CORPORATIONS - bodies corporate other than companies and associations - winding up - insolvency - proofs of debt - set-off - whether statutory set-off under Corporations Act, s 553C, is available - held, it is not - whether rule in Cherry v Boultbee applies - where set-off of mutual debts available - held, rule does not apply, mutual debts to be set-off - [2015] NSWSC 440 - NSWSC 2015 case summary

Supreme Court of NSW|2015-03-30|Before: Brereton J, Young J

Background

ADF is a body corporate, incorporated under the (NSW) Anglican Church Bodies Corporate Act 1938, which served as the central treasury vehicle for the Anglican Diocese of Bathurst. ADF operated a complex finance and investment business. It had a commercial bills facility with the Commonwealth Bank of Australia ("the Bank") of $37 million, and overdraft and credit card facilities of $3 million. It lent the funds it raised through its bills facility with the Bank to various diocesan entities, relevantly Macquarie Anglican Grammar School ("MAGS") and Orange Anglican Grammar School ("OAGS").
APT is a body corporate, incorporated pursuant to the (NSW) Anglican Church of Australia Trust Property Act 1917, s 5 ("the Trust Property Act"). It function is to control, manage and invest Church property within the Diocese pursuant to the Trust Property Act and subject to the Diocese's directions - including the Bathurst Anglican Church Finance Ordinance 1959. Pursuant to the Trust Property Act, s 19, all grounds and buildings of the Diocese or of a parish or organisation of the Diocese are owned at law by APT on trust for the purposes of the Church in the Diocese.
On or about 30 September 2013, ADF requested that the Bank not roll over two commercial bills that matured that day, which had an aggregate face value of $36,049,441, and resolved to cease trading and apply to the Court for the appointment of a liquidator. However, ADF, while a corporation, is not a company that can be wound up under the (CTH) Corporations Act 2001; nor does it appear to be a "Part 5.7 Body". The Bank thereupon applied to the Court for the appointment of the receivers, who were appointed by order made on 1 October 2013 (and subsequently continued on 8 October). On 15 October 2013, the Court made orders as to the powers and functions of the receivers for the purpose of enabling them to wind up ADF. Thus the receivers were given powers not ordinarily conferred on receivers to call for and adjudicate proofs of debt and, with the Court's leave, to make distributions to creditors [cf Bank of NSW v Commissioner of Taxation (1979) 145 CLR 438, 449].

Jurisdiction

While the orders of 15 October 2013 provide, to some extent, for the mechanism for proof and adjudication of claims, including by requiring that the receivers take "reasonable steps to adjudicate" the proofs and give notice of any rejection, they do not fix a time for adjudication, nor address the question of set-offs. This may be contrasted with the position applicable in company liquidations under the Corporations Act, where such provision is made respectively by (CTH) Corporations Regulations 2001, reg 5.6.53 (which provides that a liquidator must, within 28 days after receiving a request in writing from a creditor to do so, admit, reject or require further evidence in support of a creditor's formal proof of debt or claim); and Corporations Act, s 553C (which provides for the set-off of mutual debts).
The receivers are not trustees and are therefore not able to resort to (NSW) Trustee Act 1923, s 63, to obtain judicial advice. Nor are they liquidators or administrators of a company, and thus cannot rely on the statutory rights to seek the direction of the court given by the Corporations Act to such appointees. It is doubtful that they can rely on Corporations Act, s 424(1), as (by sub-section (2)) that section is available only to a receiver who is appointed under a power contained in an instrument, which seems to exclude a receiver appointed by the court pursuant to its inherent or statutory power.
However, they are receivers appointed by the court and as such officers of the court. In Glazier Holdings Pty Ltd v Australian Men's Health Pty Ltd (Young J, 30 April 1998, unreported), Young J (as he then was), while declining to embrace a proposition that receivers may always seek the opinion of the court, said "that if a receiver within his own limitations requires the guidance of the court, then normally he should have it". It is a necessary incident of such an appointment that the court must be able to give directions in respect of the discharge of their functions, as was explained by Austin J in Mariconte v Batiste (2000) 48 NSWLR 724 (at 737-738): [74] Case law on the position of a court-appointed receiver gives only limited guidance as to the circumstances in which it is appropriate for the Court to give directions with respect to the execution of the receiver's responsibilities. There is, of course, a great deal of case law with respect to judicial advice to a trustee. Some of it is no doubt applicable to the position of a receiver. For example, in Re IOOF Australia Trustees Ltd [1999] SASC 461, Debelle J drew attention to the distinction between ruling as to the propriety of the trustee's contemplated exercise of discretion, and ruling as to the wisdom of such exercise. That distinction must be borne in mind, in my opinion, in the present circumstances. [75] The position of a court-appointed receiver was explored by Young J in Glazier Holdings Pty Ltd v Australian Men's Health Pty Ltd (Young J, 30 April 1998, unreported). His Honour referred to English authority to the effect that receivers are like officers of the Court, and he cited with approval some observations in Davis v Gray 83 US 203 (1872) at 217-218 which described a receiver as virtually a representative of the court, and of all the parties in interest in the litigation wherein he is appointed. That being so, in my opinion the Court's power to make an interlocutory order for the appointment of a receiver under s 67 of the Supreme Court Act 1970 must carry with it the implied power to give directions with respect to the discharge of the functions for which the appointment is made - at any rate, where (as here) such directions are necessary in a practical sense to enable the receiver to carry out those functions without exposing himself to a real risk of litigation. The power to do so is reinforced by s 23 of the Supreme Court Act.
The court's general equitable jurisdiction extends to the provision of the court's opinion, advice and direction to a receiver it has appointed [Australian Securities and Investments Commission v Commercial Nominees of Australia Ltd (2002) 42 ACSR 240, [11]].
However, the jurisdiction to give the opinion, advice and direction of the court - whether to a trustee, a liquidator or a receiver - is not unlimited. Generally speaking, it is concerned with advice or direction as to how the person seeking it should act in conformity with the law. It is not a jurisdiction to authorise departures from the strict legal position, nor one to alter legal rights.

How should the Receivers treat set-offs?

The Receivers are in doubt as to how they should deal with set-offs in the discharge of their functions in respect of adjudicating proofs of debt, and in particular with APT's contention that the debt admittedly due by it to ADF should be set off against the APT loan before arriving at the amount for which its proof should be admitted. Their application envisages three possibilities: the regime provided by Corporations Act, s 553C (amended interlocutory process, paragraph 1); the "principles of set-off in equity" (amended interlocutory process, paragraph 2); and the "rule in Cherry v Boultbee" (amended interlocutory process, paragraph 4). Application of the principles embodied in s 553C and the principles of set-off would produce the same result: after setting-off its debt to ADT, there would be a net amount owing to APT from ADF of $680,908.47, in respect of which APT would receive a dividend of almost $161,663.09. However, application of the "rule in Cherry v Boultbee" would produce a quite different result: APT would at best be entitled to nothing, and at worst might be liable to pay the receivers almost $310,000. (The principal beneficiary of application of the rule in Cherry v Boultbee would be the Bank, on whose application the receivers were appointed. The court was informed by the receivers that the Bank did not wish to be heard in relation to the present application).

Corporations Act, s 553C

Section 553C, which is relevantly identical to (CTH) Bankruptcy Act 1966, s 86, provides as follows: (1) Subject to subsection (2), where there have been mutual credits, mutual debts or other mutual dealings between an insolvent company that is being wound up and a person who wants to have a debt or claim admitted against the company: (a) an account is to be taken of what is due from the one party to the other in respect of those mutual dealings; and (b) the sum due from the one party is to be set off against any sum due from the other party; and (c) only the balance of the account is admissible to proof against the company, or is payable to the company, as the case may be. (2) A person is not entitled under this section to claim the benefit of a set-off if, at the time of giving credit to the company, or at the time of receiving credit from the company, the person had notice of the fact that the company was insolvent.
As Powell JA explained in Gye v Davies (1995) 37 NSWLR 421 (at 425), the English courts appear to have adopted these principles as early as 1612, and equivalent provisions have appeared in bankruptcy legislation, in England and Australia, at least since 1705 [see also Day & Dent Constructions Pty Ltd v North Australian Properties Pty Ltd (1982) 150 CLR 85, 95, and Coventry v Charter Pacific Corp Ltd (2005) 227 CLR 234, [30]-[33]]. Although it is unclear whether they originated as a principle of equity or were created by statute, the better view is that their origin is statutory [Gye v Davies, 425G] - a view which is also consistent with the statutory origins of the law of set-off at common law. The provisions were later made applicable to insolvent companies [see, for example, Hiley v The Peoples Prudential Assurance Company Ltd (1938) 60 CLR 468, 490, 495, and Day & Dent Constructions v North Australian Properties (1982) 150 CLR 85, 89], and are now included in the Corporations legislation in the form of s 553C.
These statutory provisions for mutual set-off in the context of insolvency are informed by the view that where there are mutual debts, credits and other dealings, but one of the parties is insolvent, it would be unjust to require the solvent party to pay 100 cents in the dollar in respect of its debt, but allow it only some lesser percentage dividend of the moneys owed to it, from the trustee/liquidator. As the High Court said in Gye v McIntyre (1991) 171 CLR 609, in the context of Bankruptcy Act, s 86 (at 618-19): It has often been pointed out that the object of set-off in bankruptcy is, in the words of Parke B. in Forster v. Wilson (1843) 12 M and W 191, at p 204 [1843] EngR 1141; (152 ER 1165, at p 1171), "to do substantial justice between the parties, where a debt is really due from the bankrupt to the debtor to his estate". Where there are genuine mutual debts, credits or other dealings, it would be unjust if the trustee in bankruptcy could insist upon having one hundred cents in the dollar upon the whole of the debt owed to the bankrupt but at the same time insist that the bankrupt's debtor must be satisfied with a dividend of some few cents in the dollar on the whole of the debt owed by the bankrupt to him. It was to prevent such injustice that the "mutual credits" and "mutual debts", and later "mutual dealings", provisions were introduced into bankruptcy legislation (see, e.g., In re Daintrey; Ex parte Mant [1900] 1 QB 546, at pp 572-573; Day and Dent Constructions Pty. Ltd. v. North Australian Properties Pty. Ltd. [1982] HCA 20; (1982) 150 CLR 85, at p 95). To the extent necessary to achieve that legislative purpose of "substantial justice" to the parties, it is established by authority that a provision such as s.86 of the Act should be given "the widest possible scope" (see, e.g., per Mason J., Day and Dent Constructions, at p 108, quoting Lord Esher M.R. in Eberle's Hotels and Restaurant Company v. Jonas (1887) 18 QBD 459, at p 465).
However, it is to be noted that that passage (which, in this respect, reflects the tenor of the judgment as a whole) is an explanation of the legislative purpose of the provisions that enable set-off in insolvency - not of a general equitable principle - and is indicative of the legislative provisions for set-off in insolvency being remedial, rather than reflective of some pre-existent principle of equity.
The present importance of this is that Corporations Act, s 553C, applies to an insolvent company that is in liquidation. ADF, although a corporation pursuant to Corporations Act, s 9 and s 57A(1)(b), is not a company, nor is it in liquidation: it was essentially because it could not be wound up under the Corporations Act that the course of appointing receivers was adopted. Accordingly, s 553C does not apply in the present circumstances. In advising the receivers how to perform the functions they have been given, it is not open to the court to advise that they should determine legal rights in a manner inconsistent with the law that governs those rights. Thus it is necessary to consider the legal position, apart from s 553C.

Cherry v Boultbee

The rule in Cherry v Boultbee (1839) 41 ER 171 would require that as a condition of participating as a creditor of ADF in the fund constituted by ADF's net assets, APT would first have to contribute the amount of its debt to ADF.
The rule originated in Jeffs v Wood (1723) 24 ER 668, in which the plaintiff, as executor of his father's estate, held a fund for distribution to the legatees under the will, of whom the defendant was one. The defendant, who owed a debt to the estate, had become bankrupt and his property was vested in his assignees. Lord Jekyll MR said (emphasis added) "it is very just and equitable for the executor to say that the defendant the legatee has so much of the assets [of the estate] in his own hands, and consequently is satisfied pro tanto", and: In the present case, the assignees of the commission of bankruptcy against the defendant Wood bring that bill for the legacy, and standing in the place of the legatee, can be in no better case; and therefore, as the legatee had he brought his bill for the legacy, might have been told by the executor, that having so much of the assets in his hands, he was consequently paid so much of his legacy, surely the same thing may now be insisted upon against the assignees, who stand in the place of, and represent the legatee.
The case appears to hold no more than that where a creditor of a fund is also indebted to the fund, he or she may be treated as having been paid to the extent of the outstanding debt.
In Cherry v Boultbee itself, the relevant fund was the estate of Catherine Boultbee, who was owed a debt by her brother Thomas, to whom she left a legacy which exceeded his indebtedness to her. Thomas became a bankrupt during Catherine's lifetime, and Cherry was his assignee-in-bankruptcy. Cherry sued the executors for legacy, and they sought to set off the debt. Lord Cottenham LC said (at 41 ER 173) (emphasis added): It must be observed that the term "set-off" is very inaccurately used in cases of this kind. In its proper use, it is applicable only to mutual demands, debts and credits. The right of an executor to retain a sufficient part of a legacy given by the creditor to the debt, to pay a debt due from him to the creditor's estate, is rather a right to pay out of the fund in hand, than a right of set-off.
For a number of reasons connected with Thomas' status as a bankrupt, the rule was held not to apply. But the description of the rule as "a right to pay out of the fund in hand" - that is to say, to use the debtor's legacy to satisfy his debt, pro tanto - reflects a right to treat the legatee as paid to the extent of the outstanding debt. Thus in neither Jeffs v Woods nor in Cherry v Boultbee is it implicit that the fund can retain the whole of the legacy to satisfy a debt of a lesser amount.
However, in Courtenay v Williams (1844) 67 ER 494, Wigram VC elaborated the rule by adding a second formulation: Several ways of putting the case may be suggested in support of the argument on the part of the executors. They must say to the legatee, "We admit your right to the legacy; you have assets of the testator in your hands; pay your legacy pro tanto out of the assets;" as in Jeffs v Wood and Campbell v Graham (1831) 1 Russ & M 453 [39 ER 175]. Again, the executor might say, "You ask for a portion of the assets of the testator; but you are yourself a debtor to the testator's estate, and his assets are diminished pro tanto by your default; it is against conscience that you should take anything out of the estate until you have made good what you owe to it.
While the first alternative reflects Jeffs v Wood and Cherry v Boultbee, the second goes further, and appears to be the origin of the later classic formulations of the rule to be found in Re Akerman [1891] 3 Ch 212, 219-20, Turner v Turner [1911] 1 Ch 716, 719; Re Peruvian Railway Construction Company Ltd [1915] 2 Ch 144, 150. Thus in Re Akerman, Kekewich J stated the principle as follows: A person who owes an estate money, that is to say, who is bound to increase the general mass of the estate by a contribution of his own, cannot claim an aliquot share given to him out of that mass without first making the contribution which completes it. Nothing is in truth retained by the representative of the estate; nothing is in strict language set off; but the contributor is paid by holding in his own hand a part of the mass, which, if the mass were completed, he would receive back.
And in Turner v Turner, Cozens-Hardy MR said: … when a legatee is also a debtor of the testator the executors have a right of set-off or retainer, I care not for the moment what word you use, but the principle is that the legacy shall not be paid except out of the debt which is owing by the legatee to the testator. I do not doubt that principle. I think that the more logical and correct mode of explaining the doctrine is this: You, the debtor, have in your hands part of the assets of the testator and you cannot claim any part of the assets of the testator, out of which of course your legacy must be paid, without bringing into the estate that portion which is now in your pocket; or, in other words, your legacy must be treated as paid pro tanto out of the assets of the testator which you have in your pocket…
Then Sargant J formulated the rule in the terms in which it is most commonly stated in Re Peruvian Railway Construction Company Ltd [1915] 2 Ch 144 (at 150): where a person entitled to participate in a fund is also bound to make a contribution in aid of that fund, he cannot be allowed so to participate unless and until he has fulfilled his duty to contribute.
Thus, although Jeffs v Wood and Cherry v Boultbee might have been capable of a narrower explanation, the later authorities establish an equitable principle, founded in conscience, that a contributor to a fund will not be permitted to participate until the contribution has been completed.
The application of the rule where the fund is insufficient to pay in full all claims on it was illustrated by A.H. Simpson J in In re King (1914) 31 WN (NSW) 55, holding that, where the legacies must abate, the abatement must be calculated on the whole legacy (not the difference between the legacy and the advance), but for the purpose of calculating the fund the advances must be taken into account.
That is consistent with the approach taken by Buckley J in what appears to be the first case in which the rule was applied in the context of company liquidations. In Re Leeds and Hanley Theatres of Varieties Limited [1904] 2 Ch 45, the liquidator of Consolidated Exploration and Finance Company Limited (the Finance company), which had gone into voluntary liquidation in 1898, applied, in the winding up of Leeds and Hanley Theatres of Varieties Limited (the Theatre company), which had been wound up by court order in 1899, for the direction of the court as to the proper method of distributing the assets of the Theatre company. The Finance company was the original promoter of the Theatre company and, when the Theatre company was wound up, was a creditor under a debenture for which a proof was admitted for 5100l. Subsequently, the liquidator of the Theatre company brought misfeasance proceedings against the Finance company, which was ordered to pay 12,000l damages. All other creditors of the Finance company had been satisfied, and it had remaining assets of 7677l. The liquidator of the Finance company paid the 7677l the liquidator of the Theatre company in part payment of the 12,000l damages. The Finance company subsequently became liable for damages for misfeasance to other persons for a total of 5490l. The liquidator of the Theatre company distributed the 7677l among creditors other than the Finance company - being a dividend of about 80% - and retained a sum of about 3000l. The liquidator of the Finance company sought a declaration that the liquidator of the Theatre company was not entitled to retain or make any set-off against the dividend due to the Finance company in respect of its admitted claim for 5100l, an order for payment of that dividend, and an order for repayment of the amount by which the 7677l received by the liquidator of the Theatre company exceeded the dividend payable in respect of the 12,000l damages pro rata with all creditors of the Finance company, or alternatively repay the sum received in excess of the amount owing on balance of account.
Buckley J rejected the Finance company's contentions, holding that (1) there could be no set-off between the 5100l debenture and the 12,000l damages, as the latter arose after the date of the winding-up and was not amenable to set-off [Ex parte Pelly (1882) 21 Ch D 492]; (2) the Finance company, being both a debtor to the fund to be administered and a claimant on it, could not claim a dividend out of the fund until it had made the fund complete [Ex parte Theys (1884) 25 Ch D 587, 593]; and (3) the correct approach was notionally to treat the Finance company as having paid the 12,000l to the Theatre company, and declare a dividend on the total assets of the Theatre company calculated on that basis (including the Finance company as to 5100l); if the dividend to which the Finance company was thus entitled exceeded the outstanding balance it owed the Theatre company, it would receive the difference, but otherwise, it would receive nothing.
In Re Kaupthing Singer and Friedlander Ltd [2011] UKSC 48, Lord Walker, while suggesting that the rule is not a complex technical one and does no more than provide a method of netting-off reciprocal monetary obligations (at [8]), recognised that, in the context of insolvency, it produces a different result from statutory set-off: The expression "the rule in Cherry v Boultbee" suggests a technical rule of some complexity. Any such impression would be misleading. It is basically a simple technique of netting-off reciprocal monetary obligations, even where there is no room for legal set-off, developed and used by masters in the Court of Chancery in giving directions for the administration of the estates of deceased persons. Complication arises only in a situation of insolvency, where the equitable rule produces a different outcome from that produced by statutory set-off.
Application of the approach in In re King and Leeds & Hanley Theatres to this case would require the divisible fund to be calculated by notionally treating APT as having paid its debt to ADF, and declaring dividend on the fund so calculated. As the dividend would not exceed the debt, APT would receive nothing.
Another case in which the rule was considered in the context of company liquidation was Re Peruvian Railway Construction Company Ltd, in which the company went into liquidation in 1914. Mr Alt, who held a substantial number of fully paid shares in the company, and also owed it a significant debt, had died insolvent in 1908. The liquidator sought to deduct the full amount of the debt from any distribution of surplus assets to Alt's estate, so that the company would receive the whole of its debt, rather than merely a dividend in Alt's insolvent estate. The executors argued that the estate was not liable to pay any more than the dividend payable in Alt's bankruptcy, which predated the liquidation. Sargant J accepted that the rule would prevent a person who was at the commencement of the liquidation both a debtor of and a shareholder in the company from receiving a share of the surplus assets without contributing to that surplus by the amount of his debt, but also that as Alt was bankrupt at the date of the liquidation, as in Cherry v Boultbee, his estate was obliged to contribute not the full amount of the debt but only a dividend. But it was conceded that there was no statutory set-off within the language of the Statute of Set Off, and also that the case was not one of mutual dealings so as to raise any question of set-off under the Bankruptcy Act.
In Otis Elevator Co Pty Ltd v Guide Rails Pty Ltd (in liquidation) [2004] NSWSC 383; (2004) 49 ACSR 531, Palmer J, drawing on Cherry v Boultbee and Peruvian Railway, suggested that, where the claimant on and debtor to the fund is insolvent, the rule is (at [39]): A person who is both a claimant on, and a debtor to, a fund cannot obtain payment of his claim out of the fund until he has first paid his debt into the fund PROVIDED THAT if the claimant's estate is being administered in insolvency at the time that his claim against the fund arises, the claimant's insolvent estate cannot obtain payment of the claim out of the fund until it first pays into the fund such dividend on the claimant's debt to the fund as is available from the claimant's insolvent estate.
His Honour did not need to resolve an argument that the rule has been ousted, in the context of company liquidations, by the Corporations Act (at [63]). The application of the rule to company liquidations was doubted in Fused Electrics Pty Ltd (in liq) v Donald [1995] 2 Qd R 7, but Leeds & Hanley Theatres and Peruvian Railway were not referred to, and the preferable explanation of that case is that the rule must yield to statutory provisions for set-off of mutual dealings and priority of debts; indeed it was for that reason that the non-applicability of the statutory set-off provisions was relevant in Leeds & Hanley Theatres and Peruvian Railway.
In each of Leeds & Hanley Theatres and Peruvian Railway, the availability of a set-off was excluded before it was held that the rule in Cherry v Boultbee applied: the debt owed to the company was not one in respect of which the countervailing debt owed by the company could be set-off, because of want of mutuality. This illustrates that the rule in Cherry v Boultbee applies only where set-off is not available. Accordingly, the rule in Cherry v Boultbee will apply in this case, unless the debts are amenable to set-off.

Equitable set-off

Equitable set-off avails a defendant where the party invoking it can show some equitable ground for being protected against its adversary's demand [Rawson v Samuel (1841) 41 ER 451, 458]. The test is whether, having regard to the relationship and closeness of connection between two claims, it would be unjust or inequitable that a plaintiff should be allowed to proceed with its claim without regard to the claim of the defendant [AWA Ltd v Exicom Australia Pty Ltd (1990) 19 NSWLR 705; Australian Mutual Provident Society v Specialist Funding Consultants Pty Ltd (1991) 24 NSWLR 326, 328-329; James v Commonwealth Bank [1992] FCA 420; (1992) 37 FCR 445 (Gummow J)]. Thus, equity in certain circumstances permits a defendant to impeach the plaintiff's claim by raising a cross-claim.
But no question of ADF seeking protection against or impeaching APT's claim by a cross-claim arises here; rather, APT seeks to set-off ADF's claim against it to calculate the amount for which its proof should be admitted. Moreover, it does so to avoid the equitable rule in Cherry v Boultbee. I do not think that the doctrine of equitable set-off gives a plaintiff (such as APT, in respect of its proof) a right to set-off a defendant's claim, to avoid the operation of an equitable rule.

Statutory set-off

To recover moneys due to ADF, the receivers must resort to an ordinary action. Were it not for the orders empowering the receivers to receive and adjudicate proofs of debt, persons having claims against ADF would have to enforce them by ordinary action. In connection with any such action, (NSW) Civil Procedure Act 2005, s 21(1), provides that if there are mutual debts between a plaintiff and a defendant in any proceedings, the defendant may, by way of defence, set off against the plaintiff's claim any debt that is owed by the plaintiff to the defendant and that was due and payable at the time the defence of set-off was filed, whether or not the mutual debts are different in nature.
The effect of s 21 is that if either APT or ADF were to sue the other to recover their respective debt, the other party, as a defendant, would be entitled to set-off against that claim the sum of the debt owed to it by the plaintiff. Thus, in an action commenced by the Receivers against APT to recover the $639,561.99, APT could raise as a set-off the amount owed to it by ADF. Moreover, if it wished to recover the balance - because the amount ADF owes APT exceeds the $639,561.99 - APT could cross-claim. One difference between a liquidation and this appointment of the receivers is that there is no automatic stay of proceedings against ADF. While, in aid of the receivership, the court might well, on application, stay proceedings against ADF where the proof of debt procedure has been made available, it would not likely stay a cross-claim brought by APT in proceedings initiated by the receivers. Were APT to cross-claim, then pursuant to Civil Procedure Act, s 90(2)(a), the court could give judgment for the balance only and there is every reason why it would do so, and no reason why not: both debts pre-existed the receivership; both are loans by one party to the other of a reciprocal nature which ought to be treated as countervailing transactions on balance of account; and (ADF being insolvent) the same policy that underlies s 553C applies - that it is unjust to require a debtor/claimant of an insolvent to pay the debt in full but recover only a dividend on the claim. The result would be a judgment in favour of APT for $680,908.47.
In an action commenced by APT against ADF to recover the APT Loan, ADF could raise as a set-off the $639,561.99 owed to it by APT, and the result would be a judgment in favour of APT for the difference, namely $680,908.47. Thus in either case, application of Civil Procedure Act, s 21 and s 90(2)(a), would result in the debts being set-off and a judgment in favour of APT for $680,908.47.
It follows that to require the receivers to set-off APT's indebtedness to ADF against ADF's to APT and admit only the balance due to APT would accord with the legal rights of the parties. As it happens, this is the same outcome as would be produced by application of Corporations Act, s 553C.

Conclusion

The rationale for the appointment of the receivers was that ADF was insolvent but could not be wound up under the Corporations Act, so that receivers should be appointed by the court and empowered to wind it up. The purpose of the orders made on 15 October 2013 was to enable the receivers to wind up ADF in much the same way as liquidators would wind up a company. Thus the receivers were given powers analogous to those of a liquidator, including to call for proofs of debt, to adjudicate on the proofs, to give notice of any rejection and, with the court's leave, to make distributions to creditors. But while, in this receivership, there are close analogies between the functions of the receivers and those of court appointed liquidators of an insolvent company, and although the procedures applicable in a company liquidation provide useful contextual and analogous guidance as to how the receivers should act, the statutory law of company liquidation is not applicable, and the court's jurisdiction to provide advice and direction to the receivers does not authorise orders altering substantive legal rights.
Where, as here, provisions such as Corporations Act; s 553C, do not apply, the equitable rule in Cherry v Boultbee governs, unless set-off is available. Equitable set-off does not avail APT in this case, because APT does not seek to impeach ADF's claim. However, in proceedings at law between ADF and APT, the effect of Civil Procedure Act, s 21 and s 90(2)(a), is that there would be a judgment in favour of APT for the balance due to APT after offsetting the claims. It would thus accord with the legal rights of the relevant parties for the receivers to set off the mutual claims of APT and ADF and admit only the balance. As it happens, that is the same result as would be produced by the application of s 553C, and reflects the policy that where there are mutual debts, credits and other dealings, but one of the parties is insolvent, it is unjust to require the solvent party to pay 100 cents in the dollar in respect of its debt, but only allow it some lesser percentage dividend of the moneys owed to it; thus the mutual transactions should be set off before deciding the net amount due by one party to the other.

Should adjudication of the APT Proof be deferred?

The receivers seek the Court's approval for deferring adjudication of the APT proof until the resolution of the Officer proceeding and the Guarantee proceeding (amended interlocutory process, paragraphs 2A and 3).
The advance of $1,314,000 by ADF to MAGS forms part of the amount of $25,395,884 claimed by ADF in both the Officer proceeding and the Guarantee proceeding - in the Officer proceeding by way of damages from the officers, and in the Guarantee proceeding from the sale of property of APT sufficient to pay that amount. The receivers consider that it is prudent to defer adjudication of the APT proof because the defendants' pleadings in the Guarantee proceeding and the Officer proceeding are said to be ambivalent in respect of the APT loan. In particular, in the Officer proceeding, all twelve defendants were members of the ADF board at the time of the advance of $1,314,000 on 31 December 2011 and the subject of the APT proof. In their defence, the first, second, fourth, sixth, seventh, eighth, eleventh and twelfth defendants, in response to the allegation that the amount of $1,314,000 was made available by the ADF to MAGS on 31 December 2011, admit that funds were made available to MAGS, but otherwise do not admit the allegation. In the Guarantee proceeding, APT admits that ADF made a loan of $1,314,000 to MAGS, but does not admit that MAGS applied for the loan or recommended such application for consideration by the APT, denies that the ADF or the APT considered the loan application or recommended its approval, says that the Bathurst Anglican Church Finance Ordinance 1959-1999 (under which the ADF alleges the APT recommended approval of the loan) was at all material times invalid and of no effect, and says that the APT acted without authority in recommending approval of the loan. In those circumstances, the receivers take the view that it would be prudential and reasonable for them to await the evidence and the findings of the trial judge, in the hearing which is imminent, before adjudicating the APT proof. However, because APT has pressed for a determination, they seek the advice of the court.
By analogy with Corporations Regulations, reg 5.6.53, it is reasonable to expect that the receivers should normally adjudicate a proof - or require further evidence in support of it - within 28 days after receiving a written request to do so. However, a reasonable prospect that evidence might be given and findings made in contested litigation that would be relevant to adjudication of a proof of debt, would be a good reason for deferring adjudication: in litigation, evidence is likely to be tested more comprehensively than in a proof; moreover, it is desirable to avoid the risk of inconsistent decisions.
But APT is not a party to the Officer proceeding, and the issues raised by the pleading in the Guarantee proceeding - to which APT is a party - relate to the on-loan by ADF to MAGS, not to the loan by APT to ADF, and appear to be concerned with authority to make that loan, rather than whether the advance was made. Regardless of whether ADF had the requisite authority and approvals to lend the moneys to MAGS, there does not appear to be any dispute that APT lent the sum in question to ADF. Counsel for the receivers hypothesised that it might emerge, for example, that the loan was made directly by APT to MAGS, but not only is that contrary to all the evidence so far available, it is not suggested by any party.
There is no dispute, in either the Officer proceeding or in the Guarantee proceeding, that APT lent the relevant moneys to ADF. In those circumstances, it is not apparent that the circumstances of the APT loan will be illuminated in any relevant way by the evidence or findings in the Officer proceeding or the Guarantee proceeding, and accordingly they do not provide sufficient reason for deferring adjudication of the APT proof, in circumstances where it appears that ample evidence in support of the proof has been provided. (The receivers did not contend that the pendency of the Guarantee proceeding otherwise justified deferral of adjudication on the basis that relief is sought against APT's property in respect of the ADF loan to MAGS).
Accordingly, the receivers would not be justified in deferring adjudication of the APT proof pending determination of the Officer proceeding and the Guarantee proceeding.

Conclusion

My conclusions may be summarised as follows.
The court's general equitable jurisdiction extends to the provision of the court's opinion, advice and direction to a receiver it has appointed. However, that jurisdiction is concerned with advice or direction as to how the receiver should act in conformity with the law, and is not one to alter legal rights.
While, in this receivership, there are close analogies between the functions of the receivers and those of court appointed liquidators of an insolvent company, and although the procedures applicable in a company liquidation provide useful contextual and analogous guidance as to how the receivers should act, the statutory law of company liquidation - in particular s 553C - is not applicable. Where s 553C does not apply, the equitable rule in Cherry v Boultbee governs, unless set-off is available. Equitable set-off does not avail APT in this case, because APT does not seek to impeach ADF's claim. However, in proceedings at law between ADF and APT, the effect of Civil Procedure Act, s 21 and s 90(2)(a), is that there would be a judgment in favour of APT for the balance due to APT after offsetting the claims. It would thus accord with the legal rights of the relevant parties for the receivers to set off the mutual claims of APT and ADF and admit only the balance. This result would also accord with the policy that informs s 553C, that where there are mutual debts, credits and other dealings, but one of the parties is insolvent, it is unjust to require the solvent party to pay 100 cents in the dollar in respect of its debt, but only allow it some lesser percentage dividend of the moneys owed to it.
There is no dispute, in either the Officer proceeding or in the Guarantee proceeding, that APT lent the relevant moneys to ADF. It is not apparent that the circumstances of the APT loan will be illuminated in any relevant way by the evidence or findings in the Officer proceeding or the Guarantee proceeding, and their pendency does not provide sufficient reason for deferring adjudication of the APT proof, in circumstances where it appears that ample evidence in support of the proof has been provided.
In reaching these conclusions, I have not found it necessary to consider or rely on the rule in Ex parte James (1874) LR 9 Ch App 609 (which was invoked by APT), nor to address any matter pertaining to any alleged lack of independence of the receivers (about which both parties made some submissions, but which was not an issue calling for resolution on this application).
The receivers should be advised: 1. that they should deal with APT's proof by setting off the amount owing by APT to ADF against the amount owed to APT by ADF, and admitting only the balance; and 2. they would not be justified in deferring adjudication of the APT proof pending determination of the Officer proceeding and the Guarantee proceeding.
Both parties' costs should be paid on the indemnity basis from the assets of the receivership. Given the terms of the previous judgment authorising interim distribution to creditors, which made provision for APT by reserving its presumptive pro rata share until its proof was determined, and so as to avoid the necessity for a further application to the court, the Receivers should have leave to make a distribution in respect of the APT proof.
The Court therefore orders that: 1. The applicants deal with the APT proof by setting off the amount owed by APT to ADF against the amount owed to APT by ADF, and admitting to proof only the balance. 2. The applicants would not be justified in deferring adjudication of the APT proof pending determination of the Officer proceeding and the Guarantee proceeding. 3. The applicants' costs and the respondent's costs, each on the indemnity basis, be expenses of the receivership. 4. The Receivers have leave, for the purposes of the orders of 15 October 2013, to make distributions to APT upon their decision upon the APT proof, pro rata with the distributions that have been made to other creditors under the two orders granting leave to make distributions to date.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 29 April 2015

Anglican Church Bodies Corporate Act 1938(NSW)

Mariconte v Batiste (2000) 48 NSWLR 724 Otis Elevator Co Pty Ltd v Guide Rails Pty Ltd (in liquidation) [2004] NSWSC 383; (2004) 49 ACSR 531 Rawson v Samuel (1841) 41 ER 451 Re Akerman [1891] 3 Ch 212 Re Kaupthing Singer and Friedlander Ltd [2011] UKSC 48 Re Leeds & Hanley Theatres of Varieties Limited [1904] 2 Ch 45 Re Peruvian Railway Construction Company Ltd [1915] 2 Ch 144 Turner v Turner [1911] 1 Ch 716 Category: Principal judgment Parties: Barry Frederic Kogan and Joseph David Hayes in their capacity as receivers and managers of the Anglican Development Fund Diocese of Bathurst (receivers and managers appointed) (applicants) Anglican Property Trust Diocese of Bathurst (respondent) Representation: Counsel: P. Dowdy (applicants) D.R. Stack (respondent)

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