Lockwood & Anor v White [2005] VSCA 30

Lockwood & Anor v White [2005] VSCA 30 - VSCA 2005 case summary — Zoe

[62]

It may be true, as her Honour noted, that there is little authority concerning the effect of "pooling orders" upon the application of liens. That is probably because the expression is not a term of art, but a term of convenience which has been sparingly used (or, at least, so it would seem) by judges in this context. But it would seem to me to be quite inappropriate to ignore the Corporations Act and its provisions as to the according of priority in the distribution of funds, and to give precedence on the basis of a "pooling order". There seems to me to have been no capacity in the judge to do so. In any event, whatever clause 5 of the orders of 7 August 2000 was intended to achieve, its terms do not seem to me to support the contentions now made by the administrators. It is correctly pointed out by Mr. Peters, on behalf of the respondent, that no reasons were given by her Honour for the orders so made, and that they were made in the course of a contest between ASIC and the administrators who, for their part, were opposing ASIC's application for the winding up of the companies to which they had been appointed. The liquidator, thus, was not a party to those orders and, as he said, had barely embarked upon the windings up of the companies to which he had shortly before been appointed liquidator. Indeed, one of the bases upon which the liquidator had approached the court subsequently to seek its indulgence pursuant to s.1322 of the Act was the uncertainty as to whether it was the intention of the orders of August 2000 to "pool the liquidations of the companies" or to "pool only" the liquidation of the scheme. Furthermore, as counsel for the liquidator pointed out, clause 5 of the orders of August 2000 refers to the payment of the proper costs and expenses of the administrators under s.443A of the Corporations Law and their costs being "paid in the priorities set out in s.556 of the Corporations Law ...". S.556 of the Corporations Law (or "Act" as it is now) is stipulated to be "subject to this Division". Thus, it is subject (inter alia) to:

[64]

In any event, as it seems to me, the administrators were appointed to administer individual companies; which administrations they contended were appropriately based. That is why they opposed the applications for winding up. Their appointments were made on or about 20 July 2000, at a time shortly after the liquidator had embarked upon the winding up of seven of the companies in the Group. Their administrations had proceeded for a little less than three weeks when they were cut short by the orders made by her Honour on 7 August 2000. By that stage - as the liquidator himself said - he had not proceeded far with the windings up. The "pooling order" - if that is what clause 5 was - only took effect after the administrations were terminated by the order of 7 August. In those circumstances it would have been, in my view, inappropriate for the liquidator to pay the administrators' remuneration and expenses out of assets which were neither a claim upon nor belonged to the companies which they had been appointed to administer. Whatever security the administrators had for their remuneration and expenses could, in my view, only attach to the assets of the administered companies. By s.433F of the Act, an administrator's statutory lien to secure his right of indemnity under s.443D is a lien "on the company's property" - that is the property of the company to which he has been appointed as administrator. If it were otherwise (as counsel for the administrators contends), it would mean, on the interpretation that the administrators place upon the orders of 7 August 2000, that the administrators are entitled to $187,000 remuneration and expenses for administering 10 companies over a three week period from assets of companies which were not under their administration;; while the liquidator should await the realization of the assets of 54 companies in the Group before recovering his remuneration and expenses for doing so. Indeed, so the administrators contend, the liquidator should also pay interest on the administrators' remuneration. With or without a "pooling" such a result would be absurd and, whatever clause 5 may mean, it cannot have that result. Her Honour was quite correct to reject such an argument. In doing so she recognized the priority of payment to the liquidator out of the funds which he had realized and referred to a passage in the judgment of Dixon, J. in Re Universal Distributing Company Limited (In Liquidation)[2] which her Honour described as a "useful starting point". Dixon, J. said (at pp.174-5):

[65]

"If a creditor whose debt is secured over the assets of the company come in and have his rights decided in the winding up, he is entitled to be paid principal and interest out of the fund produced by the assets encumbered by his debt after the deduction of the costs, charges and expenses incidental to the realization of such assets (In re Marine Mansions Co. (1867) L.R. 4 Eq. 601, at p.611). The security is paramount to the general costs and expenses of the liquidation, but the expenses attendant upon the realization of the fund affected by the security must be borne by it (In re Oriental Hotels Co.; Perry v. Oriental Hotels Co. (1871) L.R. 12 Eq. 126). The debenture-holders are creditors who have a specific right to the property for the purpose of paying their debts. But if it is realized in the winding up, a proceeding to which they are thus parties, the proceeds must bear the cost of the realization just as if they had begun a suit for its realization or had themselves realized it without suit (cf. In re Regent's Canal Ironworks Co.; ex parte Grissell (1875) 3 Ch. D. 411, per James, L.J. at p.427; and see Batten v. Wedgwood Coal and Iron Co. (1884) 28 Ch. D. 317, per Pearson, J. at p.325). In applying this principle, only those expenses appear to have been thrown against the fund belonging to the debenture-holders which have been reasonably incurred in the care, preservation and realization of the property. In the present case the liquidator has employed a material part of his time and energies in recovering moneys, both uncalled capital and debts, which enure for the debenture-holder, and in so far as these services increase the remuneration which he receives, I see no reason why the burden should not be thrown upon the proceeds. The question is not whether moneys available for unsecured creditors should be relieved at the expense of the security. In such a case it may be said that the service of collecting enough to discharge the debenture must in any event be performed in order that a surplus may then arise in which the unsecured creditors may participate. The question in the present case is whether the liquidator can charge against the fund passing through his hands as between himself and the person to whom it is payable, so much of the remuneration fixed for work done in the winding up as is referable to the calling in and conversion of the assets producing the fund. I see no reason why remuneration for work done for the exclusive purpose of raising the fund should not be charged upon it."

[76]

To my mind these arguments are not persuasive. It is true that s.443D of the Corporations Act gives to the administrator a right of indemnity "out of the company's property" for the administrator's debts and remuneration and that by s.443E the statutory indemnity has "subject to s.556" priority over the company's unsecured debts. It is also true that the administrators' statutory indemnity is secured by the statutory lien (s.443F) over "the company's property", and thus makes the administrators "secured creditors". However, the administrator also has an entitlement to an indemnity in equity out of the assets of the company which is supported by an equitable lien which attaches to those assets which are realized in the administration. The administrator's equitable lien is separate and distinct from his statutory lien. The equitable lien makes the administrator a "secured creditor" and, to the extent that it attaches, gives the administrator priority over the unsecured priority creditors referred to in s.556. This, in my view, is the point which was being made by Austin, J. in Weston's case; a point which was made clear by the Full Federal Court in the case of Shirlaw v. Taylor[5]. Those authorities also make it clear that a liquidator, too, has an equitable lien which attaches in the same way over assets which he has realized in the winding up[6]. The liquidator's equitable lien gives him the same priority over unsecured priority creditors as does the administrators' equitable lien. The court in Shirlaw's case made it quite clear that where a party has, by his efforts, brought into court a fund in the administration of which various parties are interested, that party's costs and expenses should be a first claim upon that fund. Indeed, that was the essence of the decision of Dixon, J. (as he then was) in Re Universal Distributing Co. Ltd. (In Liq.)[7]. The reasoning in Shirlaw's case was directed to the rights and claims of a provisional liquidator; but in Weston v. Carling Constructions[8], Austin, J. concluded that the rights and claims of an administrator were governed by the same principles. Thus the statutory lien conferred by s.443F of the Act upon the administrator makes him a secured creditor for fees and expenses incurred; and in that sense entitles the administrator to precedence over the unsecured priority creditors listed in s.556[9]; but - nevertheless - subject to the liquidator's equitable lien.

At a glance

Court

Decision date

Before

Source

Judgment (95 paragraphs)

Parties