Crown Group receivers blocked from paying related parties ahead of priority fight

The Supreme Court of New South Wales has refused to allow receivers of Crown Group property entities to pay more than $10 million in disputed related-party claims from asset sale proceeds before the validity and priority of those claims are determined, dismissing an application to amend an existing distribution waterfall for proceeds from Crown Group’s Eastlakes development.

The dispute centred on payments made by related Crown Group entities to help service Commonwealth Bank of Australia loans secured over the Eastlakes property. Provisional liquidators and receivers Andrew Sallway and Duncan Clubb of BDO Australia (who recently had $2.7 million in additional remuneration approved by the Court over shareholder objections) argued that the paying entities were entitled, through equitable subrogation, to stand in CBA’s secured position to the extent their funds had been used to meet interest and loan fees.

The Eastlakes entities had borrowed $56.3 million from CBA under a 2015 facility, followed by a 2020 refinancing comprising $50 million for Eastlakes North and $49.3 million for Eastlakes South. Both facilities were secured by mortgages over the development properties.

Sallway identified approximately $4.1 million of payments made before the provisional liquidators were appointed in August 2023 and a further approximately $6.0 million of payments made after appointment. He considered those amounts capable of benefiting from CBA’s former security through subrogation.
The receivers have since sold Eastlakes North Retail for $19.5 million and Eastlakes South for $75 million, with the latter sale discharging the CBA debt in full. They presently hold approximately $48.35 million in surplus proceeds, while a portion of Eastlakes North Residential remains unsold.

The provisional liquidators sought to amend the existing proceeds order so the receivers could determine which Crown Group entities held secured subrogation claims, pay those amounts, and deposit the remaining balance into Court.

CII Group Pty Ltd, an insolvent related-party creditor, opposed the proposal. It argued that the Crown Group had historically moved money between entities through loosely documented intercompany loans, making it unclear whether particular payments were specifically intended to discharge secured CBA debt or were simply unsecured advances within the group. The Court noted that resolving the issue would require a payment-by-payment examination of the relevant books, intercompany balances and surrounding circumstances.

Justice Nixon found that there remained a live dispute both as to whether any Crown entities had any secured subrogation rights and, if so, the amount of those rights. Rather than determining those issues, the proposed amendment would effectively permit the receivers to make their own determination and distribute the money first, leaving creditors to challenge the payments afterwards.

The Court rejected that approach, particularly because the reconciliation of intercompany balances remained incomplete and two of the three receivership entities may be balance-sheet insolvent. A payment to a Crown Group entity before priority was resolved could therefore reduce recoveries available to unsecured creditors.

Instead, the existing waterfall will remain in place, with undisputed secured claims paid and the balance deposited into Court pending further determination. Justice Nixon said the subrogation dispute could later be resolved following completion of the intercompany reconciliation and in the context of any pooling application, or through an application for declarations or directions concerning specific payments.

The decision leaves the Crown Group entities’ substantive subrogation claims open. The Court expressly recognised that the receivers had a reasonable basis for investigating and advancing those claims, but held that disputed priority rights should be determined before funds leave the receivership estate, not afterwards.

Read the decision here.

Emma Beechey of New Chambers and Lander & Rogers acted for CII Group Pty Ltd, while Nicola Bailey of 3 St James' Hall and Johnson Winter Slattery acted for the receivers and provisional liquidators, Andrew Sallway and Duncan Clubb of BDO Australia.