Most Read Contributor in New Zealand, September 2016
It is quite a thing for the law to remove from owners the rights
normally associated with ownership and to confer them on
Which is why, although receivers are allowed considerable
discretion in the exercise of their duties, they are also subject
to oversight by the courts.
So how much freedom of manoeuvre do they have, and when will the
court intervene? We look at a recent decision1 in the
Australian Federal Court and consider its relevance for New Zealand
The case was taken by Mr and Mrs Oswal, the principal
shareholders of Burrup Fertilisers Pty Ltd (Burrup), a
fertiliser company in Western Australia. Burrup had significant
loans with ANZ. These were secured by way of a general charge over
the company's assets and by way of share mortgages (together
with supporting guarantees) over the Oswals' shares in
Burrup's holding company.
The fallout from a complicated web of litigation led to ANZ
appointing receivers over Burrup's assets under its charge. The
receivers decided to seek recovery by enforcing the share mortgages
and selling Mr and Mrs Oswal's shares in the holding
The Oswals claimed that the receivers had breached their duties
in several respects, of which the most relevant for our purposes
was that they had conducted Burrup's business for an improper
They argued that the receivers had been appointed to realise
ANZ's security and were only entitled to conduct and disrupt
Burrup's business to the extent necessary to ensure repayment
to ANZ. Anything beyond that mandate, and they were acting beyond
and outside their powers.
In particular, they had held on to substantial cash reserves in
the company without using the money to pay down Burrup's debts
to ANZ. By holding those reserves, they had not acted for a proper
purpose and had breached their statutory and contractual
The Court declined to second guess the receivers' commercial
judgement, made "in the context of complex legal and factual
issues" and declined to order an enquiry into whether they had
breached their duties.
It distinguished between the Burrup case and the conduct of a
receiver in a previous case who had sold secured property but
failed to retire as receiver or account to the company for the
balance of the sale proceeds. Such conduct amounted to a breach of
the receiver's duty.
The position in New Zealand
The Receiverships Act 1993 contains numerous powers exercisable
by a court in relation to its oversight of receivers' conduct.
These include the power to:
order a receiver to comply with a duty
remove a receiver from office or require the receiver to cease
to act if the receiver fails to comply with such an order
order that a receiver must act only in respect of specified
prohibit a person from acting as a receiver for a period not
exceeding five years, and
make further orders to preserve the property in
Chapman Tripp comment
It is important to note that the Burrup receivers had seriously
considered all the recovery options open to them and that they
instructed a reputable accountancy firm to carry out due
diligence in relation to the sale of Burrup's assets, as one
option for realising the ANZ security, and
obtained legal advice showing that the sale of those assets
would generate a significant tax liability.
The combined effect of these and other factors persuaded the
Court that the receivers had undertaken due process to arrive at
what were ultimately commercial judgements.
The decision in the Burrup case reiterates that the Courts are
reluctant to second-guess receivers' decisions where the
receivers have carefully considered the recovery options available
to them. But, to the extent that their conduct is questioned,
receivers will need to explain their decision-making process to the
Our thanks to Finn Howie for writing this Brief
1Oswal, in the matter of Burrup
Fertilisers Pty Ltd (Receivers and Managers Appointed) v Carson,
McEvoy and Theobald (Receivers and Managers) (No 3)  FCA
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.
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