This week's TGIF considers the application of the
principle in Re Universal Distributing and whether
liquidators may claim an equitable lien to recover their costs and
expenses, even if no assets are realised and no fund
In the recent Court of Appeal decision of Primary Securities
Ltd v Willmott Forests Limited, liquidators had been appointed
to an insolvent company which was the responsible entity of a
managed investment forestry scheme.
Later, the Appellant replaced the company as the responsible
entity of the scheme and removed the assets of the scheme from the
care and custody of the liquidators.
The liquidators sought orders that they were entitled to be
indemnified out of the assets of the scheme for the expenses
incurred in administering the scheme and caring for, protecting,
preserving property of the scheme. The liquidators relied on the
principle derived from the decision in Re Universal
Distributing, notwithstanding that their efforts had not
resulted in the creation of a fund.
There was no dispute that the liquidators took steps to preserve
and maintain assets of the scheme and that costs and expenses were
incurred in that endeavour. However, the Appellants said those
costs and expenses were not recoverable on a Re Universal
THE CHALLENGE TO THE LIQUIDATORS' LIEN
The sole issue was the scope of the principle stated in Re
Universal Distributing (as recently applied by the High Court
in Stewart v Atco).
The Appellant argued that the liquidators were not entitled to
an equitable lien because:
the principle stated in Re Universal Distributing did
not apply to the costs and expenses claimed by a liquidator who had
not realised assets or created a fund; or
it was not a secured creditor, or even a creditor in the
winding up, and was not seeking the benefit of a fund created by
the liquidators' efforts in the winding up.
Although the principle in Re Universal Distributing was
recently reaffirmed by the High Court in Stewart v Atco,
each of those cases involved the liquidator creating a fund.
Accordingly, the High Court has not considered whether the
principle in Re Universal Distributing applies to a case
where no fund has come into existence.
In a unanimous decision, the Court of Appeal held that the
principle in Re Universal Distributing can apply where the
liquidator has cared for or preserved an asset, even if no fund is
In a case where no fund has been created, what needs to be shown
in order to establish an equitable lien is that:
the costs and expenses incurred by the liquidator were incurred
exclusively in caring for and preserving property; and
the activity of care and preservation enured for the benefit of
the creditors of the company (including the secured creditor);
there is property which can properly be subjected to the
liquidator's charge for remuneration, costs and expenses.
The decision provides support to liquidators in the event that
creditors or other parties attempt to prevent them from recovering
their costs and expenses from the assets that they have cared for
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Courts, through judicial discretion, supervise the proposed transition from winding up to a deed of company arrangement.
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