When should a receivership be terminated?

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14 October 2011

In the decision of Goldana Investments Pty Ltd (Receivers & Managers appointed) v National Mutual Life Nominees Ltd & Ors [2011] NSWSC 1134, the Supreme Court of New South Wales considered when a receivership should be terminated.

Facts

Goldana Investments Pty Ltd (Goldana) owned a shopping centre. Goldana mortgaged the shopping centre to National Mutual Life Nominees Ltd (NMLN) and also granted an "all assets" fixed and floating charge in favour of NMLN in exchange for a loan of approximately $19.4m.

When Goldana defaulted on its obligations, NMLN appointed receivers and managers (Receivers) to the undertaking and assets of Goldana under the mortgage and charge.

The Receivers completed the sale of the shopping centre for net sale proceeds of approximately $24.5m. The Receivers satisfied NMLN’s debt in full and retained the balance of the sale proceeds in a receivership account. The Receivers expected to pay further disbursements, remuneration and other costs in the immediate future and were uncertain as to the existence of a personal capital gains tax liability following the sale. The existence of a tax liability could not be verified due to the Receivers’ inability to obtain possession, custody or control of Goldana’s relevant books and records. The Receivers intended to continue the receivership until such time as they were certain about the existence of a substantial contingent personal liability to pay tax (which liability was properly incurred in the exercise of their functions as Receivers).

Goldana commenced proceedings against the Receivers and NMLN for orders that the receivership be revoked or terminated and that the Receivers be required to account to Goldana for the surplus of sale proceeds and other assets. Goldana relied on section 423 of the Corporations Act 2001 (Cth) as the source of the court’s power to make an order for revocation or termination of the receivership. Section 423 empowers a court to inquire into a complaint relating to an act or omission of a controller of property of a corporation in connection with the performance of its functions and powers, and then take such action as it thinks fit.

Decision

The court declined to order the termination of the receivership in this case, but accepted that receiverships could not ordinarily be continued for extraneous or collateral purposes to their appointment. The court found that it was legitimate for the Receivers to remain in office until they satisfy themselves of a potential capital gains tax liability, for the reason that the existence of a tax liability would affect the surplus assets to be returned to Goldana.

Although it was unnecessary to conclude on the application of section 423, the court expressed doubt as to its applicability in this case without a full enquiry into the Receivers’ conduct.

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James Whittaker

Partner. Sydney
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John Stragalinos

Partner. Melbourne
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Kirsty Sutherland

Partner. Perth
+61 8 9460 1620

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Mark Wilks

Partner. Sydney
+61 2 9210 6159

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Megan O'Rourke

Partner. Perth
+61 8 9460 1712

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Michael Syme

Partner. Melbourne
+61 3 9672 3437

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