Chapter 16
Receivers and Controllers
Chapter Summary
Act contains provisions that relate to
1
BASIC TERMS
1.1
‘Receiver’
‘Receiver’ is not defined in s 9; but is defined in s 416 (for the purposes of Part 5.2) as including ‘receiver and
manager’.
Nowadays a receiver of a company has the power ‘to carry on any business of the corporation’ (s 420 (2)(h)).
A receiver of property of a company is also a manager if the receiver manages, or has under the terms of the
receiver’s appointment power to manage the affairs of the company: s 90.
1.2
‘Controller’
A ‘controller’, in relation to property of a corporation is a receiver, or receiver and manager, of that property, or
anyone else who (whether or not as agent for the corporation) is in possession, or has control, of that property for
the purpose of enforcing a charge: s 9.
1.3
‘Managing controller’
A ‘managing controller’, in relation to property of a corporation, is a receiver and manager of that property; or
any other controller of that property who has functions or powers in connection with managing the property: s 9.
2
APPOINTMENT OF RECEIVER
A receiver of company property may be appointed:
 by the order of the court (The Federal Court and Supreme Courts)
 more typically, by a banker or other financier under a clause in the mortgage, debenture or other charge.
2.1
Disqualifications for appointment as receiver
The following persons are disqualified from being appointed as a receiver of property of a corporation:
 an auditor or officer of the corporation
 an officer of a body corporate that is a mortgagee of property of the corporation
 any person who is not a registered liquidator, an officer of a related corporation, or (unless ASIC
otherwise directs in writing) a person who in the past 12 months been an officer or a promoter of the
corporation or a related corporation: s 418(1)
In LOW V PERFORMANCE FINANCE LTD (2004) 22 ACLC 1047; (2004) 22 ACSR 1047; (2004) 28 WAR
512; [2004] WASC 80, the court gave leave for a person who was otherwise disqualified, to be a receiver of
related companies. This was thought appropriate because they had already spent a great deal of time investigating
the affairs of companies with the group, and applied retrospectively.
The court can make an order declaring whether:
 an appointment of a receiver after 23 June 1993 was valid: ss 418A (1) and (2); and
 entry into possession or assuming control of property after 23 June 1993, was valid and authorized
under the terms of a charge on company property: ss 418A (1) and (2).
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2.2
Liability of receiver or controller
Any person who enters into possession or assumes control of any property of a corporation for the purpose of
enforcing any charge is liable for debts they incur in the course of the receivership, including debts for services
rendered, goods purchased, or property hired, leased, used or occupied: s 419(1). It is irrelevant whether the
receiver is an agent of the company.
In AGL VICTORIA PTY LTD V LOCKWOOD (2003) 22 ACLC 237, [2003] VSC 453, the receiver asked that the
supply of electricity be continued. This was a debt for the purposes of section 419.
In SIPAD HOLDING DDPO V POPOVIC (1995) 19 ACSR 108, (1995) 14 ACLC 303, the receiver was not held
liable for contracts of employment entered into before the receiver was appointed. In this case, liability for
services rendered by the employees was incurred when the company entered into the contracts.
In MCEVOY V INCAT TASMANIA PTY LTD (2003) 130 FCR 503, (2003) 46 ACSR 392, (2003) 21 ACLC 1463,
[2003] FCA 810 the court held that s 419 did oblige the receiver to pay annual leave, long service leave and sick
leave entitlements to employees to whom such entitlements were accruing but which had not fallen due during the
period of receivership. However if the controller chooses to use or occupy property for which an ongoing sum is
payable, then the controller is liable for so much of the amounts payable under the agreement as is attributable to
the period commencing seven days after appointment and ending on cessation of receivership.
It is, however, possible for a controller to issue a notice within seven days after the date of appointment and for
the controller to not have any liability for the rent or other outgoings for the period when the notice is in force.
Such a notice, while excusing a controller from liability, does not affect any liability of the corporation under the
agreement: s 419A (4).
3
POWERS OF RECEIVER OR CONTROLLER
Powers arise from the Corporations Act and the security instrument under which the receiver is appointed.
3.1
Statutory powers generally
The receiver has the general power to do, in Australia and elsewhere, all things necessary or convenient to attain
the objectives for which the receiver is appointed, including all things that are in connection with or incidental to
the attainment of the objective: s 420(1).
Subject to the court order and the instrument under which a receiver was appointed, a receiver will generally have
wide powers to manage the company’s property: s 420(4). Specific powers are listed in s 420(2).
HAWKE V DANIEL EFRAT CONSULTING SERVICES PTY LTD (1999) 17 ACLC 733, [1999] is an example
where the court held that a receiver had the power to enter into an agreement to obtain external funding to pursue
legal action. This agreement included a term assigning the benefit of the cause of action to FAI. The court said
that the power of sale in the debenture would not allow, but section 420(2) would allow, the receiver to dispose of
the cause of action in circumstances which would otherwise offend the rules against maintenance and champerty.
In ASIC V AUSTRALIAN INVESTORS FORUM PTY LTD (2003) 44 ACSR 503, (2003) 21 ACLC
1133, [2003] NSWSC 130, specific listing in a debenture of only some of the powers in section 420(2) was held
to expressly limit the receiver’s powers to those listed – ie, excluding the statutory powers not listed in the charge.
3.2
Carrying on business during a winding up
Section 420C(1) enables a receiver of property of a corporation that is being wound up to, with the written
approval of the liquidator or the court, carry on the corporation’s business either generally or as otherwise as
specified in the approval. This includes anything incidental to carrying on that business: s 420C(2).
The powers under s 420C(1) do not affect powers from other sources. However, the receiver will be personally
liable for debts incurred in carrying on the business (s 419(1)) and so is unlikely to do so during the winding up
unless the receiver has indemnification.
In PERPETUAL TRUSTEES AUSTRALIA LTD V BANK OF WESTERN AUSTRALIA LTD (2004)
22 ACLC 1263, (2004) 50 ACSR 34, [2004] QSC 213, the court stated that s 420C(1) is merely facilitative and s
420C(2) does not affect a power that the receiver has otherwise than under that provision.
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PROTECTION OF RIGHTS OF PRIOR SECURED CREDITORS
The receiver’s powers do not affect the rights that other persons may have in relation to that property: s 420(3).
However, under s 420B the court can authorise a managing controller to dispose of the property of a corporation
that is subject to a prior charge, if consent of the prior secured creditor has been sought and not obtained and the
sale of the property will not unreasonably prejudice the rights of the prior creditor: s 420B(2).
5
DUTIES OF RECEIVER
5.1
General Law
In EXPO INTERNATIONAL PTY LTD V CHANT [1979] 2 NSWLR 820; (1979) 4 ACLC 679, [1980] CLC 40608, the court validated a sale of company property by the receivers. The court found that the receivers had acted
in good faith; nonetheless the receivers were liable to compensate the prior chargee for any loss suffered as a
result of discounts provided. held that The court followed the High Court decision of Pendlebury v Colonial
Mutual Life Assurance Society Ltd (1912) 13 CLR 676, which held that a mortgagee selling under circumstances
which show a reckless disregard of the interests of the mortgagor is responsible to the same extent and on the
same principles as an accounting party who is liable for wilful default.
5.2
General duties under s 420A of the Corporations Act
Under s 420A, a controller must take all reasonable care to sell the property for not less than market value (if it
has one; if it doesn’t – for the best price that is reasonably obtainable).
SKINNER V JEOGLA PTY LTD (2001) 37 ACSR 106, (2001) 19 ACLC 1163, [2001] NSWCA 15 is an example
of where a receiver was held liable to pay damages for failure to sell breeding-quality cattle at market value.
(They were sold for slaughter instead, for a lesser price).
Failure to take all reasonable steps to advertise or notify the availability of a property to potential buyers and to
ascertain the market value of the property before selling also breached this duty in KYUSS EXPRESS PTY LTD V
SELLERS (2001) 37 ACSR 62, [2001] VSC 10.
Section 420A has effectively imposed a higher obligation than under the general law, because the general law
duty is merely to act in good faith and to not recklessly sacrifice the interests of the mortgagor: INKHORN PTY
LTD V HERBERT [2000] WASCA 333.
Section 420A does not displace other obligations under the Corporations Act or general law. There is a private
right to sue a negligent receiver under the general law. A charger has a right to sue a negligent receiver for
negligent failure to consider tax implications when selling under the general law; but such a receiver will not
breach the s 420A duty if the market price is obtained for the property: ULTIMATE PROPERTY GROUP PTY
LTD V LORD (2004) 57 ATR 218, (2004) 22 ACLC 423, [2004] NSWSC 114. The court also commented, in
dicta, that where section 420A has been breached, there is a private right of action for a breach of s 420A.
Section 420A(2) makes it clear that s 420A(1) does not limit sections 180, 181, 182, 183 or 184.
5.3
Specific duties in relation to bank accounts and financial records
A controller must open and maintain an account with an Australian ADI: s 421(1)(a) to (c).
The controller must also keep such records as correctly record and explain all transactions: s 421(1)(d).
A receiver must report to ASIC if:
 it appears that an officer, member or promoter may have been guilty of an offence: s 422(1);
 a person connected with the corporation has misappropriated any money or property of the corporation
or may have been guilty of any negligence, default, breach of duty or breach of trust in relation to the
corporation: s 422(1).
In this context, promoter extends to ‘a person who took part in the formation, promotion, administration,
management or winding up of the corporation’: s 422(1).
A controller who makes a report under ss 421A or 422, or a comment under s 429(2)(c) has qualified privilege (s
426) and the report is exempt from public inspection: s 1274(2)(a)(iii).
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A managing controller of property of a corporation must prepare a report about the corporation’s affairs: s 421A.
It must be made up to a day not later than 30 days before the day when it is prepared: s 421A(1), and prepared
and lodged within two months of the control date: s 421A(2).
5.4
Payment of debts in order of priority
A receiver must pay debts in the order stipulated in s 433(3):
 first, any amount that in a winding up is payable in priority to unsecured creditors under s 562 (i.e.
insurance proceeds for third parties);
 second, the reasonable fees and expenses of an auditor incurred from when ASIC had, under s 329(6),
refused the consent of that auditor to resign until the relevant date; that is, the date of the appointment of
a receiver: s 433(9);
 third, subject to the payment of auditors’ expenses incurred after the relevant date but before the date
when the property came into the receiver’s hands (see s 433(6) and (7)), any debt or amount that in a
winding up is payable in priority to other debts under s 556(1)(e), (g) or (h) or s 560.
Only then can the controller satisfy the claim under the document by which the controller was appointed.
5.5
Notifications
The person who obtains an order for the appointment of a receiver or who appoints a receiver under a power
contained in an instrument must lodge a notice within seven days, and also publish that appointment in the
Australian Government Gazette: s 427(1)(a).
A receiver for a debenture holder who has taken possession of any assets of a company has an obligation to also
notify the Commissioner of Taxation within 14 days: Income Tax Assessment Act 1936, s 215.
Within 14 days after becoming a controller, the controller must lodge a notice of their address. Change of address
must also be notified.
A person who ceases to be a controller of property of a corporation must, within seven days after so ceasing,
lodge notice of this; and within 21 days , publish this in the Australian Government Gazette: s 427(4).
Once controller is appointed, the public documents and negotiable instruments of the company must disclose this
after the name of the corporation where it first appears: ss 428(1) and (2). Failure to do so constitutes an offence
of strict liability under s 6.1 of the Criminal Code: s 428(3).
Officers must submit a report to a controller in respect of the affairs of the company as at the ‘control day’; that is,
the day when the receiver or receiver and manager was appointed or otherwise when a controller took possession
or control of the property of a corporation: s 9. This report must be completed within 14 days after the corporation
receives notice of the appointment of a controller, or such longer time as may be allowed by the controller: s
429(2).
A controller can also require promoters and current and past employees and officers to submit a report: s 430(1).
A controller is entitled to inspect any books of the corporation that relate to the property, at any reasonable time.
A person must not fail to allow the controller to inspect such books at such a time: s 431.
A controller is required to lodge an account within one month after every six months that a controller performs
that duty and within one month after the controller ceases to be a controller: s 432(1). This account must show the
controller’s receipts and payments during the periods of six months or less to which the report relates: s 432(1A).
Where the report is a final report, the report must show the aggregates of the controller’s receipts and payments
since the control day: s 432(1A)(b). It must also show the amount owing under the instrument or charge (if any)
and the controller’s estimate of the property of the corporation that is subject to the instrument or charge (if any):
s 432(1A)(c).
ASIC can require that these accounts be audited: s 432(2), potentially at the company’s expense: s 432(3). Where
ASIC thinks fit, it may declare that, for the purposes of s 419(1), those costs are taken to be a debt incurred by the
controller, thereby making the controller liable to meet the costs of the audit: s 432(4).
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6
LIABILITY OF MORTGAGEE FOR ACTS OF THE RECEIVER
This issue can arise if the instrument of security or charge provides that acts of the receiver are acts of the
company.
The court noted in STATE BANK OF NEW SOUTH WALES V CHIA (2000) 50 NSWLR 587, [2000] NSWSC
552 that in some cases, particularly where a mortgagee is heavily involved in directing the receiver, the mortgagee
may be liable for the actions of the receiver.
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SUPERVISORY ROLE OF THE COURT
Where a controller has caused loss to the corporation because of any act of misfeasance, neglect or omission, the
court can require the controller to make good that loss: s 423(2).
The court can require the controller to answer questions about the performance or exercise of any of the
controller’s functions or powers as controller or examine a person to provide such information. The court can also
direct an investigation of the controller’s books: s 423(3).
The controller of property of a corporation may apply to the court for directions in relation to any matter arising
in connection with the performance or exercise of any of the controller’s functions and powers as controller: s
424(1).
A receiver of property of a corporation who is appointed under a power contained in an instrument can make an
application to the court for directions: s 424(2).
The court has wide power to fix the remuneration of any receiver: s 425.
The court has jurisdiction under s 434A and s 434B to remove a controller from office where satisfied that:
 a controller of property of a corporation has been guilty of misconduct in connection with performing or
exercising any of the controller’s functions and powers: s 434A;
 the objectives for which the controller was appointed have been met: s 434B(2).
This jurisdiction does not affect a charge on property of a corporation or otherwise limit the power of the court to
remove, or otherwise deal with, a controller such as the jurisdiction under s 423 of the Act: s 434C.
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