The power of a liquidator to assign rights of a company

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8th Jul 2011

In the recent case of Owners of Strata Plan 5290 v CGS & Co Pty Ltd [2011] NSWCA 168, the NSW Court of Appeal considered whether s 477(2)(c) of the Corporations Act 2001 (Cth) (the Act) empowers liquidators to assign a right of a company to a third party in circumstances where that right would otherwise be unassignable.

Facts

The Owners Corporation and a building company, BMP, entered into a contract (the contract) which provided that neither party could assign the contract or any payment under the contract, without the written approval of the other party (a “non-assignability” clause).

BMP subsequently went into voluntary liquidation and the liquidators entered into an agreement with CGS purporting to assign all of BMP’s entitlements under the contract to CGS. Neither BMP or the liquidators had obtained the written approval of the Owners Corporation, as required by the contract. CGS commenced proceedings against the Owners Corporation for monies owed under the contract.

First instance decision

Section 477(2)(c) of the Act provides that:

“Subject to this section, a liquidator of a company may:

…

(c) sell or otherwise dispose of, in any manner, all or any part of the property of the company.”

At first instance, Bryson JA found that CGS had title to rights provided for under the contract because BMP’s liquidator had made a sale or disposition pursuant to s 477(2)(c) of the Act.

The Owners Corporation appealed this decision on the basis that s 477(2)(c) should not be construed as authorising BMP’s liquidator to assign the rights under the contract contrary to the non-assignability clause, ie, without the consent of the Owners Corporation.

The decision of the Court of Appeal of NSW

The NSW Court of Appeal noted that:

  • s 477(2)(c) would generally allow a liquidator to assign rights under a contract, as the provision specifically referred to “property” which includes a “thing in action”;
  • however, there may be “very good reasons” as to why a “non-assignability” clause may be included in an agreement, including where a party has a commercial interest in ensuring that they only deal with the original parties to the agreement or to preserve set off claims.

The court held that s 477(2)(c) of the Act was not broad enough to authorise the liquidator to transfer rights arising under contracts with “non-assignability” clauses, such as the entitlements arising under the contract between the Owners Corporation and BMP. To hold otherwise would be to allow a liquidator to adversely affect the rights of a party who has entered into a valid and effective agreement under the general law on the express basis that rights under the contract would not be assignable.

Comment

The decision in this case is an important reminder that liquidators must carefully consider the rights of other parties to contracts. Where the company is party to a contract which includes a “non-assignability” clause, s 477(2)(c) of the Act will not operate to allow the liquidator to assign the rights of the company under the contract.