The New South Wales Court of Appeal in Golden Mile Property Investments Pty Ltd (in liq) v Cudgegong Australia Pty Ltd [2015] NSWCA 100  has affirmed that a duty of care owed by a mortgagee in possession in the exercise of a power of sale to act in good faith and deal fairly with the interests of the mortgagor in selling the property is not extinguished even when the mortgagor has been deregistered.

The appeal overturned a decision of the Land and Environment Court that the duty could not be owed because the mortgagor had been deregistered.  The facts of the case were:

• the mortgagee entered into possession after a liquidator had been appointed to the mortgagor;
• the mortgagee entered into a contract for sale whilst the mortgagor was in liquidation;
• the mortgagor was deregistered prior to completion of the sale;
• the contract for sale was later rescinded and a new contract entered into between the same parties on the same day as the rescission;
• the second contract for sale did not complete before the land became the subject of compulsory acquisition.

The decision confirmed that the deregistration of the mortgagor did not relieve the mortgagee of its duties and obligations acting as a mortgagee in possession.  It was also acknowledged that where a company is deregistered, all of the company’s property vests in ASIC pursuant to s 601AD(2) of the Corporations Act 2001 (Cth) and therefore the duties owed by the mortgagee were not extinguished but at the very least owed to ASIC.

ERA Legal acted for the deregistered mortgagor in this decision.

For more information please contact Denise Wright.