On 24 March 1995 the company appointed Mr John Gibbons its administrator. At a meeting of creditors on 28 April 1995 the company went into voluntary liquidation and Mr Gibbons became and remains its liquidator.

Boswell Printing carried on a printing business which was an asset of the Boswell Family Trust. Boswell Printing was trustee of this trust, which was formed by a Trust Deed dated 9 June 1987; the name of Boswell Printing then was Fetaki Pty Ltd and the name of the trust was then the Westmex Unit Trust. Those names were changed in 1989 and 1990, and the Trust Deed was varied on 29 July 1993. However almost all the provisions of the original Trust Deed are still in effect including cl.16 "Retirement of Manager and Trustee", by which Boswell Printing covenanted with the unit holders that it would retire from management of the trust on various events including liquidation and receivership, and a new trustee could be appointed by or with the approval of an Advisory Committee which the trust deed created. So Boswell Printing has an obligation to the unit holders, who are not parties to this litigation, to retire as trustee, but has not done so.

"16. (a) The Manager and Trustee covenants that it will retire from the

management of the Trust if it shall go into liquidation (except for the

purposes of amalgamation or re-construction or some similar purpose)

or if a receiver shall be appointed of the undertaking of the Manager

and Trustee or any part thereof, or in the event that the Advisory

Committee in writing requests the Manager and Trustee to retire.

(b) The Manager and Trustee may upon giving to all the Unit Holders one

(1) month's notice in writing of its desire so to do from time to time

appoint in writing any other corporation approved by the Advisory

Committee in writing as Manager and Trustee in its stead.

(c) In the event that the Manager and Trustee is removed from the

management of the Trust in accordance with paragraph (a) of this

Clause, the Advisory Committee may by notice in writing appoint any

other corporation as Manager and Trustee of the Trust.

(d) Any corporation so appointed as Manager and Trustee in the stead of

the original Manager and Trustee of this Deed shall execute a Deed in

(e) The Manager and Trustee shall on retirement or removal vest the Trust

Fund or cause it to be vested in such new Manager and Trustee and

shall deliver to such new Manager and Trustee all books, documents,

records and other property whatsoever relating to the said Trust Fund."

Mr Whitton needs to establish whether he should treat Boswell Printing, under the control of its liquidator, as still being the trustee. In his Summons Mr Whitton claimed directions under s.424 of the Corporations Law which would establish whether or not he is to treat Boswell Printing (in liquidation) as the person to whom he is to account for surplus assets in his hands after meeting his obligations and paying all moneys due to Heller Financial Services.

When Mr Whitton received his two appointments on 8 March 1995 Boswell Printing was conducting an active printing business, with a number of employees, and the business continued to be conducted under Mr Whitton's control until he sold the business on 27 April 1995. On 8 March 1995 the business had a number of employees, some of whom had been in employment for periods of up to 15 years, and they continued to work in the business until Mr Whitton terminated their employment on the day he sold the business. Mr Whitton paid all wages which fell due for payment between 8 March and 27 April (and wages which fell due on the first pay day after 8 March included wages for three days before 8 March) and he also paid all employees their annual leave entitlements in respect of their employment from 8 March to 27 April. There are no unpaid wages, but employees have not been paid by anybody in settlement of annual leave entitlements in respect of their employment up to 8 March 1995, Long Service Leave entitlements for any period or entitlements to severance pay on retrenchment at the conclusion of their employment on 27 April. Employees may have entitlements of various kinds to these payments; Mr Whitton may have become the transmittee of the business of Boswell Printing, and may have entered into a direct employment relationship with employees himself; he may have become liable for employees' entitlements under s.419 of the Corporations Law, or he may have become liable for some or all of their claims on the basis of his not having complied with s.433 of the Corporations Law which requires him to pay several classes of preferred creditors, including employees, out of assets of the company subject to a floating charge. The second defendant Mr Wood was joined as a party so as to represent the interests of employees, but he did not take up this responsibility. The third defendant Mr Lewington was joined as a party to represent the interests of one class of employees and the fourth defendant Ms Horner was appointed to represent the interests of another class of employees. It appears that those representing Ms Horner took the view that the questions to be determined by me did not require consideration of the respects in which the interests which she represents differ from the interests represented by Mr Lewington, so they did not take part in the hearing.

In the first cross-claim Boswell Printing under the control of Mr Gibbons as liquidator seeks declarations to establish that the charge over book debts under the Deed of Charge was a fixed charge; this would exclude those book debts from the assets out of which preferred creditors including employees are to be paid under s.433. The first cross-claim also claimed a declaration establishing that Boswell Printing is entitled to the surplus funds held by Mr Whitton, with an order for payment and other consequential orders. Mr Whitton is the only cross-defendant in the first cross-claim.

In the second cross-claim after amendments, (the Third Amended Second Cross-claim filed on 26 June 1996) Mr Lewington seeks remedies against Mr Whitton and Boswell Printing as cross-defendants. A number of claims were made, the most significant being to the effects that money deposited at bank, cash, stock and work in progress which existed on 8 March 1995 are property out of which employees and preferred creditors should be paid under s.433(2) as being the subject of a floating charge; and claims that Mr Whitton incurred personal liability for employees' claims (a) under s.419 of the Corporations Law, and (b) as transmittee of the business between 8 March and 27 April, within the provisions relating to liability of transmittees in the Graphic Arts Award 1977 cl.28(d)(ii), Long Service Leave Act 1955 (NSW) s.4(11)(c) and Graphic Arts Award 1977 cl.9B(i); and (c) as himself the employer of the employees.

The third cross-claim was brought by Ms Horner to represent another class of employees and does not at this stage require consideration separately to the second cross-claim.

On 5 August 1996 the court (McLelland CJ in Eq) ordered pursuant to Pt.31 r.2 that there be determined separately from and subsequent to the trial of the proceedings all questions of quantification of claims made between any of the parties in the proceedings. At the hearing on 3, 4, and 9 September argument was conducted on the basis of an outline of issues produced by the plaintiff's leading counsel. I propose to determine the issues in the outline, and I expect that when I have done so the parties will be able to agree on the orders which follow or identify any further issues requiring consideration.

1. Whether, on the true construction of the Deed of Charge:

1.1 a floating charge within the meaning of s.433(2) of the Corporations

1.2.1 moneys received by Whitton after crystallisation of the charge

on 8 March 1995 on account of book debts which existed and

had not been assigned by the Company at the time of that

1.2.2 book debts of the Company which arose after crystallisation of

the charge on 8 March 1995 utilising property, comprising

cash, money at bank, stock and work in progress, owned by the

Company at the time of crystallisation of the charge (`primary

1.2.3 moneys received by Whitton after crystallisation of the charge

on 8 March 1995 on account of Controller's Book Debts.

2. Whether Whitton, as agent of Heller in possession of the property of the Company is obliged by s.433(3) of the Corporations Law to pay out of any of the classes of the property described in paragraph 1 the following and, if so, which and to what extent:

2.1 wages and superannuation contributions payable by the Company in

respect of services rendered to the Company by former employees on or

2.2 amounts due for leave of absence in respect of services rendered to the

Company by former employees on or before 8 March 1995; and

2.3 retrenchment payments payable to former employees.

3. Whether Whitton has breached any obligation imposed on him by s.433.

4. Whether Whitton, as agent for Heller in possession of the property of the Company between 8 March 1995 and 28 April 1995 was:

4.1 a successor or assignee or transmittee of the business of the Company

within the meaning of cl.9B(i) and/or cl.28(d)(ii) of the Graphic Arts

4.2 a transmittee of the business of the Company within the meaning of

s.4(11)(c) of the Long Service Leave Act 1955 (NSW)

4.3 wages and superannuation contributions owing under the Graphic Arts

Award 1977 for the combined periods of employment preceding 8

4.4 severance pay calculated for the combined periods of employment

preceding 8 March 1995 and from 8 March 1995 to 28 April 1995;

4.5 amounts due for long service leave under the Long Service Leave Act

1955 for the combined periods of employment preceding 8 March 1995

5. Whether between 8 March 1995 and 28 April 1995 Lewington was employed by Whitton and rendered services to him pursuant to the Graphic Arts Award 1977 and the Long Service Leave Act 1955.

6. Alternatively, whether, by reason of s.419 of the Corporations Law Whitton is liable to Lewington for any and, if so which, of the amounts referred to in paragraph 4.

7. Whether Whitton, after 8 March 1995, in continuing to trade Boswell Printing Pty Limited, made payments to post-crystallisation creditors of the company from the proceeds of floating charge assets in existence as at 8 March 1995?

8. If the answer to 7 is yes, whether Whitton is obliged under s.433(3) of the Corporations Law to make payment to the Lewington class of proceeds of floating assets in existence as at 8 March 1995 in priority to payment to other moneys payable under the charge.

9. If the answer to 8 is yes, whether Whitton is personally liable to make payment to the Lewington class rather than making such payments from other available funds.

10. Whether Whitton in his capacity as agent for Heller in possession of the assets owned by the Company as trustee of the Boswell Unit Trust is entitled or bound after payment of all money owing to the mortgagee under the charge to account to the liquidator of the Company for the mortgaged assets.

11. Whether the liquidator of the Company can give to Whitton as agent for Heller a good and valid receipt for the mortgaged assets.

12. If the answers to 10 and 11 are no, to whom should Whitton account for the mortgaged assets?

Deeds between Boswell Printing and the Liquidator.

Boswell Printing entered into four deeds with Heller Financial Services Limited on 23 December 1994.

Closely related to each other are the "Receivables Based Discount Facility Deed" and the "Agency Agreement for Receivables Based Discount Facility".

The Receivables Based Discount Facility Deed created a regime for Boswell Printing to sell its debts to Heller Financial Services. Under cl.2 Boswell Printing was contractually obliged to offer its debts for purchase by making offers, in forms and with information prescribed. Offers could be made as frequently as once every five business days and had to be made no less frequently than once each calendar month. Boswell Printing was required to offer for purchase all debts except those which the customer was required to pay by cash on delivery. Necessarily there could be no offer of a debt which the customer paid so quickly that it was paid before another offer to sell was made. Under cl.3 Heller Financial Services was obliged to consider each offer, had an absolute discretion to accept or refuse an offer for any debts and was to pay 80% of the net invoice (although there could be variations). Acceptance was effected by making an entry in the Availability Account in the name of Boswell Printing; acceptance was to be made within two business days and if not accepted, the offer was deemed to have been declined. There are elaborate provisions for Boswell Printing to obtain payments out of the Availability Account, and for other accounting, and many measures regulating the parties' relationship.

Clause 4 was entitled "Vendor's obligation for assigned debts" and deals with collection of debts. Heller Financial Services could request Boswell Printing to direct customers to pay assigned debts in various ways. However subcll.4.2 and 4.3 dealt with the ordinary case where the debtor sent its payment to Boswell Printing.

"4.2 The Vendor will at its own expense collect all assigned debts except such of them as the Purchaser may from time to time specify in writing. Provided always that the Purchaser may require payment for all assigned debts to be forwarded to such address (including the Purchaser's address) as the Purchaser may nominate.

4.3 Any moneys received by the Vendor or tendered or appropriated in or towards payment of any assigned debt shall be deemed to have been collected by the Vendor as agent for the Purchaser and shall be held by the Vendor on trust for the Purchaser and shall forthwith be delivered to the Purchaser or as the Purchaser may direct in original form and on the day of receipt by the Vendor. Such monies shall not be mingled with other monies or paid into any Bank account overdrawn or otherwise (except for a bank account of the Purchaser) and shall at all times be identifiable as the Purchaser's monies."

The effect of these and other provisions is that Heller Financial Services could intervene if it wished to and directly collect assigned debts, but otherwise it was the obligation of Boswell Printing to act as agent for the collection of assigned debts, and when it did so it held the proceeds on trust and had to deliver them forthwith and in the original form. Boswell Printing could not retain any moneys it had collected, still less exercise any choice as to disposal of them.

The Agency Agreement for Receivables Based Discount Facility dealt in greater detail with the appointment of Boswell Printing as agent to collect book debts; Boswell Printing was to receive a commission on collections which was to be credited in the Availability Account.

Under these arrangements, within a calendar month of their coming into existence, and with the minor exceptions of book debts which Heller Financial Services rejected, COD sales and sales where the debtor paid very promptly, all Boswell Printing's book debts were to pass out of the equitable ownership of Boswell Printing.

By the Plant and Equipment Loan Agreement Heller Financial Services provided Boswell Printing with financial accommodation up to $1,000,000, and the amounts of advances were related to the value of plant and equipment owned outright by Boswell Printing and not mortgaged or encumbered (otherwise than to Heller Financial Services).

The Deed of Charge was a security over "Mortgaged Premises" defined extensively so as to include all Boswell Printing's undertakings and property present and future, and to secure a Principal Sum defined extensively to include all moneys owing or to become owing. The Deed of Charge was later registered 47250 in the register of charges maintained by the Australian Securities Commission. A number of the questions turn on consideration of its operation with respect to whether it created a fixed charge or a floating charge over certain kinds of assets, and the following passages in the Deed of Charge bear on this.

In cl.1.1(f) the following definition is given of Mortgaged Premises:

"(f) `Mortgaged Premises' shall mean all and singular the Mortgagor's undertakings and all its property rights and assets both present and future including its book debts and its unpaid or uncalled capital (including any premiums payable thereon) for the time being and including all assets acquired after the date or dates upon which the floating security hereby created crystalizes."

3.1 In consideration of these premises the Mortgagor does hereby charge the Mortgaged Premises with the repayment to the Mortgagee of the Moneys Hereby Secured and with the due and faithful performance and observance of the covenants conditions and agreements contained or implied herein or in any Collateral Security.

3.2 The charges hereby created shall operate as fixed charges as to:-

(ii) All real and leasehold property of the Mortgagor;

(iv) All plant, equipment, engines and appurtenances and fittings thereto

(v) All books of account, vouchers, documents of title and other

documents relating in any way to the business transactions of the

(vi) All securities, negotiable or otherwise of the Mortgagor;

(vii) All bond and store warrants at any time deposited with a bank or the

Mortgagee by the Mortgagor and the goods mentioned in any such

(viii) All book debts of the Mortgagor, present and future, where the whole

or any part of such book debts remains unpaid by the debtor and

without limiting the generality of the foregoing all debts which have

become, are or shall become owing by any related company of the

Mortgagee to the Mortgagor on any account whatsoever and without

limiting the generality of the foregoing, any debt which shall become

owing by such related company to the Mortgagor pursuant to any

Security Deposit Agreement heretofore or hereafter entered into by the

(ix) All trademarks, applications for registration of trademarks, patents,

patent applications, registered designs, registered design applications,

copyright and all other industrial and intellectual property of the

and shall operate as a floating security only as regards all other assets hereby charged, including monies or property actually received by the Mortgagor on account of any book debt of the Mortgagor PROVIDED ALWAYS THAT the Mortgagor shall not be at liberty without the prior written consent of the Mortgagee to part with or dispose of any property or assets charged by way of floating charge except in the ordinary course of its business and for the purpose of carrying on the same.

3.3 It is hereby agreed and declared that without prejudice to the floating charge hereby created becoming fixed as to any property or assets by operation of law or otherwise pursuant to this Deed, the Mortgagee may at any time and without assigning a reason for so doing by notice in writing to the Mortgagor convert the said floating charge into a fixed charge as regards any property or assets specified in the notice and the right to make such conversion and give such notice shall not depend upon default having been made hereunder or under the documents constituting or evidencing the Mortgagor's Indebtedness.

3.4 Subject to Clause 3.5 hereof, the Mortgagor shall not, in relation to any book debt present and future where the whole or any part of such book debt remains unpaid by the debtor, deal with or dispose of such book debt in any way whatsoever and in particular, without limiting the generality of the foregoing, shall not convey, transfer, factor, barter, exchange, assign, mortgage, charge or otherwise encumber any such book debt to any party other than the Mortgagee and shall not allow any discount, set-off, release or write-off to occur or credit note to be issued, other than as provided for in Clause 3.5 hereof, without the prior consent in writing of the Mortgagee.

3.5 The Mortgagee hereby appoints the Mortgagor the agent of the Mortgagee to collect and receive all monies payable in respect of the book debts subject to the fixed charge contained herein and in particular, the Mortgagor as such agent shall have the Mortgagee's authority to allow any discount, set-off, release or write off to occur or credit note to be issued in relation to such book debts which, in the reasonable opinion of the Mortgagor, represents a proper monetary recognition of a breach by the Mortgagor of a contractual term or condition relating to such book debt. This agency may be terminated at any time by the Mortgagee by notice in writing to the Mortgagor and shall terminate automatically and without notice if the floating charge granted by the Mortgagor hereunder should crystalise."

I do not see the first two deeds and the second two as so closely related that the first group should be regarded as in substance part of a mortgage transaction. No party contended that they should be. They operate separately, and the assignment of debts under offers which are accepted is an absolute assignment and not by way of charge only. The provisions of the Deed of Charge relating to book debts can operate only with respect to debts which have not been offered to and accepted by Heller Financial Services; once that had happened they would not be the property of Boswell Printing and neither a fixed nor a floating charge granted by Boswell Printing could affect them further. However I give some significance to the existence of the Receivables Based Discount Facility and the arrangements, contemporaneous with the Deed of Charge in their creation although not necessarily to continue to operate for the same periods, under which many, probably the great majority of Boswell Printing's book debts would remain the property of Boswell Printing and subject to the Deed of Charge only for short periods of up to one calendar month at the most. They are part of the matrix of facts in which the Deed of Charge and its provisions came into existence and in relation to which I must consider any question about what in substance it was intended that the provisions of the Deed of Charge should effect and whether the intention was achieved.

Some of the provisions of s.556 of the Corporations Law relating to priority debts and claims in the winding-up are made applicable to a receiver or other person assuming control of property of the company without a winding-up by s.433 of the law. The relevant priority provisions of s.556(1) are as follows:

"Subject to this Division, in the winding up of a company the following debts and claims must be paid in priority to all other unsecured debts and claims:

(a) first, expenses (except deferred expenses) properly incurred by a relevant authority in preserving, realising or getting in property of the company, or in carrying on the company's business;

(e) subject to subsection (1A) - next, wages and superannuation contributions payable by the company in respect of services rendered to the company by employees before the relevant date;

(g) subject to subsection (1B) - next, all amounts due:

(iii) to, or in respect of, employees of the company; and

(h) subject to subsection (1C) - next, retrenchment payments payable to employees of the company."

Subsections (1A), (1B) and (1C) impose limitations which do not require attention at present.

An aspect of the enumeration of debts and claims in subs.556(1) is the priority ranking between them, so that as between a debt for leave of absence under para.(g) and a debt for retrenchment payment under para.(h), the amount available for priority payments under subs.433(3) is available wholly for all entitlements for leave of absence before any is available for retrenchment payments. If the facts were that claims for leave of absence used up all the property out of which debts or amounts are payable under subs.433(3), nothing would be payable for retrenchment payments.

The interpretation provisions in subs.556(2) give the following as the meaning of "Retrenchment Payment":

"`retrenchment payment' in relation to an employee of a company, means an amount payable by the company to the employee, by virtue of an industrial instrument, in respect of the termination of the employee's employment by the company, whether the amount becomes payable before, on or after the relevant date"

Subsection 433(3) of the Corporations Law provides as follows:

"433(3) In the case of a company, the receiver or other person taking possession or assuming control of property of the company shall pay, out of the property coming into his, her or its hands, the following debts or amounts in priority to any claim for principal or interest in respect of the debentures:

(a) first, any amount that in a winding up is payable in priority to unsecured

(b) next, if an auditor of the company had applied to the Commission under

subsection 329(6) for consent to his, her or its resignation as auditor

and the Commission had refused that consent before the relevant date

--the reasonable fees and expenses of the auditor incurred during the

period beginning on the day of the refusal and ending on the relevant

(c) subject to subsections (6) and (7), next, any debt or amount that in a

winding up is payable in priority to other unsecured debts pursuant to

Subsections 6 and 7 relate to auditor's fees and do not bear on the present question.

(a) a receiver is appointed on behalf of the holders of any debentures of a

company or registered body that are secured by a floating charge, or

possession is taken or control is assumed, by or on behalf of the holders

of any debentures of a company or registered body, of any property

(b) at the date of the appointment or of the taking of possession or

assumption of control (in this section called the `relevant date'):

(i) the company or registered body has not commenced to be

(ii) the company or registered body has not been ordered to be

"Floating Charge" is defined in s.9 thus:

"`floating charge' includes a charge that conferred a floating security at the time of its creation but has since become a fixed or specific charge"

Subsection 433(5) relates to the order of priority inter se of the debts given priority by subs.433(3) para (c); they have the same priority inter se as is prescribed in s.556.

The general definition of "relevant date" in s.9 is not applicable because subs.433(9) makes applicable the date of appointment of the receiver or of his assuming possession or control.

The argument was conducted on the basis that the property out of which debts having priority are to be paid under subs.433(3) is the property the subject of the floating charge referred to in subs.433(2). It was not contended that subs.433(3) requires the controller to make the priority payment out of all property of which possession is taken or control is assumed whether or not subject to a floating charge, so as to include property subject to a fixed charge; the possibility that this subsection might have that meaning was not noticed or debated. Taking the section as a whole and having regard to the heading, "Payment of certain debts, out of property subject to floating charge, in priority to claims under charge", I am of the view that subs.433(3) applies, as assumed in argument, only to property subject to a floating charge.

It appears that a number of provisions associated with s.556 in Pt.5.6 Div.6 of the Corporations Law are not made applicable to priorities under s.433, and the provisions of s.560 relating to advances to make priority payments are not so applicable.

Clause 3.2 of the Deed of Charge enumerates in subparas (i) to (x) the things over which the charge is to operate as a fixed charge, and provides that they are to operate as a floating security only as regards all other assets. On a literal reading and on the assumption that the identification of the nature of the charge over a particular asset is wholly established by cl.3.2, stock in trade is subject to a floating charge, not a fixed charge - see subcl.(iv). Book debts are subject to a fixed charge - see subpara.(viii). The operation of the contemporaneous Receivables Based Discount Facility Deed could be expected to limit the number of debts of the mortgagor to which the fixed charge should be applied. It was to be expected that it would be the normal course for book debts either to be paid (and go out of existence) or to be offered to Heller Financial Services, accepted and assigned within one calendar month; the fixed charge would apply to those which had not yet been offered (whether or not they ever were) and to those which Hellers Financial Services had declined to accept.

The division between fixed charges and floating charges in cl.3.2 extends to the case of part-payment of a debt; subcl.(viii) imposes a fixed charge on book debts where the whole or any part of such book debts remains unpaid, and the Proviso relating to floating security extends to moneys actually received on account of any book debt.

A dividing line which is crossed, according to the terms of cl.3.2, when a book debt is collected or partly collected and converted into money is that Boswell Printing becomes able to dispose of the money in the ordinary course of business. (It does not obtain authorisation to dispose of the money in any other way.) By contrast, while the book debt or part of the book debt is the subject of a fixed charge subcl.3.4 comprehensively prohibits any disposition of the book debt in any way. Authorisation to deal with property in the ordinary course of business before crystallisation is one of the identifying characteristics of a floating charge.

Clause 3.5 confers on Boswell Printing authority to receive payment of book debts subject to a fixed charge; but Heller Financial Services could terminate this agency and, of course, could intervene and collect a debt without terminating the agency. There is something of an anomaly, at least in appearance, in the provisions which make moneys received by Boswell Printing on account of any book debt subject to no more than a floating security; if this had not been expressly provided for the ordinary conclusion to be drawn would be that when a book debt the subject of a fixed charge is converted into a sum of money by payment that sum is also the subject of a fixed charge for as long as it could be identified or traced. It could be thought strange that payment demotes the security. However it is not a result that the money so received is at the unfettered disposition of Boswell Printing. As is characteristic of floating charges, the Proviso establishes that Boswell Printing was not to be at liberty without consent to dispose of such money, as of any other property or assets subject to a floating charge, except in the ordinary course of its business.

The plaintiff took the view that work in progress on 8 March 1995 was the subject of the floating charge, and no party contended that this was not correct. I find it difficult to conceive of work in progress as an asset, but where for accounting purposes it is necessary to render an account as of a date, the need to give a true and fair view of a manufacturing operation seems to require that work in progress be accounted for as if it were an asset. It represents a potential asset or assets, or an opportunity, but the opportunity must be availed of and the work must be carried to the point where some money is contractually payable before work in progress matures into a book debt.

It is well established that the provisions now represented by subs.433(3) create a statutory duty to make a payment out of the property referred to, and that if that duty is not complied with, the creditor entitled to a priority debt has a cause of action for damages against the controller for breach of that statutory duty. Courts have not taken the view that such provisions confer on the priority creditor any equitable charge over or interest in the property out of which his debt is payable. This is long established and is illustrated by the judgment of Goff J in Inland Revenue Commissioners v. Goldblatt & Anor [1972] Ch 498 at 505 and 507. For most assets subject to floating charges some process of conversion into money must be carried out by the controller before a payment can be made. Even a book debt must be collected, and for many classes of property it is necessary to carry out processes which may involve expenditure in order to convert them into money. I would think that there would be no breach of the subsection if a controller effected conversion into money by valuing the property subject to a floating charge and appropriating the same amount of money in his hands from some other source to payment of the priority debts. With respect I do not think that it can be correct to suppose that it is the controller's duty immediately to convert the very assets subject to a floating charge into money by selling those assets for the purpose of paying the priority debts; that might tear the heart out of the company's business and affairs and defeat the prospects of successful administration in the interest of anybody else, and I do not find it possible to suppose that that was the legislature's purpose in enacting subs.433(3); it must have been contemplated that some process of conversion would take place as part of the whole process of winding-up even if that involved some delay, or some expense.

A charge is a floating charge for the purposes of s.433 if it is a floating charge under the general law; there is no attempt at an exhaustive statutory definition. A floating charge is a charge with a special characteristic; if it does not have that special characteristic it is not a floating charge, however else it could be described. A charge can, in Equity, exist not only over specific property presently in existence but also over property identified by its falling within a class, or over the entire undertaking of a company, over assets which the grantor has not yet acquired, and assets which do not yet exist. Charges which are not floating charges are sometimes referred to as fixed charges (as these parties did) or as specific charges. The matter under definition is whether the rights created are such that the charge is a floating charge; every charge which is not a floating charge is a fixed charge or, to be more relevant, is outside the priority provisions of s.433.

Floating charges are a creation of commercial ingenuity and judicial laisser faire in the Nineteenth Century. As legislation removed the predominating power which older methods of enforcement had conferred on creditors, judicial recognition greatly enhanced the power available to financiers of businesses. Floating charges are now prominent features of the raw deal which, according to Lord Templeman, unsecured creditors receive: see Border (U.K.) Ltd v. Scottish Timber [1981] Ch 25 at 42. The first judicial recognition of a floating charge is attributed by text writers to In Re Panama, New Zealand, and Australian Royal Mail Company (1870) LR 5 Ch App. 318 where Gifford LJ, apparently the only member of the Court of Appeal in Chancery, considered a series of mortgage debentures by which the company was expressed to charge "... undertaking, and all sums of money arising therefrom, and all the estate, right, title, and interest of the company therein". Gifford LJ interpreted "undertaking" as having reference to both present and future property and said at 322: "And I take the object to meaning of the debenture to be this, that the word `undertaking' necessarily infers that the company will go on, and that the debenture holder could not interfere until either the interest which was due was unpaid, or until the period had arrived for the payment of his principal, and that principal was unpaid. I think the meaning and object of the security was this, that the company might go on during that interval, and, furthermore, that during the interval the debenture holder would not be entitled to any account of mesne profits, or of any dealing with the property of the company in the ordinary course of carrying on their business. I do not refer to such things as sales or mortgages of property, but to the ordinary application of funds which came into the hands of the company in the usual course of business." By about 30 years later it seems that floating charges had become well known and were created in more explicit language which did not leave so much a burden on the interpretation of the word "undertaking". Lord Macnaghten made what came to be regarded as classic statements in that period. His statement in Governments, Stock and Other Securities Investment Co. Ltd v. Manila Railway Co. Ltd [1897] AC 81 at 86 said of a floating charge: "It is of the essence of such a charge that it remains dormant until the undertaking charged ceases to be a going concern, or until the person in whose favour the charge is created intervenes." In Illingworth v. Houldsworth [1904] AC 355 at 358 Lord Macnaghten again gave a definition and included these words: "... a floating charge ... is ambulatory and shifting in its nature, hovering over and so to speak floating with the property which it is intended to affect until some event occurs or some act is done which causes it to settle and fasten on the subject of the charge within its reach and grasp." In the same case in the Court of Appeal - Re Yorkshire Woolcombers Association Ltd [1903] 2 Ch 284 at 294-295 Romer LJ set out three characteristics of a floating charge in language which was less figurative and seemed more precise.

"Under s.14 of the Companies Act of 1900, for a charge to be a `floating charge on the undertaking or property of the company' within the meaning of the words used in that section, it cannot, I think, be properly contended that it is essential that the charge must be on the whole undertaking, or on the whole property, of the company. The term `floating' is one that until recently was a mere popular term. It certainly had no distinct legal meaning. It is not a legal term. It has recently been used in more than one statute; but when the Courts have to consider whether the charge is a floating one within the meaning of the term as used in the Acts of Parliament, and in particular within the meaning of the Companies Act, 1900, one must, I think, deal with the question of substance to be answered according to the circumstance of each particular case. I certainly do not intend to attempt to give an exact definition of the term `floating charge,' nor am I prepared to say that there will not be a floating charge within the meaning of the Act, which does not contain all the three characteristics that I am about to mention, but I certainly think that if a charge has the three characteristics that I am about to mention it is a floating charge. (1.) If it is a charge on a class of assets of a company present and future; (2.) if that class is one which, in the ordinary course of the business of the company, would be changing from time to time; and (3.) if you find that by the charge it is contemplated that, until some future step is taken by or on behalf of those interested in the charge, the company may carry on its business in the ordinary way as far as concerns the particular class of assets I am dealing with."

Obviously enough, the special characteristic relates to the essence and nature of the charge, and not to the designation given by the parties to the charge. Parties cannot, simply by describing a charge as a fixed charge, or as not being a floating charge, establish that it is not and avoid the operation of s.433. That this is so was explicitly recognised in Evans v. Rival Granite Quarries Ltd [1910] 2 KB 979 by Fletcher Moulton LJ at 993. In my opinion the essence and nature of a charge is ascertained by considering the rights which exist under it. The adoption of the description "fixed charge," even in contrast to later references also in clause 3.2 to a floating charge would not be conclusive if Heller Financial Services in fact had rights over the book debts which had the special characteristic of a floating charge. I would think that a characterisation attributed by parties to a charge would be given effect if the general provisions of their document left its characterisation otherwise in doubt, although in principle a case can be made for saying that what the parties say about the characterisation of the charge is irrelevant to its true characterisation.

Documents creating charges differ widely in their terms, and no precedent decision rejecting or accepting a designation attributed by the parties could be binding as none was given on a document which exactly reproduces the Deed of Charge before me. Arguments were presented to me in a form which would suggest that characterisation could be established by some precedent or authority, but I will proceed from authority in Australian Appellate Courts establishing what is the special characteristic of a floating charge to a conclusion based on the present document and the rights which it creates.

Stein v. Saywell [1969] HCA 16; (1969) 121 CLR 529 related to a priority question between a debenture holder and employees on legislation which was a predecessor of s.433. Characterisation as a floating charge was not in issue; the issues included one relating to the effect and time of crystallisation of what was undoubtedly a floating charge at some time. In an obiter dictum Kitto J said at 556: "It is not, of course, a distinguishing feature, though it is a feature, of a floating charge that it attaches to future-acquired property. Its distinguishing feature is that, the class of present and future assets that are charged being such as in the ordinary course of the company's business would be changing from time to time, the company is left at liberty, until one of the `crystallizing' events happens, to dispose freely, in the ordinary course of its business, of any property to which it attaches: see In Re Yorkshire Woolcombers Association Ltd [1903] 2 Ch 284 (affirmed, sub nom Illingworth v_. Houldsworth_, [1904] AC 355)." (It is interesting that Kitto J directed the reader to that case in the Court of Appeal, presumably preferring Romer LJ's formulation to that of Lord Macnaughten).

In Fire Nymph Products Ltd v. The Heating Centre Pty Ltd (in Liq) & Ors (1992) 7 ACSR 365 Sheller JA (with whom Handley JA agreed) set out at pp376 to 378 some historical and other general considerations relating to floating charges, their nature and operation. This passage opened with a citation of the statement by Kitto J which I have set out of the distinguishing feature of a floating charge; obviously with approval. At 376 Sheller JA said: "A distinction between a specific charge and a floating charge is that whereas the former relates to specific or ascertained property which perforce of the charge the chargor appropriates to the charge and therefore cannot unilaterally appropriate in favour of a third party for some other purpose (see Illingworth v_. Houldsworth_ at 358 per Lord Macnaughten and in the Court of Appeal under the name Re Yorkshire Woolcombers Association Ltd at 294) in the case of a floating charge over the present and future assets of the chargor for the time being, the charged property answering the contract description is only finally ascertained on crystallisation, being the present assets of the chargor at that time.

"On any view the existence of the charge does not prevent the chargor, prior to crystallisation, setting off debts owed to it, the subject of the charge, against debts owed by it: Biggerstaff v_. Rowatt's Wharf Ltd_ [1896] 2 Ch 93. Similarly an execution creditor could enforce judgment and retain the proceeds of enforcement, notwithstanding the existence of a floating charge, so long as the process of execution was complete prior to crystallisation: Evans v_. Rival Granite Quarries Ltd._ ... Consistent with this, in the absence of any express restriction, the chargor retains power to give a subsequent specific charge over its assets in priority to the floating charge. This does not depend upon want of notice but upon the theory that the chargor being able to trade with the charged assets is also able to raise money necessary for carrying on the business on the security of them ..."

Sheller JA went on to describe the evolution and effect of restrictive clauses prohibiting the chargeor from creating a subsequent charge ranking in priority or pari passu to the floating charge. Such a restriction is not altogether consistent with free disposition in the ordinary course of business before crystallisation, and it has a limited effect based on actual knowledge of the subsequent chargee of the existence of a restriction. Of course any subsequent charge has to pass the test of being entered into in the ordinary course of business.

Sheller JA also discussed the unconcluded question whether the chargee obtains an equitable proprietary interest in a particular asset before the charge crystallises and the specific assets then affected can be identified: see 376.

In his reasons for disposing of that appeal Sheller JA said, at 379: "... it is of the essence of a floating charge that the chargor enjoys the advantage of being able to trade and dispose of assets in the course of trade only so long as that is done in the ordinary course of business."

Sheller JA's observations at 378 showed the dominance of the contractual provisions over the nature, effect and operation of a floating charge:

Since crystallisation is a matter of contract the question whether property dealt with otherwise than in the ordinary course of the chargor's ordinary business will, on crystallisation, be subject to the fixed charge may be treated as a matter of drafting technique."

This dominance appears even more clearly in the judgment of Gleeson CJ who reached the same conclusion. In observations directed to a provision in the floating charge then under consideration for automatic crystallisation, Gleeson CJ said at 371: "As to the first matter, while there may be questions of policy as to whether the legislature should intervene to modify the capacity of parties to contract for automatic crystallisation, I see no reason in principle why, in the absence of such intervention, the courts should not give effect to the contract that has been made ..." (and His Honour referred to a law reform report and some journal articles in cases which bore on this). "... Floating charges are founded in contract and their legal effect derives from the agreement between the parties." (I have added emphasis to the last sentence).

In Boambee Bay Resort Pty Ltd (in Liq.) & Anor v. Equus Financial Services Limited (1991) 6 ACSR 532 at 535 Mahoney JA said: "The question whether a charge is a fixed or a floating charge depends upon the intention of the parties to the creation of it: see United Builders Pty Ltd v_. Mutual Acceptance Limited_ [1980] HCA 43; (1979) 144 CLR 673 at 681, 686". The relevant intention relates to whether the rights of the parties in respect of their charge should be those characteristic of a floating charge. In the first passage to which Mahoney JA referred in United Builders Pty Ltd v. Mutual Acceptance Ltd at 144 CLR 681 Stephen J said: "Whether a charge is floating or fixed will depend upon the intention of the parties, to be gathered from the terms of the document creating a charge and from surrounding circumstances. In the present case the words of charge are equivocal as to its precise nature but the surrounding circumstances, together with sub-cll.(i)(iii) sufficiently reveal an intent that the charge should be a floating, not a fixed, charge."

In Seibe Gorman v. Barclays Bank Limited [1979] 2 Ll. LR 142 Slade J gave effect to a debenture expressed to create a first fixed charge on book debts notwithstanding that other provisions left the borrower free to deal with proceeds of collection of future book debts until crystallisation; see his Lordship's ruling at p.159.

In In Re Brightlife Ltd [1987] Ch 200 Hoffmann J decided that the debenture there in question operated to create a floating charge and not a fixed charge over book debts and other debts notwithstanding that it expressed itself to create a "First Specific Charge" over them. Hoffmann J held that notwithstanding the description, the rights over the debts created by the debenture were to be categorised in law as a floating charge having regard to the position of the borrower with respect to the third of Romer LJ's characteristics, contemplation that until some future step the company may carry on its business in the ordinary way as far as concerns the particular class of assets. His Lordship said of this (at 209): "It is true that clause 5(ii) does not allow Brightlife to sell, factor or discount debts without the written consent of Norandex. But a floating charge is consistent with some restriction upon the company's freedom to deal with its assets. For example, floating charges commonly contain a prohibition upon the creation of other charges ranking prior to or pari passu with the floating charge. Such dealings with otherwise be open to a company in the ordinary course of its business. In this debenture, the significant feature is that Brightlife was free to collect its debt and pay the proceeds into its bank account. Once in the account, they would be outside the charge over debts and at the free disposal of the company. In my judgment a right to deal in this way with the charged assets for its own account is a badge of a floating charge and is inconsistent with a fixed charge."

Hoffmann J's judgment contains clear recognition of the primacy of the intentions of the parties. The debenture in cl.5(ii) included provisions to the same general effect as although different in detail to cl.3.4 of the Deed of Charge preventing dealing with book debts. In my opinion Hoffmann J did not exactly follow the terms in which Romer LJ expressed himself, as Hoffmann J decided the question according to what it should be taken the parties contemplated would be the future events, not according to what was contemplated by the charge. There is a profound gulf between these two standpoints and in my respectful view, the standpoint taken by Hoffmann J is not correct. It is not that adopted by the Court of Appeal of England in the case to which I will next refer. In my view the principle is recognition of primacy of the intention of the parties, and principle requires that characterisation as a floating charge take place according to the rights which the parties intended to create, not according to contemplation attributed by the court to the parties of what the broad flow of events in commerce under their transaction would be.

In Re New Bullas Trading Ltd [1994] 12 ACLC 3,203 the Court of Appeal of England dealt with and rejected a generally similar argument to that which Hoffmann J upheld, although on a document which differed in detail. The view taken by Nourse LJ in the leading judgment differed markedly from that of Hoffmann J. To Nourse LJ it was not strange or anomalous that there should be fixed charge over a book debt but no more than a floating charge over the proceeds of its collection. At 3,204 His Lordship said: "He who lends money to a trading company neither wishes nor expects it to become insolvent. Its prosperous trading is the best assurance of the return of his money with interest ... . An asset peculiarly problematical in this context is a book debt of the company. There being usually no need to deal with it before collection, it is at that stage a natural subject of the fixed charge. But once collected, the proceeds being needed for the conduct of the business, it becomes a natural subject of the floating charge. While the company is a going concern, it is no less an advantage to the lender that the debt should be collected and the proceeds used in the business. But on insolvency, a crystallised floating charge on proceeds, which, in the event supposed, are all the more likely to have been dissipated, may be worthless; whereas a fixed charge enabling the lender to intercept payment to the company may be of real value."

At 3,205 Nourse LJ referred to a characteristic found in the Deed of Charge in the present case: "In each of the previous authorities the draftsmen treated book debts indivisibly, the question being to which form of charge they had, as such, been subjected. Here, for the first time in a reported case, the draftsman has deliberately and conscientiously set out to subject them to a fixed charge while they are uncollected and a floating charge on realisation. The essential question, as it has emerged in this court, is whether the law allows them to be treated in that fashion."

Nourse LJ's conclusion was essentially that he upheld a submission that there was no legal objection to creating a fixed charge over book debts while they were uncollected and a floating charge over their proceeds. His Lordship made a careful review of the terms of the document and of the submissions before him, with brief notice of the Yorkshire Woolcombers case and of Tailby v. Official Receiver [1888] 13 App. Cas 523, which recognised the validity of an equitable charge over future book debts. The substance of his Lordship's disposition is in these passages at 3208: "The matter is governed by a clear agreement of the parties. Unless there is some authority or principle of law which prevented them from agreeing what they have agreed, their agreement must prevail." And, after referring to Tailby's case: "These observations support the view that, just as it is open to contracting parties to provide for a fixed charge on future book debts, so it is open for them to provide that they shall be subject to a fixed charge while they are uncollected and a floating charge on realisation. No authority to the contrary has been cited and, the principle being as spacious as it has been expressed to be, no objection is on that account sustainable."

That is to say, the Court of Appeal of England gave primacy to the intentions which the parties had expressed, saw book debts as an appropriate subject for a fixed charge and the proceeds of their collection as an appropriate subject for a floating charge, and accepted and enforced what the parties had provided for.

I mentioned elsewhere the apparent anomaly that the proceeds in money of collection of book debts are the subject of a floating charge whereas they represent the conversion into money of an asset over which the chargee had a present and specific interest. Of a greater significance, and at a deeper level than appearance is the anomaly that the book debts which according to the parties' designation are not subject to a fixed charge are placed within the chargeor's control and at its disposition to the extent that the chargeor has authority conferred by cl.3.5 to collect the book debts, and immediately on their collection the chargeor has the advantage that their proceeds are at its own disposition, not subject to a fixed charge, but subject to a floating charge and, of course, to the restriction that they may only be dealt with in the ordinary course of business. It was to this anomaly that Mr Lewington's counsel directed much attention, and although he made many other observations in relation to this subject, I am of the view that this is the only point at which there is a substantial question raised about whether the parties' characterisation of the charge over book debts as a fixed charge is correct. Counsel made many observations directed to the interaction between the Deed of Charge and the Receivables Discount Facility, and other documents in the scheme, but in my opinion the characterisation of the charge created by the Deed of Charge is not in truth assisted by consideration of any of the other documents. The apparent contemplation of the parties that the documents would all act together, at least in the beginning, and that while they act together many and probably most book debts would soon pass out of the range of operation of the Deed of Charge, casts no real light on what that operation was. Nor did I feel much assisted by references to English decisions in which courts addressed, in some cases upheld and in some cases repelled, endeavours to establish the character of charges by documents which were strange and artificial constructs.

I find it difficult to give a fair and accurate summary of the attack on the characterisation of the fixed charge presented by counsel for Mr Lewington; counsel's submissions were very lengthy, very elaborate and very diffuse. To my understanding their general effect was that Boswell Printing's opportunity and liberty to deal with the book debts in the ordinary course of business until crystallisation was unimpeded and the substance of Heller Financial Services' right was the substance of a floating charge over the book debt. This is notwithstanding what the Deed of Charge says in describing the charge over book debts as a fixed charge and restricting dealings by cl.3.4, and speaking of Boswell Printing's position in collecting the debt as an agency conferred by cl.3.5, and bearing in mind that the proceeds of collection were at the disposition of Boswell Printing until there was crystallisation. This is a powerful position and on Hoffmann J's approach it would succeed. On the one hand if the likely course of events while the parties operated under the Deed of Charge is considered, it seems likely that most transactions would take place entirely as operations of Boswell Printing in the same way as if there had been a floating charge. On the other hand those operations would take place in the context of rights the terms of which were established by the parties' documents, and the true resolution relates to an interpretation of what the parties intended that those rights should be when they created those rights, and not an interpretation of what they may be supposed to have contemplated nor an interpretation in retrospect based on the later operations.

To my mind the existence of the distinguishing characteristic of a floating charge can and should be established on a consideration of the rights which the parties created by the Deed of Charge, and if that consideration leaves the matter in doubt, the characterisation as a fixed charge adopted by the parties might serve to resolve the doubt. I should consider whether the rights created by the Deed of Charge are such that the charge over book debts has the distinguishing feature identified by Kitto J in the passage cited, bearing in mind always that that is a judicial definition and not a statutory definition and that, as expounded in Sheller JA's judgment, there are some qualifications over the company's liberty to dispose of assets which would not necessarily destroy its character as a floating charge.

The authorisation to collect book debts in clause 3.5 is preceded by cl.3.4, which I set out earlier, the terms of which unreservedly and absolutely forbid Boswell Printing from dealing with and disposing of any book debt in any way whatsoever. This general prohibition is expanded by very comprehensive exemplifications and applies to the whole or part of any book debt. This provision is altogether inconsistent with the company having the right or being left at liberty to dispose of book debts in the ordinary course of business; they cannot be sold or assigned or subjected to a charge subsequent to the Deed of Charge; the prohibition against dealing with them is absolute. There is no reason to think that cl.3.4 was not intended to be fully effective according to its terms, and in my opinion no reason to think that it is inconsistent with the authorisation to collect book debts in cl.3.5. Clause 3.5 creates an agency to collect; the agency is not exclusive and it may be terminated at any time at the will of Heller Financial Services. For the proceeds of collection of book debts there is no scheme of controls over how they are dealt with by Boswell Printing which could correspond with the rigid controls and positive obligation to collect under the Discount Facility; far from being required to deposit collections forthwith and in the form received into the mortgagee's bank account there is no requirement to put them in a bank at all.

There is no reason why Heller Financial Services would be disentitled to confer a concurrent authority to collect on someone else, or collect a particular book debt itself, or set about collecting all the book debts generally itself, or itself assign a particular book debt or all book debts generally to some other person. Heller Financial Services' rights to deal with the book debts are amplified by cl.9.7; and also by cl.5(l), and may be exercised without default or crystallisation.

In respects which touch on the distinguishing feature identified by Kitto J, the contrast between rights over book debts which have not been collected and the proceeds of collection in the hands of Boswell Printing is very great. Money in Boswell Printing's hands as the proceeds of collection, whether it is cash in a tin box or deposited in a bank account is not made subject to a fixed charge by the provisions of cl.3.2; it is left to the operation of cl.3.1 read with the passage in cl.3.2 creating a floating security and limiting Boswell Printing's liberty to dispositions in the ordinary course of business. While no doubt other arrangements between contracting parties might well reasonably have been adopted, the adoption of these arrangements appears to me to be well within a reasonable range, and in no way dismissible as a sham or a colourable attribution for the purpose of evading s.433. It is likely that cheques, cash or deposits in a bank account from the proceeds of collection of book debts would fairly soon lose their separate character and ready traceability, and it may be that practical difficulties in maintaining an effective fixed charge over such proceeds had a part in the decision not to attempt to maintain a fixed charge over them.

A class of case in which difficulties arise is where the documents create rights which should ordinarily be taken to be a floating charge, either because the parties expressly so describe them or because they extend to the whole assets and undertaking of the borrower, but the documents seek to enhance the lender's position by introducing qualifications or restrictions on the borrower's liberty to deal with its property in the interim before crystallisation. Sheller JA in Fire Nymph gave an account of one group of such qualifications where attempts have long been made to prevent the borrower from exercising its liberty of action by creating other charges. New Bullas is an instance of another kind of qualification where more or less elaborate controls are imposed on the way in which the lender conducts its business and deals with its property. In the present case the Deed of Charge qualifies the borrower's liberty of action in another way, by promoting the lender's right to a fixed charge in respect of some designated asset and then, in the case of book debts and with some ingenuity, enabling the borrower to collect them and make incidental compromises modifying them by conferring non-exclusive authority so to do, while prohibiting any other dealings with a prohibition appropriate for a fixed charge.

To my mind acceptance of the characterisation of the charge over book debts as a floating charge would involve and require rejection not only of the designation given by the parties in explicit terms but also of cl.3.4 as being a sham provision or a provision which was contrary to the substance of the parties' intentions. On a whole view of the arrangement, I do not think that there is any warrant for those conclusions. There is no reason for thinking that the parties did not truly intend that Heller Financial Services could, without any default or crystallisation, set about collecting any of the book debts itself or through some other agent whenever it wished to do so.

In my opinion there was a fixed charge over the moneys referred to in Question 1.2.1.

Question 1.2.2 - Book debts which arose after crystallisation - relates to assets referred to in the plaintiff's statement of the position of his administration as at 12 June 1996 - Exhibit A, Tab 1, at para.2.2 under the general heading "Receipts" and the subheading "From Assets Subject to Floating Part of Charge". "2.2 Post appointment book debts created from pre appointment assets (ie assets in possession of the company at the time of the appointment) $561,430." These were book debts which arose on the completion after 8 March 1995 of work, typically printing jobs, using stock in trade which had previously been subject to the floating charge and was in the possession of the company on 8 March. Where work had begun by 8 March, there would also be an element of realisation of the value of work in progress; but I do not see work in progress as an asset subject to the Deed of Charge. Of course no money became payable and no book debt existed in respect of the work until it was completed.

As I have already held in relation to Question 1.2.1, book debts are made subject to a fixed charge and not a floating charge and there is no reason to suppose that a floating charge could exist for a book debt at any time.

The concept that a floating charge could exist over a book debt or any other asset which did not come into existence until after crystallisation and the fixing of all charges is not one which I am able to grasp. Any rights to preference under s.433 could extend only to property which was subject to a floating charge before crystallisation on 8 March 1995. Cash, money at bank, and stock in trade then would be; it is out of these assets that the Controller is obliged by s.433 to pay the preferential debts, and if he does not do so and uses them, even in an economically rational way, to bring some other assets into existence such as book debts for completed work, his liability for damages for breach of his statutory duty is measured by reference to the value of the assets subject to the floating charge on 8 March 1995, and not by reference to the value of anything towards the later creation of which they contributed. (Of course there might well be other elements in the calculation of those damages.) In my opinion the Controller's liability neither increases with success nor diminishes with failure of any venture in which he utilises assets which have been subject to a floating charge.

I made the qualification in parenthesis because, following the terms of subs.433(iii), the Controller's obligation is to pay the priority debts out of property coming into his hands, and while the value of that property at the time when it came into his hands may establish the measure of his liability where it is readily convertible into money with which to make a payment, establishing the amount of his liability might be more complex where there is some need to expend money or work in converting the property into money. If the legislated obligation to pay a debt out of property cannot be complied with without a process of conversion into money it must be understood as authorising that process and anything necessarily involved in it, including expenditure. Subsection 433(3) does not give rise to equitable interests and does not authorise tracing of the property out of which the debt is to be paid into other property in the manufacture of which it is used, whether or not tracing would be advantageous.

Counsel for Mr Lewington told me that it is misleading that "Book debts" are referred to in this question, as the same issue arises for any asset which arose utilising property subject to a floating charge. Whatever property so arose, I would return the same answer.

Question 1.2.3 - Moneys received by the plaintiff after crystallisation on account of book debts which arose while he was controller - are not subject to a floating charge. This is obviously so and was conceded in argument.

In submissions which nominally related to these questions counsel for Mr Lewington made a number of contentions which bore on quantification in money amounts of the property out of which priority debts are payable under subs.433(3). Counsel told me that the Lewington interests do not claim priority to the Controller's costs, expenses and fees, a matter which he conceded was established by the decision of Nicholson J in Re Quarry & Foundry Engineering Pty Ltd [1984] 2 ACLC 712. Counsel made submissions relating to the amount available to meet the claims of preferred creditors in which he suggested that Mr Whitton's evidence and accounts show that the fund available has been diminished in ways which are not lawfully authorised. These submissions related to the quantification of claims and it is not possible to address them now. They could only be addressed if the parties interested each produced a schedule clearly identifying, item by item, the property out of which preferred debts are said to be payable, and the manner in which a sum in money is said to be derived from each item of property, identifying in detail every expense or other deduction which is said to be relevant; with statements by each party of the grounds for or against allowance of each item; and then produced their evidence on the disputed facts. In the assessment of damages there may be questions of mitigation arising from the opportunity which employees have to prove in the liquidation and obtain the preferential position conferred on them under s.556. Their debts provable in the liquidation are not ascertained at the same date and are not exactly the same obligations as those accorded preference under s.443, and there is a different class of assets out of which they are payable, but there could be little doubt that the reasonable course is to prove in the liquidation and bring any dividend there into account of common law damages against the Controller are to be claimed.

It is not possible to address this in the abstract, which is what counsel's submissions appear to me to require. The number and nature of the questions which were introduced into and sought to be debated on the plaintiff's relatively simple application for directions were so great that the litigation was close to being incoherent and incomprehensible; debate was diffuse. Finally, the means of enforcement of the claims of employees under s.433(3) is proceedings for damages under the common law, and I may yet decide not to carry the proposed process of determining quantum any further but rather to leave it to any persons who wish to maintain that the Controller is in breach of his statutory duty to bring whatever proceedings they wish.

To address Question 2.1 specifically, it emerged during the hearing that it was agreed that all wages payable by the company in respect of services rendered by employees up to 8 March 1995 had been paid, so that an answer is not necessary. The Controller also paid all wages and superannuation contribution in respect of periods from 8 March to 27 April 1995, the period during which he was in control of the company's affairs and the employees were in employment. Clearly there are no wages payable in the winding-up in priority to secured debts pursuant to para.556(1)(e).

For Question 2.2 the amounts due for leave of absence referred to are accruing entitlements to holidays or in lieu of holidays to pay, under the Annual Holidays Act or cl.28 of the Graphic Arts Award, which were unsatisfied at the termination of employment on 27 April 1995. The Controller paid employees what he and they regarded as appropriate sums for accrual of annual leave entitlements from 8 March to 27 April 1995, leaving them in the position that, when their employment terminated, they received nothing from him in respect of accrual of annual holiday entitlements up to 8 March 1995.

Paragraph 556(1)(g) specifies in what circumstances an amount for leave of absence is due if it is to fall within that subparagraph; an amount must be due on or before 8 March 1995 (which is the relevant date under subs.433(9)). In my opinion it cannot be said of an accruing leave entitlement, which had not by 8 March 1995 reached the point where there was either grant and acceptance of a holiday carrying with it the right to pay holiday pay during the holiday, or a termination of employment on which a sum of money was payable in lieu of the holiday, that any amount was due on 8 March 1995. Something was due, but it was not a debt or an amount; it was an accruing entitlement to a holiday, for which payment on termination of employment was substituted if employment was terminated, and it was not a debt, or an amount.

Question 2.3 deals with retrenchment payment. By the definition in subs.556(2) this means any retrenchment payment whenever it becomes payable, even if after the Controller's assuming control.

In the present case the retrenchments occurred while the Controller was still active. Entitlement to retrenchment payment arising as a result of termination of employment on 27 April would, in my opinion, give rise to an entitlement to a priority payment out of whatever property ever was within the net of subs.433(3). There must, as a matter of implication to avoid absurdity, be some ultimate limit to the time when a retrenchment payment becomes payable if it is to qualify for priority, notwithstanding the references to time in the definition of "retrenchment payment". It is difficult to suppose that a retrenchment which occurred after a Controller had completed his operations and accounted to all interested parties of whom he was aware would involve liability under s.433(3).

To what extent claims for leave of absence or retrenchment payments are preferred under subs.433(3), if to any extent, and whether Mr Whitton has breached any obligation imposed on him by s.433 cannot be determined without elaborate and detailed consideration, in the exercise which the parties referred to as to the ascertainment of quantum.

Liability of the agent for payments to former employees.

The Graphic Arts - General - Interim Award 1995, under which Mr Lewington and those he represents claim to have been employed, contain provisions dealing with entitlements to employees which are related to the period of service, particularly provisions in cl.28 relating to Annual Leave and cl.4.3.3 relating to redundancy and severance pay. Part 4 of the Award deals with terms of employment and cl.4.4.3(i) relates to transmission of business and makes provision under which the continuity of employment shall be deemed not to have been broken by reason of transmission of business. The argument before me proceeded on the basis that it was assumed (although it was not in fact established) that some circumstances exist under which, if Mr Lewington and those whom he represents were employed by Mr Whitton, the award would govern the terms of employment; it was not explained to me how this is so. Clause 4.4.3(i) is in these terms:

Where a business is, before or after the date of this award, transmitted from an employer (in this sub-paragraph called the transmittor) to another employer (in this sub-paragraph called the transmittee) and an employee who at the time of such transmission was an employee of the transmittor in that business becomes an employee of the transmittee:

4.4.3(i)(i) The continuity of the employment of the employee shall be

4.4.3(i)(ii) The period of employment which the employee has had with the

transmittor or any prior transmittor shall be deemed to be

4.4.3(i)(iii) In this paragraph business includes trade, process, business or

occupation and includes part of any such business and

transmission includes transfer conveyance, assignment or

succession whether by agreement or by operation of law and

As their terms show, the transmission-of-business provisions apply only if Mr Whitton is "another employer" and hence a person referred to as "the transmittee". It is of course possible that Mr Whitton or a person in his position could become an employer by entering into a contract of engagement with a person who had been an employee of the company of which he was the Controller; but there is no evidence of any express contract of engagement, or of any explicit communication between Mr Whitton and any employee of the company creating or admitting the existence of a relationship of employment. In everything which he did Mr Whitton professed to be an agent; as receiver he had authority to act on behalf of Boswell Printing (although no evidence indicates that he actually did anything under this authority, in relation to employees or otherwise) and as agent for the mortgagee in possession his professed agency (professed and also true) for Heller Financial Services was obvious to those who dealt with him. A person exercising agency authority can enter into a transaction in a way which brings personal contractual liability on to him, but that would not be the usual course of events or interpretation of his behaviour, and some clear indication that he intended to contract personally and that the person with whom he was dealing intended to contract with him and not with his principal would be looked for. Those indications might be supplied by express communications or by circumstances; but they should ordinarily be looked for.

Again s.4 of the Long Service Leave Act 1955 (NSW) was dealt with in argument on the assumption that it is applicable. This seems to involve its being established that the subject of Long Service Leave is not dealt with by the Graphic Arts - Interim - Award and there is no inconsistency with a Federal instrument, although it was not shown whether this is so. Section 4 confers on every worker an entitlement to Long Service Leave on ordinary pay and contains many provisions establishing details of that entitlement. Subsection (11)(c) provides: "For the purpose of this section:

(c) Where a business, undertaking or establishment or any part thereof has, whether before or after the commencement of this Act, been transmitted from an employer (in this paragraph called the transmittor) to another employer (in this paragraph called the transmittee) and a person who at the time of the transmission was a worker in the employ of the transmittor in that business, undertaking, establishment or part thereof becomes a worker in the employ of the transmittee:

(i) the continuity of the period of service of the worker shall be deemed

not to have been broken by reason of the transmission; and

(ii) the period of service which the worker has had with the transmittor or

any prior transmittor shall be deemed to be service of the worker with

In this paragraph `transmission', without limiting its ordinary meaning, includes transfer, conveyance, assignment or succession, whether by agreement or operation of law, and `transmitted' has a corresponding meaning".

As with the Graphic Arts Interim Award, the question of the liability of Mr Whitton in respect of Long Service Leave depends on his being an employer, so as to be "another employer" referred to in subpara (11)(c), and it is only on an employer that an obligation to grant Long Service Leave or make payment in lieu is imposed after a transmission.

The contention that Mr Whitton himself in fact became the employer was principally based on implication from his conduct in controlling the business of Boswell Printing in circumstances which were said to be substantially that Boswell Printing went out of business or closed up its business. There was also reliance on the terms of the circular which Mr Whitton sent to employees, not bearing date but apparently on or about Friday 10 March at the end of the week in which 8 March 1995 fell when wages would ordinarily be payable.

My obligation as agent for the mortgagee in possession of the business assets of Boswell Printing Pty. Limited A.C.N. 003 266 886 only requires that I pay your wages from the time of my appointment.

I have decided to pay your wages for the full week. You should be aware that by making this payment you will not be entitled to be recompensed for this payment in priority to the mortgagee of Boswell Printing Pty. Limited pursuant to section 433 Corporations Law and 560 Corporations Law.

Please acknowledge your receipt of this notice by signing the duplicate and returning it to me.

It was said that this document admits or shows that Mr Whitton was in a relationship of employment with the employees to whom it was directed. In my opinion it clearly shows the contrary. It opens with a reference to his obligation to pay wages from the time of appointment; clearly a reference to s.419 of the Corporations Law. It is clear on the whole document that the statement that he had decided to pay wages for the full week was by way of concession and was not an admission of any right. The statement under Mr Whitton's signature again emphasises that his position was not that of a principal. The whole subject dealt with is a payment of wages at the conclusion of one week, and the document in no way tends to support contentions that Mr Whitton had become the employer of the persons to whom it was directed.

Some reliance was also placed on two or three references in Mr Whitton's affidavits where, dealing with another subject than the nature of his relationship with employees, Mr Whitton referred to employees in language which showed or seemed to show that they were employees of his own. These loose expressions could be countered by an expression in an affidavit of Mr Lewington in which he spoke of himself as being, after 8 March 1995, an employee of Boswell Printing. At the termination of employment Mr Whitton issued group certificates for tax deductions for all employment in the whole financial year 1994/95, showing the employer as Boswell Printing; employees accepted these and presumably relied on them for the purpose of making their tax returns. These slight shreds of information or purported information could not be the basis for disposition of this issue.

The principal line of argument began with a submission that the appointment and entry of the agent for the mortgagee into possession of a business with power to conduct it, where he does conduct it, brings about termination of existing employment contracts of the company. This contention was said to be supported by the decision of the Court of Appeal of England in Reid v. Explosives Co. Ltd (1887) 19 QBD 264. In that case the contention of the plaintiff was that on the appointment by the Court of a receiver and manager the plaintiff's employment contract continued. The Court held that it was then terminated without the contractual notice, but that no damage was suffered as thereafter the plaintiff actually continued in office and was paid for more than the contractual period of notice. There was of course no contention that the receiver and manager had become the employer. Lord Esher MR reasoned from the case of an employer who shut up business without giving an employee contractual notice, which would amount to wrongful dismissal and give the employee a right of action. He went on at p.267 to apply the same conclusion where one or several mortgagees took possession of the business on the failure of the mortgagor to comply with the terms of the mortgage. It must respectfully be said that his Lordship's reasons do not explain in any clear way how the two situations resemble each other; shutting up business and leaving the employee with no employment to attend is a very different situation to suffering the company's affairs to pass into the management of a receiver and manager and continuing to employ the employee under that new control. It should be noted from p.265 that the jury expressly found that the plaintiff after the appointment of the manager was not in point of fact in the employment of the manager, but continued in that of the company. Lord Esher does not seem to have appreciated that this had been so found as his expressions at the foot of p.267 and the top of p.268 seem to proceed on the basis that after employment of the manager the plaintiff passed into the employment of the manager, and the ground on which the plaintiff was not entitled to damages was that he suffered no damage from the wrongful dismissal because he had had other employment with the same salary for the six months period of notice which he should have received. Fry LJ reached the same conclusion for reasons which he expressed differently, and said at 269: "I am not prepared to lay down that every entry by a mortgagee is a dismissal of the servants of the mortgagor on his employment. I think to see whether that has happened we should look to the facts in each case. But in the present case I think the facts shew that the entry did determine the service of the plaintiff and was a dismissal, which by the terms of the agreement was wrongful." Lopes LJ disposed of the matter in a very few words. Nothing in the judgments, and to my reading nothing in the report explains why, when the business continued under the control of the receiver and manager, his appointment worked a dismissal on the facts of that case. I would have thought that a dismissal would be brought about only if the receivers and managers dismissed the plaintiff, or if there were some repudiatory conduct which the plaintiff accepted. There does not seem to be any expressed basis in the reasons for either of those conclusions.

In the present case there is no event analogous to closing up business; the business passed first into a receivership which was superseded within a few hours and had no effect on events, then into the possession of the mortgagee through its agent. The business was of no use to the mortgagee unless it did continue; it was not shut up, but continued, in the possession of the mortgagee under rights conferred on it by Boswell Printing. In my interpretation of the facts, that business, the contracts of employment and the rights to the services of employees, like every other asset, passed into the possession and control of the mortgagee, and they were not brought to an end in any way by the events of 8 March.

Counsel also referred me to the decision of an Industrial Tribunal under the Redundancy Payments Act 1965 of the United Kingdom, Hopley-Dodd v. Highfield Motors (Derby) Limited [1969] 4 ITR at 289. This is not a decision of a judicial body, and was a case where, on the facts, the employee expressly gave notice of termination, or used words which unmistakably meant that; see p290 the exchange being that the receiver advised the employee to accept another offer of employment, the employee said she would, the receiver said: "Are you giving me a week's notice?" and the employee said: "That is what it boils down to." Notwithstanding this exchange the conclusion, explicitly a conclusion of fact, at p293, was that her employment was terminated by the appointment of a receiver and manager, and that the receiver and manager was in no sense operating the company, with an irrelevant exception. The case is significant only for its reference to Re Foster Clarke Ltd's Indenture Trusts [1966] 1 WLR 225; 1 All E.R. 43 and for the exposition by Plowman J at WLR 132, 133 of texts which show that Read v. Explosives Co. Ltd is not regarded as stating universally the position on the appointment of a receiver or receiver and manager.

There has been clear judicial recognition that not all appointments of a receiver bring about a termination of contracts of employment. In Nicoll v. Cutts [1985] BCLC 322 Dillon LJ, giving the judgment of the Court of Appeal of England, said at 325:

"The reason why the appointment of a receiver by the court has been held to operate as a dismissal of a company's employees is that the court's receiver does not operate on behalf of the company, but adversely to the company, and his appointment has been equated to an entry by a mortgagee into possession of the company's property: see Reid v Explosive Co (1887) 19 QBD 264, [1886-90] All ER Rep 712. There was, as it was put in Midland Counties District Bank Ltd v Attwood [1905] 1 Ch 357, a change in the personality of the employer.

"Where, however, the receiver is appointed out of court under a power in a debenture and the debenture provides that the receiver is to be the agent of the company, there is no change in the personality of the employer. The directors' powers to manage the company's business are displaced in favour of the receiver, but the business is still the company's business carried on by the company's agent. See the classic exposition of the receiver's position in the judgment of Rigby LJ in Gaskell v Gosling [1896] 1 QB 669. Therefore, as is, in my judgment, correctly stated in 7 Halsbury's Laws (4th edn) para 880, the appointment out of court under powers in a debenture of a receiver, who is to be the agent of the company, normally has no effect on the company's contracts, and ordinary contracts of service will not be affected. The company remains the employer. I approve the reasoning in the judgments in the cases cited in the footnote to that passage in Halsbury: Re Mack Trucks (Britain) Ltd [1967] 1 All ER 977, [1967] 1 WLR 780; Re Foster Clark Ltd Indenture Trusts [1966] 1 All ER 43, [1966] 1 WLR 125 and Griffiths v Secretary of State for Social Services [1973] 3 All ER 1184, [1974] QB 468."

In these observations his Lordship did not deal with the present case of appointment of an agent for the mortgagee.

In Love v. The Image Centre Pty Ltd (13 February 1991 unreported) Young J in this Division followed and applied these observations of Lord Justice Dillon.

I was referred to several reported cases in which provisions relating to transmission were referred to, but these did not bear closely on the present circumstances. These were Re Matthew Bros. (In Liq.) [1962] VicRp 39; [1962] VR 262 where it was held that the liquidator carrying on business for its beneficial winding-up was not a transmittee under s.151 of the Labour and Industry Act 1958 (Victoria) and incurred no personal liability. I was also referred to McDonough v. Readford [1981] IASCR 68, a judgment of Vernon Watson J in the Industrial Commission of New South Wales. The complainant had undoubtedly been employed first by a solicitor Mr Robinson who had been struck off, had resigned from that employment and immediately commenced employment by the respondent Mr Readford, and later claimed Long Service Leave on the basis of continuity of employment and transmission of Mr Robinson's business to Mr Readford falling within s.4(11)(c) of the Long Service Leave Act. On appeal and reversing the decision of the Chief Industrial Magistrate it was determined that the informal arrangements for the transfer of the practice did give rise to a transmission. There was no event and no holding furnishing useful analogies with the present case or throwing any light on whether Mr Whitton became Mr Lewington's employee.

My finding is that Mr Whitton did not become the employer of Mr Lewington or of any person in the company's employment up to 8 March 1995 and hence is not the transmittee of the business within any of these provisions. The business was not transmitted to anyone by Boswell Printing when Heller Financial Services through its agent took possession of the business among all the assets subject to the charged and continued to operate it. Nothing which could be thought of as a transmission took place, and nothing which could be thought of as a transmission to Mr Whitton took place.

The issues raised by Q.5 were substantially those raised by Q.4 and I will answer it in the same sense.

Subsection 419(1) of the Corporations Law is in these terms:

"419(1) A receiver, or any other authorised person, 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 charge 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."

Mr Whitton is clearly a person to whom this subsection applies and the substantial difficulty raised by Q.6 is whether Severance Pay and Long Service Leave were incurred by him. In my view the reference is not to incurring a personal liability for which the agent was liable under contract or in any other way other than under subs.419(1); the subsection was not enacted merely to say again that the agent had whatever personal liabilities the general law imposed on him. The purpose of the subsection is to add a personal liability of the agent to a liability to which some other law subjects the corporation property of which the agent controls, and the expression "debts incurred by the person" is an expression, of no great precision, referring to debts which have come to be owed by the corporation as a result of the activities of the agent. "Incur" has been considered in various legislative contexts, including in s.51(1) of the Income Tax Assessment Act 1936, s.588G and following and s.592 of the Corporations Law and their predecessor s.556 of the Code. The identification of the time when a debt was incurred has had consideration in many cases under legislation related to director's liability for insolvent trading. In Hawkins v. Bank of China (1992) 26 NSWLR 562 at 572 Gleeson CJ referred to some of the difficulties and said the words "incurs" and "debt" are not words of precise and inflexible denotation. "Where they appear in s.556 they are to be applied in a practical and commonsense fashion, consistent with the context and with the statutory purposes."

In s.419(1) it is not sufficient to support a conclusion that an agent incurred a debt in the course of the receivership that the debt became due for payment while he was a receiver, nor is it necessarily sufficient that some of the acts or events constituting entitlement to the debt, whether or not they were the final precipitating acts or events, were acts of or were caused by the receiver. For both Long Service Leave liabilities and redundancy liabilities, the company was, by 8 March 1995 in a position where, with the exception of relatively rare events which the company did not control such as misconduct of employees, it was inevitable that a liability would fall in at some time with the maturity of a chain of events which had already been in course for a period of some years, and in view of the company's financial difficulty that could well happen soon. Liability for Long Service Leave would fall in with the grant of leave or termination of employment, and liability for redundancy payment could be expected to fall in ordinary circumstances, on the termination of employment; and while the exact times at which these events would happen were to a considerable extent under the influence of whoever was in control of the company's affairs, it was fair certainty that they would fall in at some time, and quite likely that that would be soon if the company could not avoid default. They would fall in if the company closed down or sold its business, but if the company did not close down or sell its business, it could be expected with a high probability that they would fall in at some time. Mr Whitton was in control as agent for the mortgagee for the last 50 days before the termination of employment, and the sale of the company's business by him as agent for the mortgagee was itself the result of a chain of events which were largely the acts of others, including the original financing, granting the mortgage and the circumstances which led to default. Although the final and precipitating events were his acts as agent for the mortgagee, it should not, in my finding, be found that the Long Service Leave liabilities and redundancy liabilities were incurred by him. Mr Whitton took a relatively small part in the whole array of acts and conduct which brought about their payability, and, with fair certainty, the company was committed to their becoming payable at some time whether or not Mr Whitton had ever been appointed or had ever done anything.

Whether Mr Whitton made payments to post-crystallisation creditors.

This question raises a question of quantum which I am not in a position to determine now.

If Mr Whitton has incurred a liability for damages for breach of statutory duty under s.433(3), it is a personal liability and exists irrespective of the continued availability under his control of the property out of which the payments ought to have been made for the proceeds of that property, subject to a qualification which I made much earlier.

Consequences of the trustee being liable to be removed.

The events which overtook Boswell Printing, namely a receiver being appointed, its mortgagee entering into possession of its assets, the mortgagee's agent selling its business and the company passing into liquidation, reasonably raise consideration whether it is safe for a person dealing with the company and with knowledge of its position as trustee of the trading trust to pay moneys to it. Clearly it is liable to be removed from the trust, either by the procedure prescribed by the trust deed or by a discretionary order under the Court's inherent power or under s.70 of the Trustee Act 1925. Liquidation is one of the circumstances set out in subs.70(3). Although the court's powers are discretionary, these events and particularly the liquidation made it likely that the Court would remove Boswell Printing on the application of a party who had standing. I should consider whether Boswell Printing continues to be a trustee, whether persons with knowledge of its liability to be removed may safely continue to deal with it and whether the liquidator has power to act as an organ of the company in relation to trust affairs. In a general way there seem to be analogies with some other situations where equity imposes disadvantages on persons who deal with trustees with notice of the rights of beneficiaries: whether the fact that beneficiaries have an entitlement to remove Boswell Printing under the Trust Deed brings into operation any equitable principle which would require trust affairs to be conducted on the basis that there already had been a removal, and whether notice of the existence of that entitlement is notice of an equity to which the rights of persons who continue to deal with a trustee which is liable to be removed are subject.

I leave out of consideration the position of a person who is dealing with a trustee and is not acting in good faith. Dealings with a trustee who was known to be liable to be removed with the intention of defeating the interests of beneficiaries would raise considerations which do not arise on the facts of this case.

Counsel were not able to refer me to any English or Australian authority which deals directly with the position of a person dealing with a trustee with knowledge that the trustee is liable to be removed. The closest address to the subject in the decisions of this court cited to me was made by Needham J in Re Crest Realty Pty Ltd (in Liq) and the Companies Act [1977] 1 NSWLR 664. In that case the company was trustee of a bank account styled a trust account and maintained pursuant to s.36(1) of the Auctioneers and Agents Act 1941. The company went into liquidation and the bank resisted payment to the liquidator of the money in the account. Needham J held (a) that the company continued to be trustee of the moneys in the account after the winding-up, and (b) that the liquidator was entitled to deal with the moneys in the trust account for the purpose of winding-up the affairs of the company, notwithstanding that the moneys were not assets of the company generally available for distribution to the company's creditors. At the hearing the first of these was not disputed: see p.666F. The decision on the second was based on the position of the liquidator under s.261 of the Companies Act 1961, by which the liquidator was appointed for the purpose of winding-up the affairs and distributing the assets of the company, and Needham J regarded this as including the administration of any trust of which the company was trustee. The powers of liquidators are now spelt out much more fully in s.377 of the Corporations Law, and in my view those powers would support the conclusion reached by Needham J even more clearly than the then legislation did; in particular, subs.(2)(l) which is the power to "do all such other things as are necessary for winding-up the affairs of the company and distributing its property."

The entitlement of a liquidator to give effect to rights of the company as trustee to indemnity out of trust assets is well recognised: Grime Carter & Co. Pty Ltd (in Liq.) (1983) 7 ACLR 540 at 541-542; Re Gradfan Pty Ltd (in Liq.); Nilant v. Miling Nominees Pty Ltd (1996) 20 ACSR 689. Involved in this recognition is an assumption that trust assets, like other assets, are within the liquidator's control. Winding-up the affairs of the company might well require that the liquidator take some action to distribute trust funds to the persons beneficially entitled to them or to appoint a new trustee, but until some such event happens, the company continues to be a trustee. Not only is the liquidator of Boswell Printing authorised to administer the trust in the exercise of his office as liquidator; he has stated on affidavit his readiness to do so.

The question whether a corporate trustee which is in liquidation or in some other way loses control of its affairs continues to be a trustee has had much judicial consideration in the United States, but no uniform conclusion appears, probably because State legislation is diverse; see Scott "The Law Of Trusts" 4th ed. 1987 Vol.2, p114, 115 with the citations at note 17, Bogert "The Law of Trusts and Trustees" revised 2nd ed. 1983 s.527 p58 and the citations at note 24. See too the annotation, published in 1936, at 102 American Law Reports annotated 124. These American references deal with the continuation of capacity to act as trustee and the power of liquidators or other administrators to exercise that capacity, but do not appear to comment on the position of persons who deal with a trustee who is liable to be removed.

The plaintiff's counsel referred to the liquidator's entitlement as controller to seek directions under s.424 of the Corporations Law and to his concern whether he could take a satisfactory receipt from the liquidator. In outlining the facts leading counsel referred to cl.16 of the Trust Deed (which I set out earlier) as providing for automatic retirement.

Counsel for Boswell Printing and its liquidator contended, in my view correctly, that cl.16 of the Trust Deed does not provide for or bring about automatic retirement. Although by cl.16(a) the trustee covenants that it will retire in events which have happened the later subclauses show that retirement would take place in a context of action by itself and possibly of others to bring about the appointment of another trustee. Although unit holders are entitled to seek enforcement of the covenant in the event that the trustee does not retire they may omit to seek enforcement, and they may decide that the covenant should not be enforced, leaving the covenant unperformed and the trustee still in office. As enforcement of the covenant would bring under consideration whether the trustee had any entitlements to indemnity against the trust assets, and whether the trust assets were of sufficient value to make enforcement of the covenant and the substitution of another trustee worthwhile, a decision not to enforce the covenant is well within a reasonable range. In fact there has been correspondence among interested parties in which an entitlement to indemnity has been asserted.

Counsel for Boswell Printing also contended that, although Boswell Printing is in breach of the covenant to retire, as no steps have been taken for removal it has not ceased to be a trustee, and that it would be wrong to hold that a trustee in breach of trust is disabled from getting in the trust property because of the paralysing effect this would produce for trust affairs.

Counsel referred to the judgment of P.W. Street CJ for the Full Court in Re City of Sydney Real Estate Co. (1929) 29 SR 80 in support of a contention that the fact that a trustee is in breach of trust does not prevent the trustee from giving good discharges for trust assets, and the trustee is not disabled from dealing with trust properties unless the further dealing is itself a breach of trust. That decision shows that where trustees acquire an asset in breach of trust, their breach of trust does not affect their power to dispose of the asset. The decision is not a good test of principle for present purposes because no interested person made any attempt to rely on the breach of trust or challenge the acquisition by seeking removal of the trustees, or in any other way, and the trustees who committed the breach of trust were no longer in office, so that the asset was disposed of by successors who were not in breach of trust. It is simply unknown whether the breach committed by the original trustees would have been treated by the court as grounds for their removal from office, as no one ever challenged them. The breach of trust was a serious one as they entered into a transaction of purchase with themselves as vendors in another interest and capacity, but removal from office would not necessarily follow. The decision illustrates that property acquired in breach of trust may be disposed of and trustees may continue to function after breach, but has no direct bearing on the present questions.

The liquidator's counsel also referred me to Sjoquist v. Rock Eisteddfod Productions Pty Ltd & Anor (1996) 19 ACSR 339; but I find no assistance in its complex circumstances.

The plaintiff's counsel, while seeking directions, made submissions which generally supported the liquidator's position. They referred to a trustee's entitlement to an indemnity and lien over assets for personal liability for debts incurred in the course of trust business transactions (Octavo Investments Pty Ltd v. Knight & Anor. [1979] HCA 61; (1977) 144 CLR 360 at 367-368) and to the subrogation of creditors of the trustee to that lien. The trust deed contains an express right of indemnity in cl.14(d) and (e). They submitted that the right of indemnity is not terminated upon the termination of the trust or upon loss of office, in the absence of some provision in the Trust Deed to a different effect; Coates v. McInerney (1992) 6 ACSR 748 at 749. They submitted that the liquidator was entitled to receive surplus assets either for the satisfaction of the lien securing the indemnity for the benefit of the creditors of the company or alternatively as assets of the trust, and for assignment to any new trustee who may be appointed.

In the absence of any governing authority my directions should be based on what I see as foundations in principle and necessity. In principle there is, in my opinion, no reason why a trustee who has committed a breach of trust, even one so serious that he ought to be removed, should be any less active than otherwise in getting in and conserving trust property, or should be any the less authorised to do so, and that authorisation must necessarily extend to giving a good discharge to someone who wishes to pay trust funds to the trustee.

In my opinion a trustee continues to hold office until some event happens which brings the office-holding to an end; this is so no matter how strong or clear are the grounds on which the trustee ought to be removed or the entitlement of some interested person to secure removal. The seeming analogies to which I earlier referred are too distant to be useful: an unexercised contractual right to removal and the possibility or probability that the Court would remove a trustee if asked when no-one has so asked are not close in their substance to equitable interests notice of which should affect the rights of other persons. I see it as a matter of necessity that persons dealing with the trust should be able to make transactions, in particular should be able to pay money due to the trust to the trustee for as long as the trustee continues to hold office. This is a matter of necessity because of the paralysis which otherwise would often be produced for the affairs of trusts whenever persons dealing with the trust had knowledge of grounds, whether more or less clear, on which it could be maintained that the trustee should resign or be removed. The powers of the court to remove trustees are discretionary and there can rarely be certainty about whether they would be exercised if involved, while the entitlement of beneficiaries under the Trust Deed to remove Boswell Printing depends on a mechanism which must be set in motion by the beneficiaries as well as on the existence of grounds on which the beneficiaries may act, and an outsider dealing with the trust is not in a position to know whether or not the beneficiaries' inaction is a result of a deliberate choice to leave the trustee in office.

These considerations lead me to the view that Boswell Printing continues to be trustee and the plaintiff may and should deal with its liquidator in trust affairs while Boswell Printing so continues.

When the parties have had an opportunity to consider these reasons the proceedings can be brought before me for directions for any further steps required for their disposition.

Order Liberty to apply for directions on 2 days' notice.