In the matter of Sirrah Pty Limited (In Liquidation)  NSWSC 1274, the Supreme Court of New South Wales had to consider an application by an unsecured creditor seeking the appointment of a receiver over the property of the judgment debtors, HHC and Mr Harris, by way of equitable execution.
That application was made in the context of the judgment debtors’ former solicitor having appointed its own receiver pursuant to a charging clause in the underlying costs agreement.
The primary proceeding concerned a derivative action by certain family members of Mr Harris on behalf of Sirrah relating to alleged breaches of duty. Sirrah obtained a judgment in that proceeding against HHC and Mr Harris.
In the course of that proceeding a provisional liquidator was appointed to Sirrah, who subsequently undertook public examinations of, among others, Mr Harris. In the course of his examination, Mr Harris gave evidence that he held a leasehold interest in a property in Bali on trust for Sirrah. During the course of the primary proceeding, Mr Harris changed his evidence to the effect that he had considered acquiring the leasehold interest in the Bali property on trust for Sirrah, however he had not proceeded with that plan and acquired the interest in his own right.
During the course of the primary proceeding Mr Harris gave an undertaking to the Court not to transfer, dispose of, or further encumber the Bali property without giving the plaintiffs’ solicitor 14 days written notice of same.
The costs agreement entered into between HHC and Mr Harris with their solicitor, which was entered into approximately 9 months prior to the proffering of the undertaking, contained a clause to the effect that they granted their solicitor an equitable charge and security in all of their present and after acquired property, including any real property, for payment of any unpaid legal fees. That clause further provided an acknowledgment that the solicitor could appoint an external controller by way of enforcement.
HHC and Mr Harris failed to pay an invoice issued by their solicitor, who subsequently appointed a receiver over Mr Harris’ property. The solicitors subsequently withdrew from acting for HHC and Mr Harris.
There was no evidence in the present proceeding that Sirrah had taken any steps to enforce its judgment obtained against HHC and Mr Harris. Relevantly, Sirrah did not contend that it had an interest in the Bali property and acknowledged that it was an unsecured judgment creditor only.
During the course of his appointment, the receiver obtained valuations of the Bali property. Those valuations and the offers received were substantially lower than the acquisition costs, a matter the letting agent of the property attributed to the Covid-19 pandemic.
Mr Harris subsequently informed the plaintiffs’ solicitors that he was required to execute documentation for the transfer of the interest in the Bali property. Following notice being provided by Mr Harris, Sirrah commenced the proceeding seeking orders pursuant to section 1323 of the Corporations Act 2001 (Cth) (Act) and obtained an interim order preventing the receiver from paying out, transferring or parting with possession of any property of Mr Harris pending final determination of Sirrah’s application.
Relevant legal principles
Section 1323 of the Act provides that where, amongst other things, a civil proceeding has been commenced, the Court may, if it considers it necessary and desirable to protect the interest of the aggrieved person to whom the relevant person (i.e. the person against whom proceedings are commenced) is liable, make orders:
- prohibiting a person who is indebted to the relevant person or an associate of the relevant person from making payment in part or total discharge of the debt;
- prohibiting a person holding money, financial products or property on behalf of the relevant person or an associate of the relevant person from paying, transferring or otherwise parting with the money, or transferring the property; or
- appointing a receiver with such powers as the Court orders.
The application to replace the receiver
Sirrah’s application sought various declarations and orders, including that the receiver’s appointment was void, an alternative receiver be appointed, and that the proceeding be relisted following sale of Mr Harris’ interest in the Bali property.
The declarations in relation to the receiver’s appointment were based solely on the contention that the appointment was made in contravention to Mr Harris’ undertaking to the Court. That position was advanced on the basis that Mr Harris’ solicitor acted as agent for Mr Harris in appointing the receiver on the basis that the “tripartite relationship” between receiver, chargee and chargor involved a “special and limited” agency between the receiver and the chargor at the same time as the receiver being under a duty to get in the money for which the security was given.
Sirrah also submitted that the appointment of the receiver had the effect of Mr Harris being “dispossessed of” his interest in the Bali property.
The application also raised issues of whether, given the conclusion of the primary proceeding against Mr Harris, the perquisite in section 1323 of the Act that a civil proceeding had been commenced was engaged.
In rejecting Sirrah’s submissions, the Court found that the appointment of the receiver was nothing more than a step in the enforcement of a security interest granted prior to Mr Harris proffering the undertaking. That was a step taken by Mr Harris’ lawyers to enforce their security interest, not something done as Mr Harris’ agent in breach of the undertaking.
The Court also rejected Sirrah’s submission that the receiver’s marketing activities constituted “dealing with” the Bali property. Properly understood, those words in the undertaking were a reference to action which would dispose of or alter the interest of the relevant person (in this case Mr Harris).
The Court also rejected the application for the appointment of an alternative receiver pursuant to the Court’s inherent jurisdiction citing Sirrah’s failure to take any steps to enforce its judgment (including the issuing of a bankruptcy notice to Mr Harris).
Given the Court was not provided with detailed submissions, no determination was made in respect to whether the jurisdictional requirements in section 1323 of the Act were enlivened in circumstances where the first instance proceeding had concluded and Sirrah stood in the position of an unsecured judgment debtor only.