Fixing Pre-Receivership Remuneration?

Deppeler, in the matter of Moulamein Grain Co-Operative Limited (in liquidation) (No 3) [2023] FCA 803
Does the court have the power to make an order fixing remuneration relating to work undertaken in the pre-receivership period?

Overview

In this case, the Court considered whether it had the power to make an order fixing remuneration relating to work undertaken in the pre-receivership period. The Court ruled that it did not have the power to do so under section 425 of the Corporations Act 2011 (Cth) (Corporations Act) or Rule 14.24 of the Federal Court Rules 2011 (Cth) (Federal Court Rules). However, the Court found that the receivers had an equitable lien over the funds generated from their sale of assets on the basis of the principle in Re Universal Distributing Co Ltd (in liq) [1933] HCA 2, which stands for the proposition that a secured creditor may not have the benefit of a fund created by a liquidator’s efforts without the liquidator’s costs and expenses, including remuneration, of creating that fund being first met.

Background

Nathan Deppeler and Matthew Jess of Worrells were appointed as administrators of Moulamein Grain Co-operative Limited (Co-operative) by a resolution of directors on 15 August 2022. They were later appointed by an order of the Court as receivers (Receivers) of the so-called “Consignment Grain” pursuant to s 57 of the Federal Court of Australia Act 1976 (Cth) on 13 September 2022. Between those two appointments, the Receivers went about preserving the Consignment Grain stored by the Co-operative for the benefit of growers.

At issue was whether the Court had the power to make an order fixing what was referred to as “pre-receivership remuneration”, an issue about which single judges have expressed divergent views. The Receivers claimed a total of $302,211.11 (excluding GST), including some remuneration relating to work undertaken in the period from 15 August 2022 to 12 September 2022, being the period prior to the Receivers being appointed by the Court. That part of the claimed remuneration related to tasks undertaken in connection with the originating process filed in the proceeding.

The Court’s Decision

The Receivers contended that the Court derives its power to make an order in their favour fixing their pre-receivership remuneration from three alternative sources:

1. s 425 of the Corporations Act;

2. r 14.24 of the Federal Court Rules; and

3. an equitable lien on the basis of the principle in Re Universal Distributing Co Ltd (in liq).

Notwithstanding some single judge decisions to the contrary, the Court ultimately ruled that contentions (1) and (2) must be rejected, while (3) should be accepted.

Section 425 of the Corporations Act

Section 425(1) of the Corporations Act provides that the court may fix a receiver’s remuneration, but only if the receiver was appointed under a power contained in an instrument.

The Court concluded that this section did not apply to this case, since the section does not apply to court-appointed receivers. It is only available to a receiver who is appointed “under a power contained in an instrument”, which necessarily excludes a court-appointed receiver because a court order is not an “instrument” within the meaning of s 425 (In the matter of Anglican Development Fund Diocese of Bathurst [2015] NSWSC 440 at [11]).

As further support for its conclusion, the Court pointed out that there are a number of provisions in the Corporations Act that draw a distinction between court-appointed receivers, who are appointed under an “order”, and privately-appointed receivers, who are appointed under an “instrument”.

The Court then considered three cases cited by the Receivers as supporting the contrary proposition that s 425 of the Corporations Act gives the Court power to fix the remuneration of a court-appointed receiver, namely:

1. Shannon v North East Wiradjuri Co Ltd (No 4) [2012] FCA 836;

2. Freeman, in the matter of Blue Oasis Holdings Pty Ltd (in liq) (No 2) [2019] FCA 118; and

3. Australian Securities and Investments Commission v Dawson [2021] FCA 301.

The Court found that, to the extent that statements made in those cases stand for that proposition, they were incorrectly decided.

Shannon v North East Wiradjuri Co Ltd (No 4) dealt with an application by court-appointed receivers for payment of their remuneration, purportedly brought pursuant to s 57 of the Federal Court of Australia Act, which deals with the appointment of receivers by interlocutory order. It was that obvious problem that appeared to have led to Jacobson J’s statement that a remuneration order is properly to be made under s 425(1) of the Corporations Act. This was a mistake, because when s 425(5) is read with s 425(7), it is clear that a receiver is not included in the classes of parties permitted to make an application for an order under s 425(1).

Freeman, in the matter Blue Oasis Holdings Pty Ltd (in liq) (No 2) involved an application brought by court-appointed receivers for payment of their remuneration pursuant to s 425(1) of the Corporations Act and/or r 14.24 of the Federal Court Rules (addressed below). Justice Greenwood was of the opinion that the word “instrument” in s 425(1) includes a court order and that s 425(1) thus provides the power to permit the court to fix the remuneration of a court-appointed receiver.

The Court in this case found that this proposition could not be sustained. Although “instrument” is not defined in the Corporations Act, as a matter of ordinary English usage, in the context of s 425 the word means a “formal legal document whereby a right is created or confirmed, or a fact recorded; a formal writing of any kind, as an agreement, deed, charter, or record, drawn up and executed in technical form”. In the context of receivers, the most frequently encountered “instrument” is a mortgage, authorising the appointment of a receiver upon default by the mortgagor. But its ordinary English meaning includes “any agreement between parties interested in the property over which the appointment is made”.

As outlined above, the Corporations Act draws a clear distinction between receivers appointed by order of a court and those appointed privately under an instrument, such as a mortgage. The Court found that this distinction is an important one of long standing, and cited various cases (including Re B Johnson & Co (Builders) Ltd [1955] 1 Ch 634, State Bank of New South Wales Ltd v Chia [2000] NSWSC 552) as support. For those reasons, the Court declined to find that “instrument” in s 425(1) includes an order of a court.

Finally, in Australian Securities and Investments Commission v Dawson, Anastassiou J said that the receivers’ application was made pursuant to s 425 of the Corporations Act, “which empowers the Court to fix the remuneration of a court-appointed receiver”, and made orders fixing their remuneration pursuant to s 425. For the reasons outlined above, the Court found that his Honour’s statements were incorrect.

Rule 14.24 of the Federal Court Rules

Rule 14.24 provides that “[a] receiver may apply to the Court to have the Court fix the receiver’s remuneration”. It was not disputed that r 14.24 gives the court power to fix a receiver’s remuneration after their appointment by the court. The issue was whether it allowed the court to fix the remuneration of a court-appointed receiver in relation to work undertaken prior to their appointment (here, when they were acting in their capacity as administrators). In the Court’s view, it did not.

In the Court’s opinion, and consistent with Markovic J’s observation in Amirbeaggi, in the matter of Simpkiss Pty Ltd (in liq) [2018] FCA 2121, r 14.24 only permits the court to fix remuneration in respect of work done by a receiver in their capacity as receiver, which presupposes their appointment as a receiver. The Court also cited Austin J’s comments in Skafcorp Ltd v Jarol Pty Ltd [2002] NSWSC 1183 about an analogous provision contained in s 449E(1)(b) of the Corporations Act as further support for its conclusion.

Equitable Lien

Finally, the Court considered whether the Receivers were entitled to recover their reasonable remuneration for the period prior to their appointment as receivers pursuant to the principle in Re Universal Distributing Co Ltd (in liq), and found that they were.

Re Universal Distributing Co Ltd (in liq) (as summarised in Stewart v Atco Controls Pty Ltd (in liq) [2014] HCA 15) stands for the proposition that a secured creditor may not have the benefit of a fund created by a liquidator’s efforts in the winding up without the liquidator’s costs and expenses, including remuneration, of creating that fund being first met. To that end, equity will create a charge over the fund in priority to that of the secured creditor.

Upon the basis that they “created a fund” in the manner described above, the Receivers sought a declaration that they had an equitable lien over the funds generated from the Receivers’ sale, pursuant to the orders made on 28 September 2022, of the grain held by the Co-operative, which lien secures their remuneration incurred in the period prior to 13 September 2022, which was exclusively referable to the Receivers’ preservation of the grain.

The Court was satisfied on the evidence that in the period between 15 August and 12 September 2022 the Receivers prepared the application to be appointed as receivers of the Consignment Grain and identified how best to preserve and realise the Consignment Grain. In the Court’s view, the granting of a declaration along the lines of that sought by the Receivers was appropriate, including because growers should not be permitted to enjoy the benefits referable to the preservation of the Consignment Grain without also meeting the reasonable costs that were incurred by the Receivers in doing so.

The Court considered that it was appropriate that the remuneration be met from the net proceeds of the Consignment Grain, rather than from the property of the Co-operative, because the work related solely to preparing the application to be appointed as receivers of the Consignment Grain and identifying how best to preserve and realise the Consignment Grain, and did not have any connection with the property of the Co-Operative.

Conclusion

The Court made a declaration that the Receivers have an equitable lien over the funds generated from their sale of grain pursuant to orders made on 28 September 2022 to secure their remuneration incurred in the period prior to their court appointment which was exclusively referable to their preservation of the grain, including without limitation preparing the application to be appointed as receivers of the Consignment Grain.

Judge: O’Callaghan J

Counsel for the Plaintiffs: DF McAloon
Solicitor for the Plaintiffs: Strongman & Crouch
Counsel for the Interested Parties: RT Zambelli
Solicitor for the Interested Parties: Holding Redlich