New Zealand: High Court gives useful steer to receivers

Last Updated: 18 April 2011
Article by Michael Arthur
Most Read Contributor in New Zealand, September 2016

Claims alleging breaches of duty by receivers rarely come to court, so a recent and detailed High Court decision is welcome - particularly for the guidance it gives practitioners on:

  • the duty to verify the validity of their appointment
  • the duty to achieve the best price reasonably obtainable, and
  • the ability to retain funds at the conclusion of a receivership to meet anticipated litigation costs. 

Justice Panckhurst's decision in Taylor & Ors v Bank of New Zealand & Ors1 will also be of some comfort to receivers for confirming that, in deciding whether a receiver's actions fall short of the standard required, the Court ought to "allow some margin for business and risk assessment by the receiver".

In other words, the receiver will not be liable unless "plainly on the wrong side of the line". Clearly, there is some judicial sympathy for receivers, and recognition that receivers can be required to make difficult judgement calls under pressure.

Verifying appointment

The receivers in the Taylor case did not seek a formal opinion on the validity of their appointment.  Instead they relied on the bank to have appointed them appropriately and in accordance with the general security agreement (GSA).  Only the appointment documents were given to the receivers' solicitors, who apparently advised the receivers by telephone that "everything was in order". 

The Judge described those steps by the receivers as inadequate.  One of the first duties of receivers is to verify the validity of their appointment.  The Judge said the receivers' solicitors needed to have seen the GSA, the notice of demand and sufficient related documentation in order to verify that an available event of default had occurred. 

Although the plaintiff director argued that the appointment was in breach of the contract between the company and the bank, the Judge found in the bank's favour.  The bank's interpretation of the relevant clause was preferred and, in any event, the director's co-operation with the receivers prevented him from later alleging that the appointment process had been inadequate.

So the risk that the receivers took, in not verifying the validity of their appointment, did not ultimately harm them in this case.

Duty to obtain best price for the assets

The business in question imported and distributed hair products from an Italian supplier.  Rather than continuing to trade the business, the receivers sold the company's assets, not as a going concern, but as inventory and fixed assets. There was no advertising process. 

The sale was to a minority shareholder and a manager of the company, who in the early days of the receivership "out-manoeuvred" the receivers by obtaining the Italian supplier's agreement to deal only with them in the future.  Mr Taylor, who was the director and majority shareholder, objected to that sale process, which he saw as a "hostile takeover" of the business by his former co-shareholder.

The Judge accepted that the receivers' decision not to trade was reasonable.  It would merely have continued the losses being experienced by the company. In any event, case law (not mentioned in the judgment) holds that a receiver's decision to stop trading is not capable of criticism by the company and other creditors.2  It is a matter on which the receiver need only consider the appointing creditor's interests. The decision need only be made in good faith.

The Judge was critical of the receivers' failure to contact the main supplier within a day or two of appointment, but ultimately did not see that as a breach by the receivers. 

The receivers' decision not to advertise or test the market in any other way was not a breach because it was clear that the supplier would not deal with anyone other than the actual purchasers. If that had not been the case, it may be that the lack of advertising might have been a breach.

In analysing whether the receivers had received the best available price, the Judge focused on the valuation evidence.  Evidence of value given by Mr Taylor (the disgruntled plaintiff and shareholder) was discounted completely. There being no other valuation evidence produced, the plaintiffs' claim had to fail.

Receivers' ability to hold funds after resignation

Ultimately, interests associated with the plaintiff director and shareholder acquired the bank's debt and terminated the receivers' appointment. The receivers by then held about $40,000 which they refused to hand over. The receivers retained the funds to meet their impending litigation costs. Mr Taylor had already notified his intention to sue them for breach of duty. The Court agreed they were entitled to retain the funds for their litigation costs.

Although no strict rule seems to have been laid down, the Court indicated that "mere apprehension of the possibility of litigation" is not enough to enable receivers to hold onto funds. Where litigation is actually pending, the receivers will be entitled to do so. Quite where the dividing line is between those two extremes remains unclear.

The Judge was a little concerned about section 20(b) of the Receiverships Act which prevents the receiver obtaining an indemnity from the grantor's assets "in respect of any liability incurred by the receiver arising from a breach of the duty imposed by section 19 of this Act".  The Judge thought that the receivers could therefore not continue to hold funds if the litigation had been limited to a claim for a breach of section 19.

With respect, that ought not to be correct. Receivers can clearly not seek an indemnity for liability that flows from an actual breach of section 19 (the duty to obtain the best price reasonably obtainable at the time of sale). However, where there is no such breach, the receivers ought to be entitled to an indemnity from the company's assets for the costs of defending a claim alleging such a breach.


  • Receivers ought to take thorough advice on the validity of their appointment.
  • In assessing the reasonableness of a sales process, the Court will have regard to the practical restrictions and difficulties faced by the receivers.  There is no absolute rule that advertising is always required.
  • Whether the best price reasonably obtainable at the time of sale was achieved will depend in large part on valuation evidence. Obtaining valuations before sale, particularly where there is to be no advertising, is therefore a prudent course for a receiver.
  • Receivers can continue to hold funds after their appointment ceases, where there is actual litigation against them, and probably also where litigation is threatened, imminent or likely.

The case is not going to the Court of Appeal.

1. (unreported) 14 December 2010, Christchurch High Court CIV 2008-409-964.
2. Medforth v Blake  [1999] 3 All ER 97.

The information in this article is for informative purposes only and should not be relied on as legal advice. Please contact Chapman Tripp for advice tailored to your situation.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Michael Arthur
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.