Most Read Contributor in New Zealand, September 2016
Successive court decisions in Australia are emphasising
the enforceability of receivers' liens in a clear statement to
the market about the primacy of insolvency practitioners' fees.
This is a trend that we expect will shape policy here.
decision, from the Supreme Court of Western Australia, held
that receivers had a right of indemnity, secured by lien, over
assets they needed to deal with in the course of their duties. It
did not matter that the assets were outside the scope of the
security interest under which they had been appointed.
This follows an earlier
ruling that a lien for liquidators' fees can be enforced
against secured creditors even where the costs were incurred in
challenging the creditors' security.
When the bank appointed receivers to Arcabi Pty Ltd, the
receivers faced a time-consuming task. The company was in the
business of looking after and selling rare currency – all of
which was stored in the same way.
The receivers had to gather voluminous information and deal with
third party claims in order to work out exactly which of the notes
and coins were subject to the bank's security interest. The
bank had no claim over the assets owned by third parties.
They were also responsible for preserving the assets as their
work continued – which took several months.
The receivers claimed a right of indemnity secured by an
equitable lien over the currency. They also sought to be
indemnified for the cost of insuring the assets. The Court
supported them on both counts.
Third party assets – no security interest, but a lien may
Even though it could be assumed that the receivers had a
contractual indemnity from their appointor, the Court asserted that
this was not the point.
An equitable lien is a right against property which arises
automatically by operation of law. Its purpose is to secure
indemnification for costs fairly incurred by the receiver in the
course of his or her duties. There is no requirement that the
activity undertaken adds value to the person's interest in the
property. The relevant question is whether the work done and
expense incurred is necessary to realise the assets. In this case,
What about the cost of insuring the goods?
Because the receivers could not segregate the secured assets for
insurance at the beginning of the receivership, they insured all of
the goods in storage.
The Court found that this was a reasonable and prudent course of
action in the circumstances, from which the third parties
benefitted, and required that - before recovering their currency -
they pay, on a pro rata basis, a sum towards the insurance
What should insolvency practitioners take from this case?
Australian courts have once again reinforced their policy
position in favour of liquidators and receivers being able to
recover their fees. We see this as potentially shaping the approach
here in New Zealand.
Secured creditors appointing receivers should also welcome the
decision. If the law goes this way here, the costs of receivers
investigating rights in certain assets will be partly borne by the
owners of assets which are not subject to the appointor's
But, it is worth remembering that although an equitable lien
will generally exist over the property that a receiver deals with
in the course of the receivership, the expenses he or she claims
must still be reasonably incurred. This includes insurance costs
Also, an equitable lien only extends to the cost of salvaging
the specific assets, and not to more general expenses. So, as a
matter of best practice, practitioners should record the time spent
investigating proprietary rights in specific assets. A practical
approach can be taken in this respect; minute-by-minute analysis is
likely to be overkill.1
What does it mean for third parties?
In this case, the third-party owners had to pay for the
receivers to confirm that they were legally entitled to their own
property. And further, they were expected to cover the costs of
insuring the assets while the investigations took place.
The message for third parties is clear: they should keep good
records identifying property that they own but place in the care of
others. That way, the costs of any investigation as to whose rights
prevail should be kept to a minimum.
As a demonstration of India's combined political will, the much awaited and debated Insolvency and Bankruptcy Code, 2016 was passed by the Upper House of the Parliament on 11 May 2016 (shortly after being passed by the Lower House on 5 May 2016).
The Government has formulated a plan to refurbish the prevailing bankruptcy laws and replace them with one that will facilitate stress-free and time-bound closure of businesses.
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”
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).