Noteholder appoints receivers after trustee standoff in $80 million structured finance dispute

The Supreme Court of New South Wales has confirmed that receivers appointed over trust assets in a structured finance arrangement were not invalidly appointed, providing important guidance on the operation of section 418A of the Corporations Act 2001 (Cth) and the scope for noteholders to exercise enforcement powers where a security trustee declines to act.

In iPartners Nominees Pty Ltd v BNY Trust Company of Australia Ltd, the Court considered an application brought shortly after the appointment of receivers over the collateral of two Marketlend trusts, following payment defaults on more than $80 million in Class A notes held by a single noteholder.

The application arose in the context of a broader dispute between iPartners Nominees Pty Ltd, the noteholder, and Permanent Custodians Ltd, the security trustee, which had refused to act on enforcement directions absent a substantially larger indemnity. After the trustee declined to appoint receivers, the noteholder purported to do so directly under a contractual mechanism in the security trust deed.

Given the unusual feature of a non-party to the security deed exercising enforcement powers, the plaintiffs (iPartners and the purported receivers, Barry Kogan and Damien Pasfield of McGrathNicol), sought declaratory relief under section 418A to confirm the validity of the receivers’ appointment.

Justice Leeming emphasised that section 418A is not a vehicle for broad validation of receiver appointments, but instead permits targeted declarations addressing specific grounds of doubt. The statutory power is confined to determining whether an appointment is or is not invalid on identified grounds, rather than granting unqualified declarations of validity.

The Court identified several potential sources of doubt, including provisions stating that secured creditors held no proprietary interest in collateral, limitations on creditor enforcement rights, and the fact that the appointing noteholder was not formally a party to the security trust deed.

Notwithstanding those issues, the Court held that clause 7.4 of the Master Security Trust Deed validly empowered the noteholder to exercise the security trustee’s enforcement powers where the trustee declined to act due to an indemnity dispute. That power could be characterised as arising through agency, trust, or a direct conferral of rights under a deed poll, and was effective in law.

Importantly, the Court found that other provisions in the transaction documents did not displace that power. Clauses limiting creditor enforcement rights were expressly subject to clause 7.4, and restrictions on appointing external controllers to the trustee did not apply to enforcement against trust assets.

Consistent with its interpretation of section 418A, the Court declined to grant a broad declaration that the appointments were valid. Instead, it issued a narrower declaration that the appointments were not invalid on the specific ground that clause 7.4 failed to authorise the noteholder’s actions.

The decision also addressed costs, permitting the receivers to recover their reasonable time costs associated with the application from the secured collateral, while reserving broader questions of cost allocation for further submissions.

Read the decision here.

Professionals involved:

• Darrell Barnett SC of Banco Chambers and Eleanor Doyle-Markwick of Alinea Chambers, counsel, and Hamilton Locke, solicitors, for the Plaintiffs, iPartners and receivers Barry Kogan and Damien Pasfield of McGrathNicol

• Alex Mufford of Norton Rose Fulbright for the Defendants, BNY Trust Company of Australia Ltd (the secured trustee and trust manager of the trusts) and Permanent Custodians Ltd (the security trustee)