Relevant principles
35 As summarised by Ford, H.A.J., Austin R.P. and Ramsay, I.M. in Ford's Principles of Corporations Law (2000, Butterworths) at [25.060]:
Because of the severity of the consequences and the company's loss of commercial credit when a receiver is appointed the court will not appoint unless convinced of the necessity to do so. When the court appoints a receiver it is giving an equitable remedy. Like all equitable remedies an appointment is not available where the court thinks common law remedies are adequate.
36 Consistent with these principles in Beach Petroleum NL v Johnson (1992) 9 ACSR 404, von Doussa J said (at 406) that the appointment of a receiver and manager under s 1323(1)(h) is 'a drastic step not to be lightly taken'. His Honour went on to say (at 412):
I have thought hard about other alternatives that might be available … [but] I am unable to satisfy myself that any alternative short of appointing a receiver and manager would meet the circumstances.
37 In that case, the appointment of the receiver was held to be necessary following the sale of a crushing plant which comprised a substantial portion of the company's business in order to protect the interests of persons to whom the company was possibly liable. On assessment of the evidence, von Doussa J concluded that the applicants had established a prima facie cause of action against the company and there was a real danger that it absence of interim relief, the company would dissipate its assets prior to judgment.
38 In Australian Securities and Investments Commission v Marshall Bell Hawkins Ltd (2002) 43 ACSR 340, Merkel J made urgent interim orders pursuant to s 1323(1) CA appointing a receiver and manager of all of the property of various respondent companies. In that case, his Honour found there was a prima facie case that investors had been persuaded to make inappropriate high risk investments with self-managed superannuation funds and savings and that appointing a receiver and manager was necessary to protect the interests of those investors. In that proceeding, ASIC alleged that the defendants had breached various contractual and legal duties including, inter alia:
a duty of care owed in relation to the investments;
a duty to disclose commissions and other benefits received as a result of the investments; and
engaging in misleading and deceptive conduct in relation to advice about the investments.
39 In his reasons, Merkel J cited with approval Finn J's summary of principles relating to the operation of s 1323 CA in Australian Securities Commission v AS Nominees Limited (1995) 62 FCR 504. At [13]-[14] his Honour said:
[13] …The purpose of the remedies provided in s 1323 is to protect the interests of persons who might have claims against the relevant corporations, irrespective of whether those claims are based on a breach of a law relating to corporations or arise under the general law. That purpose is usually achieved by securing the assets of the relevant corporation against which the claims may lie for the purpose of providing security for those claims or for securing assets for which that corporation may be liable to account in respect of such claims. In considering whether it is necessary or desirable to appoint a receiver and manager the Court should recognise the "drastic nature" of such an appointment, which should only be made in exceptional or special circumstances, after careful scrutiny and after less drastic remedies, including a Mareva injunction, have been considered. The circumstances where a receiver and manager may be appointed include where potential or actual claimants are being protected from incompetence, where there have been persistent breaches of trust caused by "an undeveloped sense of trusteeship" or from fraud. Thus, proof of actual or apprehended fraud is not a pre-condition to the appointment of a receiver and manager under s 1323.
[14] Of particular relevance in the present case is the observation by Finn J in AS Nominees … that an appointment of a receiver and manager may be appropriate where there have been serious and persistent breaches of trust and conflicts of interest resulting in the trust funds being subject both to depredation and dissipation. His Honour's justification for the appointment in such circumstances was that for as long as the trust funds remain under the control of the relevant corporation or its controllers there can be no assurance that the breaches will not continue. While the defendants are not holding investors' funds on trust it is arguable that, having regard to their interest in the investments they, or some of them, may owe fiduciary duties or analogous duties to investors in respect of their investments: see Daly v The Sydney Stock Exchanges Ltd (1986) 160 CLR 371 at 377, Australian Securities Commission v Melbourne Asset Management Nominees Pty Ltd (1994) 49 FCR 334 at 358 and Australian Breeders Co-operative Society Limited v Jones (1998) 150 ALR 488 at 506, 517 and 518.
40 In AS Nominees Limited Finn J was required to determine two applications by the Australian Securities Commission. The first application was for the appointment of a receiver and manager of property of the corporate respondents following an investigation into the state of affairs of the companies. The second application, brought at a later date, sought an order that the respondent companies be wound up on just and equitable grounds. In its applications, the Australian Securities Commission alleged, inter alia, that:
the trustee companies had been run largely at the direction of and for the benefit of a particular director;
the directors repeatedly breached their duties as directors and trusteeship obligations;
trust funds had been invested recklessly, often in circumstances of blatant conflict of interest or partiality;
the corporate respondents had intermixed funds; and
the respondent companies had shrouded the above with deficient and defective record keeping for both the companies and the trusts.
41 While his Honour ultimately found (at 526) that winding up was the 'preferable and more efficacious remedy' in the circumstances of the case, he stated that he would not hesitate in making an order for the appointment of a receiver if it was the only application before him due to the 'serious and persistent breaches of trust and conflicts and interests' and the fact that the trust funds were 'subject both to depredation and dissipation'. Crucially, Finn J reasoned (at 526) that:
For as long as these remain under the control of the respondents there can be no reassurance that such will not continue… The conclusion I have arrived at is that it is not safe to leave the trust funds under the control of all or any of the respondents.
42 Further, he held that it was not necessary to establish an actual or apprehended fraud to make the orders sought by the Australian Securities Commission. His Honour said (at 525):
In any event, I do not regard proof of actual or apprehended fraud as an essential requirement before an order can or should be made under this section. In the case of the First Fawkner Centre transaction there may not have been fraud. But there has been a potentially devastating breach of trust caused by "an undeveloped sense of trusteeship". (citation omitted)
43 In Re Allco Securities Pty Ltd [2011] NSWSC 1113, Barrett J said (at [15]-[21]):
15. The categories of case in which such an appointment is appropriate are not closed but several such categories are well established. One of them is where trust assets are in jeopardy. Mr Condon referred me, in that connection, to the decision of Warren J (as her Honour then was) in Yunghanns v Candoora No. 19 Pty Ltd (No. 2) [2000] VSC 300; (2000) 35 ACSR 34. That was a case where property, undoubtedly subject to trusts, was in jeopardy and proceedings for the determination of entitlements were in train. The court appointed a receiver to safeguard the property pending the determination of the claim for final relief.
16. In the present case, it is not yet established that the Unique World shares are trust property but, as I have said, it is arguable that they are and that Allco Securities holds them on trust for the plaintiffs. That is sufficient, to my mind, to form the foundation for the appointment of a receiver if what I am generally describing as jeopardy is shown.
17. As to that, the absence of governance mechanisms within Allco Securities means that the company is unable to function. Things are in a state where the company said to be a trustee simply cannot act and, in particular, cannot discharge the responsibilities flowing from any trusts to which its property is subject. Circumstances of corporate paralysis or deadlock have in the past been seen to justify appointment of a receiver: see, for example, McMillan v Toledo Enterprises International Pty Ltd (1995) 18 ACSR 603. The court would readily appoint a provisional liquidator in the case of such deadlock but could do so only at the request of someone with standing to petition for winding up who had actually done so. The plaintiffs do not appear to be in that position vis-vis Allco Securities. The distinction between a provisional liquidator and a receiver is, in a functional sense, not great: Re United Medical Protection Ltd [2002] NSWSC 413; (2002) 41 ACSR 623.
18. The overall circumstances are thus such as to require that the property concerned be taken into the control of the court and put into the hands by an appropriate person who, as the court's appointee, will bring into court, in connection with the determination of the substantive proceedings, the property itself or the proceeds of its sale if it is sold. The plaintiffs have a sufficient interest to seek such an appointment.
19. The plaintiffs asked that the receiver be given a power of sale. Because of the nature of the property and the surrounding circumstances, that was an appropriate course.
20. Mr Dean-Willcocks consented to be appointed as receiver. He is a registered liquidator. That being so, there was no need for him to give security.
21. The plaintiffs by their counsel proffered the usual undertaking as to damages. That was most desirable, given the drastic nature of the interim remedy: National Australia Bank Ltd v Bond Brewing Holdings Ltd [1991] VicRp 31; [1991] 1 VR 386. The appointment was made upon that undertaking.
44 In Australian Securities and Investments Commission v Letten [2010] FCA 140 Gordon J, in appointing a receiver and manager to the property of a managed investment scheme, noted (at [16]-[17]):
16 I also consider that a receiver and manager should be appointed to the property of each of those schemes and the property of the managers of each of the schemes, the corporate defendants. The appointment of a receiver is a drastic remedy. Any appointment of a receiver must be made cautiously and only when it is absolutely necessary: National Australia Bank Ltd v Bond Brewing Holdings Ltd [1991] 1 VR 386. In my view, this is one of those situations. Funds have been contributed by investors in "joint venture projects". Serious questions have been raised about the management of those projects and the entities associated with them, including the extent to which the funds of one "joint venture" have been loaned or transferred between various accounts and other ventures and schemes. Some investors in some of the schemes have lodged complaints that their funds have not been returned following the sale of the properties the subject of the investments.
17 However, at present I do not consider it appropriate to empower the receivers and managers to realise any property of those schemes or to move to complete any existing sale contracts in relation to any property of those schemes. ASIC's application was designed to achieve two objectives - preserve the status quo and to provide an independent report into the status of each of the projects. In my view, the orders I propose to make achieve those objectives. If before the time for reporting by the receivers provided for in the orders, the receivers consider additional steps are necessary, then they can make application to the Court in the usual way. By that time, my hope and expectation is that all interested parties will be in a better position to consider any proposal for the future management of the schemes.
45 The proposed receivers have provided statements to the effect that they have no conflicts or relevant prior associations and have signed forms of consent to act.