Solicitors for plaintiff (respondent): Murdoch Clarke

Solicitors for defendant (applicant): Jennings Elliott

WRIGHT J On 16 March 1995 the plaintiff ("Imperial") commenced proceedings against the defendant claiming $6,135.43 for rent allegedly owing in respect of the defendant's tenancy of Imperial's premises at 138 Collins Street Hobart between 1 September 1989 and 12 July 1991.

2. By an interlocutory application dated 4 April 1995, before pleading to the statement of claim, the defendant's solicitors sought the following orders:

"1 That these proceedings be permanently stayed or

alternatively struck out.

1 (sic) Further and in the alternative that the plaintiff

be required to give security for costs of the defendant in

such sum as fixed by the Master of this Honourable Court and

further stay all proceedings until such security is given in

the sum assessed.

2 (sic) That the costs of and incidental to this

application be provided for.

3 (sic) Such further or other orders as the court shall

deem meet."

3. A supporting affidavit by the defendant disclosed that an order winding up Imperial and appointing John William Woods liquidator was made in the Supreme Court on 3 March 1992. The company had a subscribed and issued capital of $1,000. Its estimated liabilities exceeded $350,000 and there were no assets available to unsecured creditors.

4. The official liquidator did not authorise the present proceedings which were instituted on the instructions of Jedda Investments Pty Ltd ("Jedda"), a secured creditor.

5. The initial hearing of the defendant's application took place on 13 June 1995. Proceedings were adjourned sine die on that day to enable both parties to file further affidavits. The application was relisted on 21 November 1995. An affidavit of Robert William Martin sworn 14 June 1995 exhibited a copy of a mortgage debenture given by Imperial to Jedda on 1 May 1989 charging Imperial's assets, including choses in action, as security for a loan of $100,000. The debenture was registered with the Australian Securities Commission on 2 June 1989 and it was also registered as a Power of Attorney, pursuant to the Powers of Attorney Act 1934 (Tas), on 1 November 1994. The debenture carried a provision (par7) irrevocably appointing Jedda's "Manager, Acting Manager and any Assistant Manager for the time being", the attorney or attorneys of Imperial. Mr Martin's affidavit also disclosed that he has been the manager of Jedda "since prior to March 1995" and had instructed Messrs Murdoch Clarke Cosgrove and Drake, the plaintiff's solicitors, to issue proceedings in this action.

6. Mr Young, counsel for the defendant, submitted that no person can institute proceedings in the name of a company which is in liquidation without the authority or consent of the liquidator. He further submitted that as counsel for the plaintiff, Mr Holt, had conceded for the purpose of this application that his client had neither authority nor consent from Mr Woods, the proceedings were either a nullity or should be permanently stayed.

7. Mr Holt in reply submitted that the Corporations Law, s471C permits a secured creditor to realise or otherwise deal with a security given by a corporation which is being wound up. Here there is a debenture which includes a Power of Attorney held by Jedda. The debenture includes a floating charge over choses in action and that charge crystallised upon the making of the order winding up Imperial. As the allegation being made in this action is that the defendant owed the sum of money now being claimed at the time Imperial went into liquidation, Jedda is "otherwise dealing with" the security within the meaning of s471C and does not need the liquidator's authority to proceed.

8. Mr Holt agreed that by taking this action his client could not, and should not, place the liquidator at risk in the event of the action being unsuccessful and he therefore conceded that security for costs should be given by Jedda. He submitted that by so doing Jedda would avoid the only risk of which the defendant could complain, ie, an inability to obtain costs from the plaintiff if the action were to fail with an order for costs being made in the defendant's favour against the plaintiff.

9. A number of issues were raised by Mr Young as to the sufficiency of the evidence relating to the status of Mr Martin, matters relating to registration of the debenture as a Power of Attorney and the like, but I regard all of these as peripheral to the main issue and, in any event, unsustainable.

10. Mr Holt stated his primary contention in the following terms, viz, the appointment of a liquidator does not affect the authority of a secured creditor to deal with the property the subject of the security as agent for the company in liquidation, subject to the proviso that, as agent of the company, the secured creditor cannot create a liability for the company provable in the winding up and cannot pledge the credit of the company.

11. In Gaskell v Gosling (1896) 1 QB 669 at 699 - 700, Rigby LJ said in a dissenting judgment which was subsequently upheld in the House of Lords:

"What, then, was the effect of the winding-up order? It

could not give the company rights which it did not before

possess: for instance, the right of revoking the appointment

of the receiver, or withdrawing from his control and

management any of the property committed to him, that being

the property, first of all, of the debenture holders, and

only belonging to the company as to the equity of redemption

expectant on the mortgages to them. But, even if there were

any such right on the part of the company, its non-exercise

could not make the trustees principals. No doubt the

company was incapacitated by the winding up order from

carrying on business, and the receiver could not create

debts which would be provable in the liquidation against the

unmortgaged assets of the company that is to say, the

uncalled capital, if any there were. In other words, he

could do longer pledge the credit of the company. But it

seems that he could realize the trade assets and employ them

in further trading so long as he was not stopped by the

trustees for any of the debenture holders."

12. In Gough's Garages Ltd v Pugsley (1930) 1 KB 615 at 625 - 626, Romer LJ said:

"By the debenture the company charged in respect of the

money due to the debenture holders, 'its undertaking and all

its property, present and future, including its uncalled

capital.' ...

The debenture therefore is a first charge upon all the asets

(sic) of the company. Among the assets of the company was

the valuable right attaching to the company as a tenant

under the lease of Nos 10 and 12, Marsh Street, Bristol, to

obtain compensation, or a new lease in lieu of compensation,

under s 4 and s 5 of the Landlord and Tenant Act, 1927.

That is, therefore, a right which is charged in favour of

the debenture holders and forms part of their security. The

debenture provided that at any time after the principal

moneys became due the debenture holders might appoint a

receiver, and the receiver so appointed should have power

'to take possession of, collect, and get in the property

charged by this debenture, and for that purpose to take any

proceedings in the name of the company or otherwise as may

seem expedient.' That clause would therefore empower the

receiver duly appointed by the debenture holders to take the

necessary proceedings for the purpose of obtaining a new

lease in lieu of compensation in respect of which new lease

the company had already given notice to the lessors on April

22, 1929.

In pursuance of that power, the receiver commenced these

proceedings in the county court and rightly commenced them

in the name of the company. When the company was ordered to

be wound up by the Court, as it was by an order dated

October 15, 1929, that right which had been given by

contract to the debenture holders of, among other things,

taking proceedings to obtain this new lease in the name of

the company was in nowise affected. It is perfectly true

(and it has been laid down over and over again) that where,

as happened in this case, the debenture or trust deed

securing the debentures contains the usual clause, that the

receiver appointed under the deed shall be deemed to be the

agent of the company, that the winding up of the company, or

the compulsory liquidation of the company puts an end to the

agency. But it does not put an end in any way to the powers

of the receiver. In my opinion, when this liquidation order

was made, the right of the receiver to proceed in the name

of the company in the county court was in nowise affected."

13. The decision in Gough's Garages Ltd v Pugsley (supra) was followed by McLelland J in the Supreme Court of New South Wales in Re Leslie Homes (Aust) Pty Ltd (1984) 2 ACLC 554 at 557-558:

"However the power of the lender to appoint a receiver of

the property of the company, and the power of the receiver

so appointed to sell and transfer that property as agent of

the company, are both powers ancillary to the exercise by

the lender of its proprietary rights over the company's

property created by the deed of charge, and fall into the

category of powers coupled with an interest so as to be

irrevocable (see eg Re Hale (1899) 2 Ch 107). The

application of the principles relating to irrevocable powers

must however yield to anything inconsistent therewith to be

found, by express enactment or necessary implication, in the

legislation governing the winding up of companies. It has

been held that it is inconsistent with such legislation that

a receiver should, after a winding up, have or retain power

to create liabilities provable against the company in the

winding up (see Gaskell v Gosling (1896) 1 QB 669 at pp 699

- 700, and (1897) AC 575), but that it is not inconsistent

therewith that a receiver should, after a winding up, have

or retain power to bring or continue proceedings in the name

of the company to enforce a chose in action forming part of

the security (see Gough's Garages v Pugsley (1930) 1 KB

615). In Visbord v Federal Commissioner of Taxation (1943)

[1943] HCA 4; 7 ATD 213; (1943) 68 CLR 354 at p 382 Williams J put the

matter thus: 'The company cannot authorize the receiver to

do any act which it is unable to do itself, so that it

cannot empower the receiver, after the date of the

liquidation, to carry on its business so as to create debts

provable against the unmortgaged assets of the company ...

but the receiver can still continue to exercise his powers

in the name of the company although the company is no longer

liable for any debts which he may incur in doing so ...'

The position appears to be that where there is a winding up

the receiver may, as agent, deal with property which is

subject to the charge but may not, as agent, create

liabilities provable in the winding up. In Sowman v David

Samuel Trust Ltd (1978) 1 WLR 22, a case in many respects

similar to the present, Goulding J expressed his conclusion

as follows (at p 30): 'Winding up deprives the receiver,

under such a debenture as that now in suit, of power to bind

the company personally by acting as its agent. It does not

in the least affect his powers to hold and dispose of the

company's property comprised in the debenture, including his

power to use the company's name for that purpose, for such

powers are given by the disposition of the company's

property which it made (in equity) by the debenture itself.

That disposition is binding on the company and those

claiming through it, as well in liquidation as before

liquidation, except of course where the debenture is

vulnerable under s 95 or s 322 of the Companies Act 1948 or

is otherwise invalidated by some provision of law applicable

to winding up.'

In this state of affairs it does not seem to me to be

entirely accurate to say (as is said in some of the cases)

that a winding up terminates a receiver's agency (if the

receiver is appointed before the winding up) or prevents a

receiver's agency arising (if the receiver is appointed, as

in the present case, after the winding up). Rather the

agency remains or arises (as the case may be) but the

receiver's authority as agent is necessarily limited so as

to be consistent with the existence of the winding up.

Accordingly the agency subsists for the purpose of the

receiver's dealing with property charged by the relevant

security, but not (it seems) so as to permit the creation of

any pecuniary liability provable against the company in the

winding up. The subsistence of a receiver's agency,

notwithstanding a winding up, was recognised by Street J in

Re Landmark Corporation Ltd (in liq) (1968) 88 WN (Pt 1)

(NSW) 195 at p 196 where his Honour said: 'The secured

creditor is entitled to stand outside the winding up and to

rely upon his security, including his contractual right

thereunder to appoint a receiver. The effect of a winding-up

order is to restrict the company's corporate capacity to

pursue its objects in its memorandum: at most its business

can thereafter only be carried on so far as is necessary for

its beneficial winding up (cf Companies Act, 1961 s

236(1)(a)). This consequence ensues irrespective of whether

a receiver or the liquidator is in fact exercising a right

of custody and control over the company's assets. And, so

far as a receiver is concerned, although he retains his

right to custody and control, the company, whose agent he

is, no longer has full and free capacity to continue its

business in terms of the objects in its memorandum'."

14. In Mercantile Credits Ltd v Atkins (1985) 1 NSWLR 670, Needham J was referred to a number of authorities including Gough's Garages Ltd v Pugsley (supra) and Gaskell v Gosling (supra) and, after quoting passages from the judgments in each case, including those passages which I have set forth above, he said, "I think that these statements of principle should be applied in the present case."

15. Needham J's endorsement of Gaskell v Gosling and McLelland J's review of other authorities in Re Leslie Homes (Aust) Pty Ltd (supra), were quoted with approval by the New South Wales Court of Appeal in Atkins and Ors v Mercantile Credits Ltd (1986) 4 ACLC 125 at 130 - 131 and (1985) 10 ACLR 153 at 159 and also by Sheppard J (Federal Court) in Re Yates, National Mutual Life Association v Catco Developments Pty Ltd (1989) 88 ALR 583 at 587 - 588. These decisions appear to me to give substantial support to Mr Holt's submissions.

16. No authorities to the contrary were cited by Mr Young. I am therefore satisfied that these proceedings have been properly instituted in Imperial's name in the circumstances of this case and that they should proceed without interference by the Court, except to the extent that an order for security for costs is required.

17. Mr Young has estimated that his client's costs may run as high as $8,000 if the action proceeds to trial. Mr Holt disputes this, suggesting that the issues are within a narrow compass and the trial should not exceed one day. Mr Young suggests that payment of a specified sum should be made into court, whereas Mr Holt claims that an order pursuant to the Rules of Court, O70 would be appropriate.

18. I am really in no position to make a forecast as to the likely duration of the trial or the cost of defending this action. It seems that discovery of documents may be attended by some difficulty and therefore may be somewhat expensive. An award of costs is primarily intended as an indemnity for the successful party. Provision of a finite amount by actual payment into court may, in some circumstances, be insufficient to provide a full indemnity. On the other hand a surety bond by financially sound individuals or organisations in an unlimited amount whilst dispensing with an immediate cash payment, will usually avoid such an outcome.

19. Taking the various factors into account I think that an order in accordance with O70 is appropriate in this case. I therefore direct that two sureties approved by the Registrar enter into a bond in the manner provided for in O70, guaranteeing payment of any such sum as may be recovered by the defendant against the plaintiff for costs in these proceedings. All further proceedings in the action will be stayed until such sureties have been executed.