioning Pty Ltd (1997) 189 CLR 407 at 433; cf the statutory personal liability for certain debts incurred, including for services rendered and property leased, under s 419 of the Corporations Act.
48 In Visbord v Federal Commissioner of Taxation (1943) 68 CLR 354 at 381-382, Williams J referred to this "well-established legal device" as enabling the mortgagee to obtain the benefits, but without being subject to the liabilities, of the mortgagee in possession. His Honour added:
The appointment of the receiver divests the mortgagee of all powers with respect to the mortgaged property which the receiver is appointed to exercise (Woolston v Ross (1900) 1 Ch 788). The receiver takes complete control of the mortgaged property and the mortgagor is as effectively dispossessed from control as he would be if the mortgagee had entered into possession (Inland Revenue Commissioners v Thompson (1937) 1 KB 290; Meigh v Wickenden (1942) 2 KB 160, at pp 168, 169).
Although the receiver is in law the agent of the mortgagor, he occupies a very special position. He is appointed to and may be removed from office by the mortgagee.
49 Reference was made by Dawson, Gaudron and Gummow JJ in Sheahan v Carrier Air Conditioning Pty Ltd (at 432-433) to the above observations of Williams J. Dawson, Gaudron and Gummow JJ continued, with respect to the true character of the agency (at 436):
That character is indicated in the following passage from the judgment of Sir Raymond Evershed MR in In re B Johnson & Co (Builders) Ltd [1955] Ch 634 at 644-645:
[A] person appointed as receiver and manager is concerned, not for the benefit of the company but for the benefit of the mortgagee bank, to realise the security; that is the whole purpose of his appointment; and the powers which are conferred upon him, and which I have to some extent recited, are … really ancillary to the main purpose of the appointment, which is the realisation by the mortgagee of the security.
More recently, in Gomba Holdings UK Ltd v Homan [1986] 1 WLR 1301 at 1305; [1986] 3 All ER 94 at 97; affd [1988] 1 WLR 1231; [1989] 1 All ER 261, Hoffmann J, in referring to this passage, said that a receiver and manager "is no ordinary agent" and continued:
Although nominally the agent of the company, his primary duty is to realise the assets in the interests of the debenture holder and his powers of management are really ancillary to that duty.
50 In that regard, there is no general fiduciary relationship between the receiver and the company in receivership: State Bank of New South Wales Ltd v Chia (2000) 50 NSWLR 587 at [869]-[870]; Bride v Freehill Hollingdale & Page [1996] ANZ ConvR 593 at 596.
51 Under the general law, a receiver's duties are, in broad terms:
(a) to the mortgagee, to collect and realise the assets, in order to discharge the secured debt;
(b) to the mortgagee, a duty to keep it informed about the progress of the receivership;
(c) as donee of the power, to exercise the powers and duties in good faith and for proper purposes;
(d) to the mortgagor, to act in good faith in the exercise of the powers of sale, in the same way that a mortgagee owes duties of good faith in that regard; and (e) to the mortgagor, to hold the balance of the proceeds of sale after discharge of the secured debt, on trust for the mortgagor.
See Meagher, Gummow and Lehane's Equity: Doctrine and Remedies (4th ed, LexisNexis, 2002) [28-225]-[28-235], and the cases there cited.
52 Section 419 of the Corporations Act, relevantly provides:
(1) A receiver … who, whether as agent for the corporation concerned or not, enters into possession or assumes control of any property of a corporation for the purpose of enforcing any security interest is, notwithstanding any agreement to the contrary, but without prejudice to the person's rights against the corporation or any other person, liable for debts incurred by the person in the course of the receivership, possession or control for services rendered, goods purchased or property hired, leased … used or occupied.
(2) Subsection (1) does not constitute the person entitled to the security interest a mortgagee in possession.
53 As to s 419, see AGL Victoria Pty Ltd v Lockwood (2003) 10 VR 596 at [23]-[31].
54 The general law duties have also been modified by statute to include a duty, in a sale of the property of a corporation, to exercise reasonable care to obtain market value or the best price otherwise reasonably available: s 420A of the Corporations Act, read with the definition of "controller" in s 9. There are also certain statutory duties, including duties of care and diligence and good faith, imposed under ss 180, 181, 182, 183 and 184 of the Corporations Act, read with the definition of "officer" in s 9 of that Act.
74 Regarding s 419, as a consequence of the receivers' position as agent of the company, unless the receivers adopt existing contracts with third parties, it is the company and not the receivers which is liable to third parties for performance or non-performance rather than the receivers personally: Nardell Coal Corp (in liq) v Hunter Valley Coal Processing Pty Ltd [2003] NSWSC 642; (2003) 178 FLR 400 at [69] (Campbell J). Nonetheless, in certain circumstances, receivers will become personally liable for use, occupation or possession of property of a third party under pre-existing contracts with the third party: s 419A.
75 Section 420 relevantly confers the following powers on receivers.
420 Powers of receiver
(1) Subject to this section, a receiver of property of a corporation has power to do, in Australia and elsewhere, all things necessary or convenient to be done for or in connection with, or as incidental to, the attainment of the objectives for which the receiver was appointed.
(2) Without limiting the generality of subsection (1), but subject to any provision of the court order by which, or the instrument under which, the receiver was appointed, being a provision that limits the receiver's powers in any way, a receiver of property of a corporation has, in addition to any powers conferred by that order or instrument, as the case may be, or by any other law, power, for the purpose of attaining the objectives for which the receiver was appointed:
(a) to enter into possession and take control of property of the corporation in accordance with the terms of that order or instrument; and
(b) to lease, let on hire or dispose of property of the corporation; and
…
(h) to carry on any business of the corporation; and
…
(3) The conferring by this section on a receiver of powers in relation to property of a corporation does not affect any rights in relation to that property of any other person other than the corporation.
(4) In this section, a reference, in relation to a receiver, to property of a corporation is, unless the contrary intention appears, a reference to the property of the corporation in relation to which the receiver was appointed.
76 The contractual powers arising under a security agreement are also subject to an implied qualification that they are exercisable only for the purpose of attaining the objectives for which the receivers were appointed. In short, those objectives are the preservation, recovery and realisation of the secured property in order to repay the secured moneys and (or) receive performance of the secured obligations: Bank of New Zealand v Essington Developments Pty Ltd (1991) 5 ACSR 86 at 88 (McLelland J). Receivers, in the absence of a provision to the contrary in the security agreement or instrument of appointment, must be active in the protection and preservation of the secured property: Silven Properties Ltd v Royal Bank of Scotland plc [2003] EWCA Civ 1409; [2004] 1 WLR 997 at [23].
77 The basal duty of receivers is to comply with the terms of the instrument of their appointment and to exercise the powers conferred on them for the purpose of securing or realising the appointor's security. However, an exercise of the powers of the receivers which wilfully sacrifices the interests of the grantor of the security interest or subsequent secured parties is an abuse of the powers involving bad faith: State Bank of New South Wales v Chia [2000] NSWSC 552; (2000) 50 NSWLR 587 at [879], citing Downsview Nominees Ltd v First City Corporation Ltd [1993] AC 295 at 312 (Templeman LJ); Barns v Queensland National Bank Ltd [1906] HCA 26; (1906) 3 CLR 925 at 941-945; Forsyth v Blundell; Associated Securities Ltd v Blundell [1973] HCA 20; (1973) 129 CLR 477 at 493-494, 506-507; and Pendlebury v Colonial Mutual Life Assurance Society Ltd [1912] HCA 9; (1912) 13 CLR 676 at 691-692, 694, 700-703. Receivers who accept an appointment not for the purpose of enforcing a security, but for the purpose of disrupting other receivers appointed by a subsequent secured party and frustrating that secured party's ability to enforce its security, also involves an exercise of the powers in bad faith for an improper purpose: Downsview Nominees at 317-318.
78 Sections 421, 421A, 422, 422A, 422B, 422C, 422D, 426, 429, 429A, 430, 431 and 434H impose certain other duties and obligations and confer certain rights on receivers relating to bank accounts, financial returns and records, books, reports and notifications. The appointer and company also have certain reporting and notification obligations: ss 427, 428 and 429. Broadly, these provisions facilitate performance and exercise and (or) supervision of the performance and exercise, of receivers' functions and powers.
79 There are a number of provisions that confer powers on the Court and (or) ASIC relating to receivers and other controllers. Again, broadly, these powers fall into one of two categories: (1) powers that facilitate performance and (or) exercises of receivers' functions and powers; or (2) powers that are supervisory or disciplinary in respect of receivers' performance and exercise of their functions or powers.
80 The Court has power to authorise receivers to dispose of property that is subject to a security interest that has priority over a security interest in that property that the receivers are enforcing: s 420B. The Court has power to declare whether a purported appointment of a receiver is valid: s 418A. Receivers may apply to the Court for directions in relation to any matter arising in connection with the performance or exercise of any of the receivers' functions and powers as controller: s 424. ASIC has power to audit returns lodged by receivers: s 432. The Court has power to make an order directing receivers to make good a default in making or lodging any return, account, other document or giving any notice, or, failed to render proper accounts and to vouch receipts and payments in circumstances in which they are required to do so: s 434. Amongst the supervisory or disciplinary powers, the Court or ASIC has power to inquire into the performance or exercise of receivers' functions and functions where it appears that there has not been faithful performance of functions or observance of requirements of their appointment or there have been complaints about their acts or omissions in connection with their performance or exercise of their powers and functions: s 423. The Court also has power to remove receivers for misconduct or redundancy: ss 434A - 434C.