ARITA seminar Canberra

Liabilitylimitedbyascheme approvedunderProfessional StandardsLegislation.
SOURCES OF PERSONAL LIABILITY AND RIGHTS OF INDEMNITY OF VOLUNTARY ADMINISTRATORS
Claire Latham, Barrister, Nine Wentworth Chambers
OVERVIEW
1. Part 5.3A of the CorporationsAct 2001 (Cth) (“the Act”) establishesascheme whereby
voluntaryadministratorsare personallyliable fordebtsincurredinthe administration,however
theyare providedwithrightsof indemnityfromthe assetsof the companyforsuch debts.
Administratorsare alsoprovidedwithrightsof indemnityinrespectof theirremunerationfixed
pursuantto the Act.
2. These rightsof indemnityare supportedbystatutoryand general law liensinfavourof the
administratoroverthe propertyof the company.
3. Whilstthisseemsarelativelystraightforwardregime,inpractice there are anumberof pitfalls
administratorsmustbe waryof to ensure thattheyare not leftoutof pocketin respectof their
expensesandremuneration.
4. In Part 1 of thispaper,I will examine the variousdebtsforwhichanadministratormaybe held
personallyliable. These debtsdonotinclude pre-appointmentliabilitiesof the company,
howeveradministratorsmustproceedwithcautiontoensure thattheydonotinadvertently
attract liabilitythroughthe adoptionof pre-appointmentagreementsinthe course of their
administration.
5. In Part 2 of thispaper,I will consider the sourcesof indemnityrights available toadministrators
underthe Act and pursuantto the general law. Itis vital foradministratorstounderstandthe
scope of these indemnityrightstoensure theyare adequatelyprotectedinrespectof liabilities
theyincurin the course of the administration. Inparticular,administratorsmustbe mindful of
the prioritytheirrightof indemnityhasasagainstotherinterestsinthe company’sproperty.
6. In Part 3 of thispaper,I will examine the variousliensthe administratormayhave tosecure
theirindemnityrights,includingthe propertyanadministratormayhave accesstoin exercising
hisor her rights. Whilstanadministratormayhave statutoryand general law rightsof
indemnity,these rightswill meanlittleif the administratorisunable toaccesssufficientassets
of the companyinenforcingtheirlien.
PART 1 - SOURCES OF PERSONAL LIABILITY
7. The startingpointin examininganadministrator’spersonal liabilityisthatan administratoracts
as agentof the companyand isnot generallyliableforthe debtsof the company,expectas
specificallyprovidedforbyDivision9of the Act: ss.437B and 443C of the Act.
8. SubdivisionA of Division9(beingss.443A, 443B, 443BA and 443C) setsoutthese sourcesof
liability. These sectionsrepresentadeparture fromthe general law of agency,asusuallyan
agentacting fora disclosedprincipal doesnotincurpersonal liability.

Section 443A
9. Section443A(1) of the Actstatesthat an administratorispersonallyliable fordebtshe orshe
incursfor:
 servicesrendered;
 goodsbought;
 propertyhired,leased,usedoroccupied,includingpropertyconsistingof goodsthatis subject
to a lease thatgivesrise toa PPSA securityinterestinthe goods;
 the repaymentof moneyborrowed;
 interestinrespectof moneyborrowed;and
 borrowingcosts.
10. The purpose of s. 443A is to encourage thirdpartiestocontinue todeal withthe company
duringits administration,therebyincreasingthe prospectsof the companybeingable to
continue inexistence or,atleast,generatingabetterreturnforcreditorsandshareholders than
wouldbe the case if the companywas immediatelywoundup.
11. Under s.443A(2), the administratorcannotcontractout of personal liability arisingunders.
443A(1). The administrator,however, hasarightof indemnityoutof the company’sproperty
as discussedbelow.
12. Despite s.443A(2), a creditormaygive an undertakingnottoholdthe administratorliablefor
debtsincurredtothat creditor: PatrickStevedoresOperationsNo.2Pty Limited v Maritime
Union of Australia (1998) 195 CLR 1. Suchan undertakingrelatesonlytothe enforcementof
claimsinrespectof debtsand doesnot remove the debtitself. Assuch,the undertakingdoes
not contravene s.443A(2).
13. In consideringwhetherthe personal liabilityprovidedforins.443A(1) arises,three questions
mustbe asked:
(a) isthe claima “debt”?
(b) if so, isit a debtincurredbythe administrator?
(c) if so, wasthe debtincurredfor one of the purposeslistedins.443A(1)(a) to (f)?
Is it a debt?
14. Notall amountswhicha companyunderadministrationmaybecome liable topaycan be
classedas“debts”for the purposesof s. 443A. A distinctionisdrawnbetweena“debt”liability
and a liabilityforunliquidateddamages.
15. In Molit (No.55) PtyLimited v Lam Soon Australia Pty Limited (No.2) (1996) 68 FCR 319,
BransonJ heldthat an unliquidatedclaimfordamagesforfailurebythe company tocomply
witha covenantina lease tomake gooddamage causedto the leasedpremiseswhenthe

administratorcausedthe companytoremove fittingsfromthe premises wasnota“debt”
withinthe meaningof s.443A(1).
16. In Gallop InvestmentsPtyLimited v Jones [2002] WASC66, itwas heldthatan administrator
cannot be heldpersonallyliable forunliquidateddamagesforabreach of contract by the
company,at leastwhere the administratorhasactedin goodfaith. Such damagesdonot
constitute a“debt”for the purposesof s. 443A. Furthermore,because administratorsactas
agentsof the company,theycannotbe indirectlyliable foracompany’sbreachof contract
underthe tort of inducingbreachof contract.
17. Anyliabilityof the company forunliquidateddamages incurredduringthe administration
perioddoesnotattach to the administrator. The company,however,remains responsible for
any suchdamage as principal.
18. An administratormay,however,potentiallyattractpersonal liabilityfordamageswhere aclaim
attachesdirectlytothe administratorandnot to the company.
19. In Hall v Tasmanian SandstoneQuarriesPty Limited [2005] SASC79, the Courtconsideredan
applicationbythe administratorstostrike outaclaimbroughtagainstthempursuantto s. 75B
of the TradePractices Act 1974 (Cth). The claimallegedthatthe administrators aidedand
abettedthe companyinengaginginmisleadinganddeceptive conduct. The administrators
soughtto strike outthe claimin reliance onthe regime setbyss.443A and 443C.
20. BesankoJrefusedtostrike outthe claimon the basisthat it isarguable that administratorsmay
become liable forunliquidateddamagesbasedonprovisionssuchass.75B of the Trade
Practices Act. Suchclaimsattach liabilitydirectlytothe administrators. These liabilitiesare,
accordingly,notthe company’sdebtsasreferredtoins. 443C.
21. Therefore,itappearslikelythatanadministrator couldbe heldpersonallyliable for
unliquidateddamagesarisingfrommisleadingordeceptive conductinthe conductor sale of
the company’sbusinessunder accessorial liabilityprovisionsfor misleadinganddeceptive
conduct,such as those inthe Competition and ConsumerAct2010 (Cth).
Is it a debtincurred by the administrator?
22. Under s.443A(1), an administratorisonlyliable fordebtsincurredbythe administrator.
Accordingly,anadministratorisnotliable foramountswhichbecomepayable bythe company
duringthe administration pursuanttoagreementsenteredintobythe companypriortothe
commencementof the administration.
23. An administrator,therefore, isnotliablefordebtsincurredbythe companytoemployeesunder
contracts of employmententeredintobefore the administrator’sappointment: Green v
Giljohann (1995) 17 ACSR518.
24. As a consequence,administratorsare notpersonallyliable forpre-appointmentrightsand
entitlementswhichmayaccrue to employeesduringthe administrationperiod,suchaslong

service leave,retrenchmententitlements,holidaypayandsickleave. Itisalsolikelythatan
administratorwouldnotbe liable inrespectof anybonuswhichan employee maybecome
entitledtoduringthe administrationperiodpursuanttoapre-appointmentbonusagreement.
25. Cautionmustbe exercisedbyanadministratorinexamininganyagreementsenteredintoby
the companyprior to hisor herappointment. Thisisbecause the questionof whenadebtis
incurred will turnuponthe properconstructionof the relevantcontract. Inmost cases, the
time at whichthe debtisincurredisat the time the contract isenteredinto. There maybe
cases,however,whereonthe properconstructionof the contract,the contract isperiodically
rolledoverandnewdebtsare createdon eachroll over. In those circumstances,adebtcreated
by a periodical roll overunderthe contractoccurringduringthe administrationperiod maybe
classifiedasadebtincurredduringthe administrationforthe purposesof s.443A(1).
26. In circumstanceswhere there isuncertaintyastothe properconstructionof sucha contract,an
administratorshouldconsiderseekingjudicial directions unders.447D of the Act as to whether
the continuedperformance of the contractduringthe administrationperiodwill incurany
personal liability.
27. Where the creditorsof the companysubsequentlyresolve toappointaliquidatorunders.439C,
the administratorautomaticallybecomesthe liquidator. Inthose circumstances,underss.513B
and 513C of the Act, the liquidationisdeemedtohave commencedatthe same time asthe
commencementof the administration. Thisdoesnotmean,however,thatthe administratoris
no longerpersonallyliable fordebtsincurredduringthe administrationperiod.
28. In Energy & ResourceConservation Co Limited v Abigroup ContractorsPty Limited (1997) 22
ACSR721 it washeldthats. 443A operatestomake the administratorliable forsuchdebts,
evenif theybecome the liquidatorwhoisgenerallynotliable fordebtsincurredinaliquidation.
Was the debt incurredfor one of the purposes listedins. 443A(1)(a) to (f)?
29. In orderfor personal liabilitytoattachto the administratorunders. 443A, the debtmustbe
incurredforone of the purposeslistedins.443A(1)(a) to(f).
30. A majorsource of personal liabilityforadministratorsunders.443A(1) isinrespectof “services
rendered”.
31. “Servicesrendered”caninclude the retentionof employeesduringthe administrationperiod.
Pursuantto s. 437A, an administratorhas the powerto cause the companyto continue tomake
paymentstoemployeeswhocontinuetoperformtheirdutieswiththe companyduringthe
administrationperiodincircumstanceswhere suchpaymentsare tothe benefitof all creditors.
32. For an administratortohave personal liabilityforwagesorentitlementspayabletoemployees,
however, the administratormusthave takensome steptoadoptthe employmentcontract.
Such an adoptionrequiresthe administratortohave assumedpersonal responsibilityforthe
employees’contractsof employment.

33. Simplycontinuinganemployee’sexistingemploymentduringthe administration period will not
be a sufficientactof adoptionsuchas to attract personal liabilityunders.443A(1): Green v
Giljohann (1995) 17 ACSR518.
34. In relationtothe paymentof wages,itislikelythatsome variationorrenegotiationbythe
administratorsof the employee’stermsof employmentwouldbe necessarybefore the
administratorwouldbe seenasadoptingthe employmentcontractandincurringpersonal
liability. Thisisbecause debtsunderemploymentcontractsare incurredat the time of the
executionof those employmentcontracts,beingpriortothe appointment of the administrator.
35. In InternationalHarvesterCo v InternationalHarvesterAustralia Pty Limited [1983] 1 VR539, it
was heldthatretrenchmentpaymentsare notpaymentsinrespectof “servicesrendered”to
the company. As such,any claimfor retrenchmententitlementswouldfalloutsides.443A(1).
36. In Re Regis TowersReal Estate PtyLimited (2006) 58 ACSR523, Young CJ inEq heldthat legal
costs of applicationsproperlybroughtfordirectionsare probablywithins.443A(1) as debtsfor
“servicesrendered”andincurredinthe performance orpurportedperformance of hisorher
functionsasadministrator.
37. In some casesitis not immediatelyclearwhetheratransactioncreatesa debtinrespectof one
or more of the purposeslistedins.443A(1). A close examinationof the transactionmaybe
requiredtodetermineitstrue purpose andeffect.
38. In Re Sims (2006) 58 ACSR620, the administratorswere foundnottobe personally liable under
s. 443A pursuantto supplyagreementsenteredintowiththe company’smajorcustomers. The
supplyagreementsprovidedthatthe customerspaya 35% price increase inreturnfora price
rebate payable outof:
(a) any cash surplusfromrevenue earnedbythe companyduringthe periodof the supply
agreements;and
(b) any surplusremainingafterthe company’sbusinesswassoldasa goingconcernand the
proceedsappliedindischargingasecureddebtandthe administratorsremunerationand
expenses.
39. The arrangementineffectoperatedasa fundingmechanismforthe companytoenable itto
continue tradingpriortothe sale of itsbusinessasa goingconcern. In the circumstances,Gyles
J heldthatany liabilitythatthe administratorsassumedunderthe supplyagreementswasnota
liabilityfor“servicesrendered”orfor“goods bought”or for “propertyhired,leased,usedor
occupied”pursuanttos. 443A(1).
40. However,inthe interestsof the creditors,GylesJmade anorder unders.447A treatingthe
liabilitiesasif theywere debtsfallingunders.443A so that the administratorswouldbe entitled
to a statutorylienandindemnityunderss.443D and 443F.

Applicationsunders. 447A
41. An administratormay,inappropriate cases, applyforanorderunders. 447A of the Act to
modifythe operationof s.443A(1) so as to limittheirliability. Ordersmaybe made limiting
liabilityunders.443A(1) to the value of the indemnityagainstthe propertyof the company
providedforbys. 443D.
42. In Re Mentha (in their capacities asjoint and severaladministratorsof Griffin CoalMining
Company PtyLimited (adminsapptd))[2010] FCA 1469, GilmourJidentifiedthe principles
governingthe grantof orders unders.447A to vary the liabilityof administratorsunders.443A
as follows(at[30]):
(a) the proposedarrangementsare inthe interestsof the company’screditorsand
consistentwiththe objectivesof Part5.3A of the Act;
(b) typicallythe proposedarrangementswill enablethe company’sbusinesstocontinue to
trade for the benefitof itscreditors;
(c) the creditorsof the companyare not prejudicedordisadvantagedbythe typesof
orderssoughtand standto benefitfromthe administratorsenteringintothe
arrangement;and
(d) notice hasbeengiventothose whomay be affectedbythe order.
43. In grantingthe orderssoughtin Re Mentha,GilmourJheldthatthe orderswouldencourage
suppliers,customersandemployeestocontinue todeal withthe companyduringthe
administrationperiod. Thiswouldincrease the prospectsthatthe companywouldeither
continue totrade or thatthe returnto shareholderswouldbe greaterthanif the companywas
immediatelywoundup.
44. The Court has foundthatsuch ordersare not appropriate where,forexample,the
administratorspropose toenterintomanybusinesstransactionsincarryingoutthe company’s
business,asthismayexpose anumberof supplierstoriskincircumstanceswhere theymaynot
be aware of any limitationonthe administrators’liabilityforpostappointmentdebts: Cook
CovePtyLimited (adminsapptd) v Boyd CookCoveFinanceCorp Pty Limited [2009] NSWSC620
at [37].
Section 443B
45. If,underan agreementmade before the administration,the companycontinuestouse or
occupy propertyorbe inpossessionof propertybelongingtosomeoneelse,the administrators
will be personallyliable unders.443B(2) of the Act for rentor otheramountspayable bythe
companyunderthe agreementforthe periodduringwhichthe companycontinuestouse or
occupy the propertyaftera five businessdays’grace period.
46. In Silvia v FEA Carbon PtyLimited (adminsapptd) (recsand mgrsapptd) (2010) 185 FCR 301,
FinkelsteinJidentifiedthe reasonforthe section. HisHonournotedthat,underthe general
law,an agent(includinganadministrator) wouldnotbe liable forrentunderalease entered
intoby hisor herprincipal unless,byhisorherconduct,the agentadoptedthe lease. This

wouldbe unacceptable inthe contextof anadministrationas,pursuanttos.440C of the Act,
the lessorwouldbe unable totake possessionof the propertywithoutthe administrator’s
consentor the leave of the Court.
47. Under s.443B(3), withinfive businessdaysof the commencementof the administration,the
administratormaygive tothe owneror lessorof the propertynotice thatthe companydoesnot
propose toexercise rightsinrelationtothe property. If sucha notice isgiven,thens.443B(4)
providesthatthe administratorisnotliable forsomuchof the rentor otheramountspayable
underthe agreementasisattributable tothe periodduringwhichthe notice isinforce. The
company,however,remainsliable pursuanttothe termsof the agreement.
48. The notice mustbe giventothe owneror lessorbypersonal deliveryorbyprepaidposttothe
owner’sorlessor’susual place of residenceorbusinessorthe place of the residence orbusiness
lastknownto the administrator.
49. It shouldbe notedthatthe PersonalProperty Security (Corporationsand OtherAmendments)
Act 2010 (Cth),s.443B(3A) providedthatan administratorcouldnotgive notice withdrawing
fromsecurityagreementsthatcreate financingleasesorPPSleasesasdefinedby Personal
Property Securities Act2009 (Cth) (“the PPSA”)1
. Thisamendmentwasrepealedbythe Personal
PropertySecurity(Corporationsand OtherAmendmentsAct) 2011 (Cth). Accordinglythe
positionnowstandsthatan administratormaygive notice withinthe five business days’grace
periodthatthe companydoesnot propose toexercise itsrightsinrelationto all property,
includingproperty the subjectof aPPS lease.
50. Under s.443B(5), any notice issuedunders.443B(3) ceasestohave effectif itiseitherrevoked
inwritingor the companyexercisesorpurportstoexercise arightinrelationtothe property. If
the notice ceasestohave effect,thenthe administratorwill be liable forpaymentof amounts
underthe agreementfromthattime andthereafterduringthe periodinwhichthe company
continuestouse,occupyor be in possessionof the propertyandthe administrationcontinues.
51. Under s. 443B(6), by merelycontinuingtooccupyor be inpossessionof the property,the
companydoesnot purportto exercise aright inrelationtothe property. It will onlydosoif it
usesthe propertyor assertsa rightas againstthe ownerof lessortocontinue occupationor
possession.
52. The Court may make an orderexcusingthe administratorfrom the liability createdbys.443B(2)
to pay rentand otheramountsunderthe agreement pursuanttos.443B(8). Such an
exemptiondoesnot,however,affectthe liabilityof the company. The Explanatory
Memorandumprovidesanexampleof whenitisappropriate forthe Courtto exercise such a
power, beingwhenthe booksof the companyare insuch a disorderedstate thatthe
administratorisunable toascertainwithinfive businessdayswhatthirdpartyassetsthe
companypossesses.
1 A PPS leaseis broadly a leaseor bailmentof goods that has or may have a term of more than one year or, for
goods that may or must be described by serial number under the PPSA, a term of more than 90 days.

53. The Courts have consideredthe followingfactorsrelevantindecidingwhetherornot to
exercise the discretiontograntan exemption:
(a) the reasonswhythe administratorsfailedtosendthe notice withinthe prescribedtime;
(b) whetherthe administratorsderivedabenefitfromthe lease;and
(c) whetherthere isanyprejudice tothe lessor.
Re Southern River Wine Corp Limited; Featherby v Read [2002] WASC251; NardellCoal Corp (in
liq) v HunterValley CoalProcessing Pty Limited (2003) 178 FLR 400.
54. Section443B(8) appearsto operate to allow the Courtto retrospectivelyexcusean
administratorfromliability. Itisunclear,however,whetherthe Courtmaymake an order
excusingliabilityunders.443B(8) inadvance. Anorder could,however,be soughtunders.
447A to grant an exemptioninadvance where the administratorfeelsthathe orshe wouldbe
unable tomake the necessarydecisionswithinthe five businessdays’grace period andneeds
furthertime toinvestigate anduncoverall leases andtoconsideranyrightsthe companymay
have pursuantto those leases:Silvia v FEA Carbon Pty Limited (adminsapptd) (recsand mgrs
apptd) (2010) 185 FCR 301.
55. An extensionmaybe grantedwhere the administratorsneedmore time tounderstandthe true
positionwithrespecttothe leases,evenif the administrator’sobjective indelayingadecisionis
to allowfundingarrangementstobe pursuedforthe company’sprojects: RewardsProjects
Limited (adminsapptd) v TheArk Fund Limited (No.2) [2010] WASC 136 at [8].
56. The period of liabilityforrentmaybe abridgedunders.443B(7). Thisoccurs where a charge
holderenforcesitscharge byappointingareceiverorenteringintopossession,orassuming
control, of the property. Inthose circumstances,the personal liabilityof the administrator
unders. 443B(2) ceases,howeverthe liabilityof the companyunderthe termsof the
agreementcontinues.
57. By virtue of s. 443B(9), the administratorisnottakento have “adopted”the agreementorto be
liable underthe agreementsave as torent or otheramountspayable underthe agreement
pursuantto s. 443B(2).
58. The liabilityunders.443B extendsbeyondpaymentof renttoinclude paymentof “other
amountspayable bythe company”pursuantto the agreement.
59. In De Vries v Rapid Metal Developments(Aust) Pty Limited [2011] NSWCA,the Court of Appeal
considereds.419A(2),whichisin similartermstos. 443B(2). The Court concludedthatliability
unders. 419A didnot extendtoaliabilitytomake paymentsunderahiringagreementbetween
an ownerof goodsand a corporationwhenthe liabilityisnotincurredandisnot enforceable
until the endof the periodof hire. In that case,the amountspayable bythe companywere as a
resultof a failure toreturnscaffoldinginagoodcondition. Suchliability wasnotattributable to
a periodof hire duringwhichthe companyunderadministrationusedthe scaffolding and
therefore didnotfall unders.419A.

60. “Otheramounts”in s.443B(2) also doesnotextendtoliquidateddamagespayable atthe
terminationof apre-appointmentagreement. Thisisbecause suchdamagesare not
attributable tothe “use,occupationorpossession”of the propertybythe corporationunder
administration. Applyingthisreasoning,administratorswouldalsonotbe liable forfuture rent
as lossof bargaindamages because suchdamageswouldnotarise fromany“use,occupationor
possession”of the property.
61. Similarly,administratorsmay be liable formonetaryamountsclaimedforrepairspursuanttoa
lease agreementpursuanttoa continuingobligationto meetthe costof repairs,butnot merely
for a breachof an obligationtorepair.
62. If an administratorisappointedinthe middleof arent period,thentheywillbe personally
liable forthatpart of the rentand otheramountsattributable tothe periodthattheycontinue
to use,occupyor possessthe propertyafterthe five businessdays’grace periodexpires.
Section 443BA
63. Pursuantto s. 443BA of the Act, the administratorispersonallyliable forcertaintaxation
liabilitiesof the company. The administratorispersonallyliabletopaythe Commissionerof
Taxationamountspayable duringthe administrationundera“remittance provision”.
64. The “remittance provisions”are provisionsinthe IncomeTax AssessmentAct andthe Taxation
Administration Act relatingtothe obligationtowithholdcertainamountstocovertaxation
liabilityfrom,forexample,salaryorwagesunderthe PAYGsystem.
PART 2 - RIGHTS OF INDEMNITY
65. To counterbalance the personal liabilityattachedtoadministratorspursuanttoss.443A, 443B
and 443BA of the Act,an indemnityisprovidedtoadministratorsoutof the company’sproperty
inrespectof suchliabilitiesbys.443D of the Act. The indemnityins.443D alsoprovides
protectiontothe administratorinrespectof liabilitieshe orshe mayincurwhilstactingingood
faithinperforming,orpurportingtoperform, hisorher functionsasadministrator. Inaddition,
the indemnityappliestothe administrator’sremunerationasfixedunders.449E of the Act.
Liabilities covered by the indemnity
66. An administratorhasanindemnityoutof the company’spropertyinrespectof the debts
coveredbys. 443A(1). These debtsmayinclude a costs ordermade againstthe administrator
personally inproceedingsbroughtbyhimor herinthe performance orpurportedperformance
of hisor herfunctionsasadministrator. The administratormust,however,have actedproperly
and reasonablyinconductingthe proceedings: CresvaleFarEastLimited (in liq) v Cresvale
Securities Limited (No.2) (2001) 39 ACSR662 (an appeal wasallowedin Kirwan v CresvaleFar
East Limited (in liq) (2002) 44 ACSR21, but noton thispoint).
67. Thisis so evenif the administratorwasdefendinghisorherowncharacter: Walters v
Woodbridge(1878) 7 Ch D 504. However,where itisfoundthatanadministratorhas

improperlyincurredcostsindefendingaclaim, the rightof indemnitywill be denied: Kirwan v
CresvaleFar EastLimited (in liq) (2002) 44 ACSR21.
68. The insertionof s.443D(aa) extendedthe administrator’srightof indemnitytoinclude personal
liabilitiesincurredinthe due performance of the administrator’sduties(exceptliabilities
incurrednegligentlyorinbad faith). Suchliabilitiespreviouslyfelloutsidethe statutoryrightof
indemnityandadministratorswere forcedtorelyontheirrightsunderthe general law to
recoversuchliabilitiespursuanttoan equitablelienoverthe company’sassets.
69. For example,inCommonwealth Bankof Australia v Butterell (1994) 14 ACSR 343, an
administratorwhoon-soldstockthe subjectof aretentionof title clause didnothave a
statutoryrightof indemnityoutof the company’spropertyinrespectof anyliabilityin
conversion. Thispositionmaynowbe alteredbythe insertionof s.443D(aa) and,providedthe
administratorcouldestablishgoodfaithandanabsence of negligence,the administratorwould
have beenable torelyuponthe statutoryright of indemnityprovidedforbythe Act.
Indemnity for remuneration
70. In Re Wings-AusHoldingsPtyLimited (2009) 73 ACSR49, itwas heldthatthe words“as fixed
unders. 449E” doesnotmean“whenfixedunders.449E”. Accordingly,the administrator’s
rightto indemnityinrespectof hisorherremunerationexistsbefore the amountof
remunerationisfixedunders.449E.
Loss of the right to indemnity
71. Sections443D and443F of the Act assume regularityinthe conductof the administration.
Accordingly,the administrator’srightof indemnityunders.443D maynot be available where
there hasbeenan irregularityinhisorherconduct of the administration,suchasserious
inadequaciesinreportsorstatementsto creditorsunders.439A(4) of the Act: Cadwalladerv
Bajco PtyLimited (2001) 189 ALR 370.
72. The right of indemnityunders.443D will alsonotbe available if the administratorhasnotbeen
validlyappointed. An invalidlyappointed administratormay,however,recoverremuneration
for theirworkif itis of incontrovertible benefittothe company underrestitutionaryprinciples:
Sutherland v Take Seven Group PtyLimited (1998) 29 ACSR201.
73. If a deedof companyarrangementisexecutedbythe company,the administrationendsand
any liabilitiesincurredbythe deedadministratordonotfall withins.443D: CresvaleFar East
Limited (in liq) v CresvaleSecurities Limited (No.2) (2001) 39 ACSR 622. The deed
administrator’srightsof indemnitywillbe governedbythe termsof the deed.
Priority of the right of indemnity
74. Pursuantto s. 443E, the administrator’srightof indemnityhas,“subjecttos.556”, priorityover:
(a) all of the company’sunsecureddebts;

(b) any debtsof the companysecuredbya PPSA securityinterestinpropertyof the
companyif,whenthe administrationbegan,the securityinterestvestsinthe company
unders. 267 or s. 267A of the PPSA or s. 588FL of the Act; and
(c) any debtsof the companysecuredbya circulatingsecurityinterestinpropertyof the
companyto the extentthatthe debtor liabilitywasincurredbefore the appointmentof
a receiverbythat securedpartyor the enforcementof the securityinterestbytaking
possessionorcontrol of the securedproperty.
75. Pursuantto ss.267 and 267A of the PPSA,asecurityinterestinpropertyof acompanyvestsin
the companyif it is unperfected(usuallybythe absence of registration)atthe time the
companygoesintoadministration. Unders.588FL of the Act,a PPSA securityinterestvestsin
the companyif (inthe usual case) ithas not beenperfectedbyregistrationbythe endof 20
daysafter the securityagreementcame intoforce,orat leastsix monthsbefore the
commencementof the administration.
76. Under s.443E(5), the right of indemnityinrespectof the repaymentof moneyborrowedis
limitedinthatinterestorborrowingcostsdonot have priorityoverdebtssecuredbya
circulatingsecurityinterest,exceptinsofarasthe securedpartyconsentsinwriting.
77. The words “subjecttos. 556” appearingins.443E(1) couldbe seento create some tension
betweenthe twosections. Lookingatthe wordingof s. 443E(1) alone,itwouldappearthatthe
administrator’sclaimforindemnityissubjecttothe orderof prioritiesforpaymentof debtsina
windingupasset outat s.556. Pursuantto s. 443F, however,the administrator’slienmakes
the administratorasecuredcreditor. Asa securedcreditor,the administratorwouldnotbe
affectedbys.556.
78. In Weston v Carling ConstructionsPty Limited (in prov liq) (2000) 35 ACSR100, the Courtfound
that the words“subjectto s. 556” didnot diminishanadministrator’srighttorecoverhisor her
remunerationanddisbursementsandto recoupdebtsincurredinthe course of the
administrationoutof the assetsof the companyrealisedinthe course of the administration. As
AustinJstatedat 104:
“[thewords] ’subjectto section 556’ qualify the priority of the administrator’sstatutory right
of indemnitybutnot the scopeof the statutory lien which supportsit”.
79. The Court heldthatthe effectof the words“subjecttos. 556” wasthat if any additional assets
are recoveredbya subsequentlyappointedliquidatorandthe enforcementof the
administrator’slienwouldresultinashortfall tothe administrator,thenthe administrator’s
unsecuredclaimforthatshortfall issubjecttos. 556. The additional assetssubsequently
recoveredbythe liquidatorwouldhave tobe propertyof the companybefore the administrator
wouldhave anyrightof indemnityoutof it.
80. Accordingly, s.556 isonly applicable tofundsrecoveredbya subsequentlyappointedliquidator
or provisional liquidator: Weston v Carling ConstructionsPty Limited (2000) 35 ACSR100 at 106.

PART 3 - LIENS
81. In orderto secure the administrator’s rightof indemnityunders.443D, twoliensare created
overthe propertyof the company,as follows:
(a) a statutorylienunders.443F of the Act; and
(b) a lienarisingunderthe general law.
Statutory lien
82. Pursuantto s. 443F(1) of the Act, the administratorhasa lienonthe company’spropertyto
secure hisor herright of indemnityunders.443D. Under s. 443F(2), thislienhaspriorityovera
charge onlytothe extentthatthe rightof indemnityhaspriorityoverdebtssecuredbythe
charge.
83. The statutory liendoesnotdependuponthe administratorhavingpossessionof the property.
In addition,the lienentitlesthe administratortoapplytothe Court for an orderthat the
propertybe soldto meethisor herclaims.
84. The statutory lienunders.443F doesnothave priorityovera fixedsecurityinterestthathas
neverbeenacirculatingsecurityinterest. However,unders.443E(1)(c), the lien doeshave
priorityoverdebtssecuredby acirculatingsecurityinterestsubjecttothree qualifications,as
follows:
(a) if,at the commencementof the administration,the holderof the circulatingsecurity
interesthasalreadymovedtoenforce the securityinterestbyappointingareceiveror
enteringintopossessionof the propertyandthatenforcementiscontinuing. Inthat
case,the administrator’srightof indemnityunders.443D doesnothave priorityover
the debtssecuredbythe circulatingsecurityinterestunlessthe securedpartyagrees
otherwise;
(b) if the holderof a circulatingsecurityinteresttakesstepstoenforce the securityinterest
by appointingareceiverorenteringintopossessionof the propertyafterthe
administrationhascommenced. Inthatcase,the administrator’sright of indemnity
unders. 443D has priorityinsofarasit isa right of indemnityfordebtsincurred,or
remunerationaccruingbefore writtennotice of the particularmode of enforcementis
giventothe administration;and
(c) if the administrator’srightof indemnityunders.443D relatestodebtsincurredinthe
repaymentof moneyborrowed,the rightof indemnitydoesnothave priorityover
debtssecuredbya circulatingsecurityinterestinsofarasitis a right of indemnityfor
interestinrespectof thatborrowedmoneyandborrowingcosts,unlessthe secured
party agreesotherwise.

Liens under the general law
85. A lienunderthe general lawmayarise infavourof a claimantwhohas a monetaryclaimarising
inconnectionwithcertainpropertyinwhichanother personhasaninterest. The lienmay
entitle the claimantinsome casestoeitherretainpossessionof the propertyasagainstthe
personwiththe interestand,inothercases,toobtainpaymentoutof the property.
86. Two typesof lienexist underthe general law whichmaybe availabletoadministratorsin
respectof expensesincurredandremunerationaccruedinthe course of an administration:a
commonlawlienandan equitable lien.
The common law lien
87. A commonlawlienonlygivesarightto retainpossessionof propertyanddoesnotprovide any
rightfor paymentoutof the property. Itis frequentlyavailableinprincipal/agentrelationships
and,accordingly,maybe available tothe administratorinhisorher role as an agentof the
company.
88. Generally speaking,however,the commonlaw lienwill provide little benefittothe
administratorasitdoesnot provide the administratorwithanyabilitytorealise the company’s
propertyto obtainpaymentoutof it. The lienisalsoreliantonthe administrator having
possessionof the goods.
The equitable lien
89. An equitablelien,onthe otherhand,createsaproprietaryinterestbywayof securityin
particularpropertyinwhichanotherpersonhasan interest. Itdoesnotdependonthe
existence of anycontract or on the lienee havingpossessionof the property.
90. The securityinterestcreatedbyanequitable liencanbe enforcedbyaCourt orderprovidingan
equitable remedy,mostcommonlyforthe sale of the propertyandforpaymentfromthe sale
proceeds.
91. As discussedinmore detail below,the courtshave heldthatadministratorsmayhave an
equitable lieninrespectof properlyincurredliabilities,includingliabilitiesforwhichthe Act
providesnoindemnity: Commonwealth Bankof Australia v Butterell (1994) 14 ACSR 343.
92. In that regard,the equitable lien hastraditionally onlyextendedtothatpart of the
administrator’scostsandexpensesincurredexclusivelyinthe preservationandrealisationof
the assetssubjecttothe “salvage principle”:ReUniversalDistributing (1933) 48 CLR 171.
93. In consideringthe “salvage principle” (alsoreferredtoasthe principle in UniversalDistributing),
inInternationalArtHoldingsPtyLimited (adminsapptd) v Adams (2011) 85 ACSR1, Ward J
describedthe equitablelienasa lientowhichan official whohasincurredexpensesin
assemblingafundforthe benefitof the creditorsisentitledinpriorityoversecuredcreditors
whoderive benefitfromthe assemblingof the fund. Accordingly,the lienisinrespectof an
administrator’sreasonable costsandexpensesincurredactingingoodfaithinsellingassetsto

produce a fundfor the benefitof the securedcreditor. Asdiscussedbelow,thislienhaspriority
overthe interestsof securedcreditors.
94. In Shirlawv Taylor(1991) 31 FCR222, inthe contextof the appointmentof a provisional
liquidator, the Courtstated:
“[t]heprinciple is thatthosetaking thebenefit of the administration should notescapethe
burden of the propercostof it”.
95. Insofaras an administrator’stime isexclusivelydevotedtothe realisationof sucha fundforthe
benefitof asecuredcreditor,the administratorwouldbe entitledtoanequitable lieninrespect
of theirremuneration. However,tothe extentremunerationclaimedbythe administratoris
attributable totime spentonothermatterswhichwouldnotbenefitthe securedcreditor,then
that part of the remunerationwouldnotbe coveredbythe equitable lien. Thisissoevenif the
administratorhasa statutoryobligationunderPart5.3A to do thingssuchas holdcreditors’
meetingsnotwithstandingthe appointmentof areceiverbythe securedcreditor.
96. If an administratorclaimsforremunerationandexpensesforpreservationof companyproperty
(forexample,inthe conductof the company’sbusinesspendingasale),thenthe administrator
isnot precludedfromclaiminganequitable lienjustbecausehe orshe didnot create a fund. In
Pattinson v Lockwood [1998] FCA 472, the Courtheldthat whatisrequired isthatthere is
propertythatproperlycan be subjectedtothe charge for remuneration,costsandexpenses.
97. An administrator’sclaimforremunerationandexpensesforworkpreparatorytoa sale outof
the proceedsof a sale will,however,likelybe rejectedwhere:
(a) the sale ismade by a priorrankingsecuredparty,notthe administrator;
(b) the securedpartycannot be shownto have consentedtothe administration;and
(c) the securedpartycannot be shownto have acquiredanincontrovertible benefitbythe
administrator’sactions
as the administratordidnotcreate the proceedsof sale: Dean-Wilcocksv Nothintoohard Pty
Limited (in liq) [2006] NSWCA 311. Thispositionmaybe differentwherethe claimisforwork
done inpreservingthe propertypendingthe sale:perSpigelmanCJat [10].
The Atco decision
98. The principle inUniversalDistributing wasrecentlyconsideredbythe HighCourtin Stewart(in
his capacityas liquidatorof NewtronicsPty Ltd) v Atco ControlsPty Ltd (in liq) [2014] HCA 15 in
the contextof a claimbya liquidatorforanequitablelienoverasettlementfund. Asdiscussed
below,the same approachwill likelybe takeninrespectof claimsbyadministratorsfor
equitable liens.
99. In Atco,the liquidatorof NewtronicscommencedproceedingsagainstAtcoandthe receiversof
Newtronics(appointedbyAtco) challengingcertainsecuritiesprovidedbyNewtronicstoAtco.
The liquidatorwasultimatelyunsuccessful inthe litigationagainstAtcochallengingthe

securities,butachievedasettlementwiththe receivers. Atcodemandedpaymentof this
settlementsum,butNewtronicsdeclinedtopayiton the basisthat the liquidatorwasentitled
to an equitable lienoverthe sum.
100. Atco arguedthat,giventhe nature and purpose of the liquidator’sproceedingsagainstit,the
principle in UniversalDistributing shouldnotapply. Inthisregard,Atcoargued, inter alia, that:
(a) it hadnot “come in” to the windingupbyapplyingtohave itsrightsdetermined. Ithad
beendraggedintothe litigationtodefendanattackbeingmade onits charge;
(b) relyingonthe decisionof In re MCBacon [1991] Ch 127, it wouldbe unjusttoreimburse
the liquidatorfromfundssubjecttoacharge it hadunsuccessfullysoughttochallenge;
and
(c) relyingonthe decisionof Falckev Scottish Imperial InsuranceCo (1886) 34 ChD 234, it
didnot consenttothe litigationnorwasitundertakenforitsbenefit.
101. The Court held(at[23]) that:
“The circumstancesin which the principle [in Universal Distributing] willapply arewhere:
there is an insolventcompany in liquidation;theliquidatorhasincurred expensesand
rendered services in the realisation of an asset;the resulting fund is insufficientto meet both
the liquidator’scostsand expensesof realisation and thedebtdue to a secured creditor;and
the creditor claims thefund. In these circumstances,it is justthatthe liquidatorbe
recompensed”.
102. The Court didnot considerthere wasanybasisfor exceptingAtco’scase fromthisprinciple.
103. The Court held(at[37]) that,in the contextof a liquidation,asecuredcreditor“comesin”to a
windingupwhenitlaysclaimto,and seeksthe benefitof,afundcreatedbythe liquidatorin
orderto satisfyitscharge. The fact that Atcohad not willinglyparticipatedinthe realisationof
assetswasirrelevant.
104. The Court consideredthatAtco’sreliance on MCBacon wasmisguidedasthatcase didnot
involve the questionof whetheranequitable lienarose infavourof a liquidator. MCBacon
involvedaclaimbya liquidatorforreimbursementof costsfroma fundinthe handsof a
securedcreditor,whichincludedcosts the liquidatorhadbeenorderedtopaythe secured
creditorfollowingthe dismissal of anactionbywhichhe soughtto invalidate the creditor’s
security.
105. Atco hadsoughtto relyon the principle enunciatedin Falckethata strangerwhocarries out
work or services,orotherwise confersabenefitonanother,withoutrequesttodoso, isnot
entitledtopaymentorcompensation.
106. The High Court heldthatthe decisionin Falckehadno bearingona case involvingwork
undertakenbya liquidatorina windingup,finding(at[48]) that:

“Atco’smistaken reliance on these decisionsstemsfromits wrong assumption thatAtco,asa
secured creditor, musthaverequested thatthelitigation be brought”.
107. The decisionprovidessomecomforttoliquidators andadministratorsasitendorsesawide
viewof the circumstancesinwhichanequitable liencanbe claimed.
108. The decisionmayalsobe seenas a move awayfrom indepthconsiderationastowhetherit
wouldbe unconscionableorunconscientiousforaliquidatortobe deprivedof hisorher costs
inpriorityto a securedcreditor. The HighCourt referredtothe judgmentof WarrenCJ inthe
Court of Appeal belowwherehe statedthata considerationastowhetherAtcowouldbe acting
unconscientiouslyinassertingitssecuritynecessarilyinvolvedanassessmentof the conductof
the parties,the nature of the litigationandthe contextinwhichitoccurred. The HighCourt
rejectedthisapproachstating(at[31]) that:
“…while the rules of equity are notrigid or inflexible when faced with novel situations,this
doesnotmean that courtsshould proceed on generalnotionsof justicewithoutregard to
settled principles. A principle should beapplied when the circumstancesof a case fall within
it”.
109. Liquidatorsandadministratorsmust,however,be aware thatthe Court will still require that
costs are reasonablyincurredanddirectlyrelate tothe preservationof the company’sassets
before anequitable lienwill be recognised.
Priority of equitable liens
110. An administrator’sinterestpursuanttoanequitable lienisconfinedtothe propertyof the
company:Shawyerv Amberday PtyLimited (in liq) [2001] NSWSC399.
111. Whilsts.443E(1) providesforpriorityinrespectof the statutoryrightof indemnityins.443F in
the eventof a subsequentliquidation,nosuchpriorityisgenerallyprovidedinrespectof any
equitable lienanadministratormayhave. If the amountsecuredbyan equitable lienexceeds
whatcan be raisedfromthe propertyof the company,thenthe administrator canrankas an
unsecuredcreditortothe extentof hisorher shortfall inanysubsequentliquidationof the
company.
112. The circumstancesinwhichthe administrator’spriority oversecuredcreditors underan
equitable lienmayarise have previously beenthe subjectof some uncertainty although,inlight
of the recentHighCourt decisionof Atco,itislikelythatuncertaintycannow be putto bed.
113. In Hamilton v Donovan OatesHannaford MortgageCorp Limited (2007) 25 ACLC 95, the
administratorsclaimedthat theirequitable lienhadpriorityoverthe interestsof the holderof a
fixedcharge. The administratorsundoubtedlyhadastatutorylienarisingunders.443F in
relationtotheirremunerationandoutlays,butthat lienwouldnothave priorityoverafixed
charge due to the operationof s.443F(2) readin lightof s. 443E(1). The administratorssought
to relyuponan equitable lientograntthemsuchpriority.

114. Barrett J held(at[39]),that any equitableliencouldnotprovide priorityoverthe interestsof
the charge holderasto do so wouldbe tosubvertthe legislative intentionins.443F(2) thatan
administrator’slienandrightof indemnitywouldrankbehindthe interestsof securedcreditors.
His Honourheldthat,inany event,the administratorsdidnothave anequitablelienasthey
had notestablishedthatthe workcarriedoutby themforwhichtheyclaimedtheir
remunerationandoutlayshadconferredabenefitonthe charge holderorthat the charge
holderhadcededprioritytothem.
115. In Coad v Wellness PursuitPty Limited (in liq) (2009) 226 FLR 91, the Courtof Appeal of the
Supreme Courtof WesternAustraliadisagreedwiththe decisionof BarrettJ. The Court
considered that,if the holderof the fixedcharge wouldbe actingunconscientiouslyinasserting
priorityoverassetsrealisedbythe administratorwithoutremuneration,thenthe
administrator’sequitable lien forthatremunerationhaspriorityoverthe fixedcharge
irrespectiveof s.443F(2).
116. The Court consideredthatsuchan outcome didnotsubvertthe legislative intentionof s.
443F(2) as the equitable lienandthe statutorylienare separate anddistinct. Section443F(2) is
not expressedsoasto exclude the ongoingavailabilityof anequitablelien. Inthose
circumstances,the Courtconsideredthere wasnoreasontoconclude thatParliamentintended
that the equitable lienwouldbe subjecttothe priorityprovisionsapplicable tothe statutory
lien. Accordingly,the Courtheldthatitisnotinconsistentwithgoodconscience forequityto
recognise apriorityforsome liabilitiessecuredbythe equitable lienwhichisdifferentfromthe
priorityapplicableunderthe statutoryscheme incircumstanceswhere it wouldbe
unconscientiousonthe partof the personwiththe benefitof astatutoryprioritytoassertit
againstthe administrator.
117. Thisapproach appearsto be more in line withthe decisionof the HighCourtin Atco and has
previouslyreceivedthe supportof the Courtof Appeal of the Supreme Courtof NSWin Dean-
Willcocks v Nothintoohard PtyLimited (in liq) [2006] NSWCA 311 and the Federal Courtin Re
Morgan;Brighton HallSecurities PtyLimited (in liq) [2013] FCA 970. In the lattercase,
McKerracher J consideredthatthe Actshouldbe interpretedsoasnot to exclude equitable
liensunlessitsayssowithsome clarity. McKerracherJ concluded(at[154]):
“There seems no policy reason and no expresstermssuggesting thatthelegislatorsintended
thata liquidatoroughtconducta task,effectively of salvage,forthe benefitof particular
creditors butbe denied the benefitof intervention in circumstanceswherethere would be
scopefor unconscionability”.
118. Accordingly, itseemsthatthe statutorylienprovidedforbys.443F of the Act doesnot exclude
or qualifythe equitable lienthatthe administratorisentitledtounderthe general law.
Liens and trust property
119. There isno statutoryrightor processforan administratortoextracthisor her remuneration
and expensesoutof trustproperty. The Courts have,however, recognisedthree differentbut

overlappingrightsinliquidatorstorecoverremunerationand/orexpensesoutof trustproperty,
as follows:
(a) the right recognisedin ReSuco Gold Pty Limited (in liq) (1983) 7 ACLR 873 to
remunerationandexpenses;
(b) the right in Re UniversalDistributing Co Limited (in liq) (1933) 48 CLR 171 to
remunerationandexpenses; and
(c) the inherentjurisdictionof the Courtto allow remunerationoutof trustproperty: Re
Berkeley Applegate(InvestmentConsultants) Limited (in liq); Harris v Conway [1988] 3
All ER 71.
120. Despite the differentnature of the insolvencyadministrations consideredinthose cases,itis
clearthat the principlesrecognised thereinextendtoadministrators: Coad v WellnessPursuit
PtyLimited (in liq) (2009) 226 FLR 91.
Re SucoGold
121. In Re Suco Gold and the line of authoritiesfollowingit,the Courtacceptedthatwhere a
companythat onlycarrieson activitiesastrustee goesintoliquidation,the propercostsand
expensesof the liquidatormaybe metfromthe assetsof the trust. If the companyhad
activitiesotherthaninitscapacityas trustee,thenonlythe costsof work that can be properly
characterisedasadministeringthe trustcan be claimedfromthe assetsof the trust or their
proceeds. General expensesof the liquidationoradministrationcannotbe claimedagainstthe
trust fund:Bastion v Gideon InvestmentsPty Limited (in liq) (2000) 35 ACSR466.
122. It may be difficulttodistinguishbetweencostsof administeringthe trustpropertyandthe costs
of the liquidationoradministrationof the trustee company. In 13 CoromandelPlacePty Limited
v CL CustodiansPtyLimited (in liq),FinkelsteinJsaid(at[385]):
“…provided a liquidatoris acting reasonably heis entitled to be indemnified outof trust
assetsforhis costs and expensesin carrying outthe following activities: identifying or
attempting to identify trust assets;recovering orattempting to recover trustassets;realising
or attempting to realise trust assets;protecting orattempting to protect trustassets;
distributing trustassetsto personsbeneficially entitled to them.
The position is a little more involved asregardsworkdoneand expensesincurred in what
may be described as generalliquidation matters. If thatworkis unrelated to the
beneficiariesand their claims,it is difficult to see how the cost could be charged againsttheir
assets. In the case of a company thathascarried on thebusinessof trustee,it mightbe that
much of the workinvolved in the liquidation is chargeableagainsttrustassetsif it can be
shown thattheliquidation is necessary fortheproperadministration of thetrust. Butit is
unlikely thatthis will be so where thecompany did notact solely as trusteeor at leastdid not
act in thatcapacityto a significantextent. In that event,theliquidator will be required to
estimatethe coststhat are attributableto the administration of trustproperty,and only
thosecostswill be charged againsttrustassets”.

123. The principle in ReSuco Gold appliestobothexpensesandremuneration.
124. An administratorof atrustee company should,therefore,be mindfultoidentifyanddistinguish
betweenexpensesincurredandworkcarriedoutinadministeringthe trustas opposedto
expensesincurredandworkcarriedouthisor her role as an administratorgenerally.
Re Universal Distributing
125. As discussedabove,the principle establishedin ReUniversalDistributing isthat a fundshould
bearthe cost of its ownrecovery,preservationorrealisation.
126. It islikelythatthe principle in ReUniversalDistributing will apply wheretrustassetshave been
recovered, preservedorrealisedthroughthe reasonable andpropereffortsof the
administrator. Inthose circumstancesthe administratormayaccessthe trust fundto recover
hisor her remunerationandexpenses.
127. The applicationof the principlesin ReSuco Gold and Re UniversalDistributing doesnotappear
to be at the discretionof the Court. The rightsarisingas a resultof the applicationof these
principlesare equitableliens,whichare proprietaryinnature. Whenthe factual circumstances
engagingthe applicationof the principlesare made out,the Court mustrecognise the
administrator’srighttohisor herremunerationorexpenses.
Inherentjurisdictionofthe Court
128. A court inequityhasan inherentjurisdictiontoallow atrustee,ora liquidatorof a trustee,
remunerationoutof the trustassets. The jurisdictionis,however,exercisedsparinglyandin
exceptionalcases.
129. In Re Berkeley Applegatethe Courtdescribedthe principle asfollows:
“…where a person seeksto enforcea claim to an equitableinterest in property,thecourthas
a discretion to require asa condition of giving effectto thatequitableinterest thatan
allowancebe madeforcostsincurred and forskill and labourexpended in connection with
the administration of theproperty”.
130. Thisinherentjurisdictionextendstoallowingremunerationoutof trustpropertyto a liquidator
whoadministerstrustproperty. Itis,however, unclearwhetherthe principle in ReBerkeley
Applegateextendsbeyondremunerationtoalsoinclude expenses.
131. The exercise of the inherentjurisdictionof acourt in equitytoallow remunerationoutof trust
propertyappearstobe discretionary. In Re Lord (asliquidatorof Maureen Michael
ManagementPtyLimited (in liq)) (2005) 55 ACSR539, YoungCJ in Eq referredtothe Court’s
discretion toallowpaymentof remunerationoutof trustassets andidentifiedthe following
factors as relevantinthe exercise of thatdiscretion:

(a) whetherthe applicationforremunerationhasbeenmade earlyinthe administrationor
whetherithasbeenmade afterthe entire fundinadministrationhasbeenused;
(b) whetherthe trustee companycarriedonbusinesssolelyastrustee;
(c) whetherthe remunerationandexpenseswouldhave beenincurredinanyeventbya
receiverof the fundappointed bythe Courtor bythe beneficiaryclaimingthe equitable
interestinthe fund;
(d) whetheraliquidatorwouldhave takenanystepsinthe liquidationhadhisorher
remunerationandexpensesnotbeenpayableoutof the fund;
(e) the proportionalityof the remunerationandexpensesincurredinthe administrationof
the trust fund(includinglegal costs);and
(f) whetheritwasopento the trustee topay the trust fundintocourt underthe provisions
of the TrusteeAct.
132. Young CJin Eq declinedthe liquidatorhisremunerationinthatcase findingthatthe liquidator
had notacted responsibly,the costswouldbe disproportionate tothe fundunderhiscontrol
and hisclaimedremunerationandexpenseshadexhaustedthe fundbefore anyapplicationwas
made.
133. Accordingly,anadministratorwhointendstoseekthe Court’sapproval tohave hisor her
remunerationpaidoutof trustassetsshouldmake anapplicationtothe Court earlyinthe
administration before anysignificantexpensesare incurredorremunerationaccrued. Suchan
application should generally onlybe made where accesstotrustfundswouldbe necessaryto
carry out the administrationandsuchaccesswouldnotsignificantlyordisproportionately
deplete the trustfund.
Court assessmentand approval of remunerationand expenses
134. In the eventthe Courtmakesan orderfor remunerationandexpensesof administeringatrust
fundto be takenout of that fund,itis likelytobe subjecttoan assessmentsimilartothe
processundertakento have remunerationapprovedbythe Courtunders.473(3)(b)(ii) of the
Act.
Liens and the PPSA
135. Neitherastatutoryliennora lienarisingunderthe general law isrequiredtobe registeredor
otherwise perfectedinaccordance withthe PPSA. These liensare excludedfromthe
applicationof the PPSA pursuanttos. 8(1)(b) and(c),excepttothe extentprovidedforbys.
8(2) and (3) of the PPSA.
136. Pursuantto s. 8(2) of the PPSA,s. 73 of the PPSA mayapplyto regulate the prioritybetweenan
administrator’s lien(describedasa priorityinterest) andothersecurityinterestsinthe same
collateral. Section73will applywhere alienarisesinfavourof apersonwhohas provided
goodsor servicesinthe ordinarycourse of business(andinrelationtoprovidingthose goods
and services) andwhere nolawof the Commonwealth,astate or a territoryprovidesforthe
prioritybetweenthe lienandthe othersecurityinterest.

137. Accordingly,s.73 of the PPSA may be calleduponinrelationtothe administrator’slien in
respectof debts,liabilitiesandremunerationsecuredbythe lienincurredbythe administrator
inprovidingprofessionalservicesasanadministratorinthe ordinarycourse of business.
138. In relationtothe statutorylien,s.443F of the Act provides thatthe statutorylienhaspriority
overothersecurityinterestsasprovidedforinthe Act. Accordingly,asdiscussedabove,the
relevantprovisionsof the Actwill determinethe prioritypositionasbetweenthe security
interestandthe statutorylien.
139. However,inrelationtothe equitable lien,inthe absence of anyotherlaw of the
Commonwealth,astate or a territoryprovidingforthe determinationof the relevantpriority,
pursuantto s. 73 of the PPSA,the equitable lienwouldpresumablyprevail inrespectof debts,
liabilitiesandremunerationsecuredbythe lienandincurredbythe administratorinproviding
professionalservicesasanadministratorinthe ordinarycourse of business.
Property available to administrators pursuant to the liens
140. An importantquestionwhichanadministratormustconsider earlyinhisorher appointment is
the value of the indemnityprovidedforbys.443D secured by the lienins.443F. That is,what
isthe “propertyof the company”referredtoinss. 443D and443F whichthe administratormay
have recourse toin enforcing hisorherrights pursuantto a lien?
141. Under s.9 of the Act,“property”is definedas:
“Any legal or equitableestate or interest(whetherpresentor futureand whethervested or
contingent) in real or personalproperty of any description and includesa thing in action”.
142. Thisdefinitionisnottobe narrowlyconstrued: ASICv Carey (No.6) (2006) 153 FCR509. The
definitionincludespropertyinwhichthe companyonlyhasaleaseholdinterest: International
Art HoldingsPtyLimited (admin apptd) v Adams [2011] NSWSC164 at [67]. The definitiondoes
not,however,includepropertyinrespectof whichthe companyonlyhasa possessoryinterest:
InternationalArtHoldings at [73].
143. The lienunders.443F doesnotjustreferto the company’spropertyatthe time the rightof
indemnityarose,buthasbeenheldtorefertopropertythatsubsequentlycomesunderthe
control of the administratorduringthe administrationperiod: Weston v Carling Constructions
PtyLimited (in prov liq) (2000) 35 ACSR100.
144. An administrator’slien attachestothe company’spropertyatthe time thatthe right of
indemnityarose: Cinema PlusLimited (adminsapptd) v Australia and New Zealand Banking
Group Limited (2000) 35 ACSR1.
145. In the Cinema Plus case,the Court of Appeal heldthatthe existence of acontractual right in
ANZto combine a debitbalance accountwithacreditbalance account didnot affectthe
administrators’statutoryrightof indemnity inthe company’sproperty accruedpriortosuch

consolidation. Otherwise,the effectof suchconsolidationwouldhave beentodeprivethe
administratorof hisstatutorylien. The Courtheldthatat 218, perSpigelmanCJ:
“…the administrators’lien unders. 443F attached to the wholeof thecompany’sproperty as
at the respectivetimes thatthe right of indemnity arose. Included in the property to which
the lien attached wasthe chosein action,being the right to claim the moneysin the current
account. The priorityof theadministratorswith respectto the items within the statutory
right of indemnityasagainstthe bank’sdebtunderthelease facility,wasnot disturbed by
the act of consolidation of accounts. Theconsolidation takeseffectsubjectto the
administrators’priorityand lien. It is notineffectiveas an act of consolidation and hasthe
consequencethat‘thecompany’sproperty’had changed asand fromthedateof the notice
coming into effect,by the extinguishmentof thechosein action in whole orin part,asand
fromthatdate. Itdoes nothavea retrospectiveeffecton the statutory indemnity,priority
and lien”.
Exclusionof property subjectto perfectedPPSAsecurity interests
146. Pursuantto s. 443D, the administrator’srighttoindemnity doesnotextendtoanyretentionof
title propertythatissubjecttoa perfectedPPSA securityinterest,butwill applytounperfected
PPSA securityinterests.
147. In a complex administration,the identificationof anysuchpropertymaynot be straightforward.
In the eventof anyuncertainty,anadministratorshouldseekdirectionspursuanttos.447D as
to howpropertypotentiallythe subjectof perfectedsecurityinterestsshouldbe treated.
148. In Re Carson;HastieGroup Limited (No.3) [2012] FCA 719, the Court consideredanapplication
by administratorsinrelationtothe disposal of propertywhichmayhave beensubjectto
perfectedsecurityinterestsunderthe PPSA.
149. In that case,the administrators of the Hastie groupof companies were facedwithasignificant
amountof plantandequipmentwhichwaspotentiallysubjecttonumeroussecurityinterests.
In addition,there werealarge numberof registrationsagainstthe companiesonthe PPSR
whichwere framedinverygeneral terms. Accordingly,the administratorshadgreatdifficultyin
identifyingwhichpropertywassubjecttoperfectedsecurityinterestsand thereforefell outside
the propertyavailable tothemunders.443D. In the meantime,the administratorswere
incurringsignificantcostsinstoring the propertyinquestionandwishedtosell the property
quickly,beingthe course theyconsideredtobe inthe bestinterestsof the companiesandtheir
creditors. The administratorswere,however,concernedastotheirliabilityinthe eventthey
soldpropertywhichwaslaterfoundtobe subjecttoa perfectedsecurityinterest.
150. The Court recognisedthe difficultiesfacedbythe administratorsandmade ordersunders.
447D of the Act that the administratorswere justifiedinsellingthe plantandequipment
followingadvertisementof the proposedsale andnotificationof all creditorsof the sale terms.
The Court orderedthatthe proceedsof sale were tobe heldbythe administratorsinaseparate
account and thenappliedasfollows:

(a) towardsthe administrators’costsof realisingthe plantandequipment;
(b) towardsany claiminrespectof the plantandequipmentwhichinthe opinionof the
administratorsisavalidclaim;and
(c) aftera periodof three months,distributingthe balance of the proceedsof sale inthe
ordinarycourse of the administrationof the companies.
151. The Court’sdecisionisinterestinginthatitallowedthe administratorstorecovertheircostsof
realisationfromsale proceedsincircumstanceswhere those sale proceedsmayconstitute
proceedsof the sale of PPSA retentionof title property. The Courtdoesnotspecificallyreferto
thisissue initsjudgment,howeveritcouldbe seenasa recognitionof anequitable lienin
favourof the administratorinrespectof costsrelatingtocaring for, preservingandrealisingthe
company’spropertysuchas has beenrecognisedinthe UniversalDistributing line of authority.
Exclusionof property realisedbya subsequentliquidator
152. If the companyissubsequentlywoundupanda liquidatorrecovers propertyunderPart5.7B of
the Act, the administratorisnotgenerallyentitledtoanindemnityoutof thatproperty asthis
propertyisnot propertyof the companywithinthe meaningof s.443D.
153. Where,however,the propertyrecoveredbythe liquidatoristhe veryitemof propertythat
passedfromthe company,or ispropertywhich(underthe processof tracing) representsit,the
propertycan be consideredtobe propertyof the companyand shouldbe made available to
meetthe administrator’sindemnity.
Trust property
154. As discussedabove,insome circumstancesanadministratormaybe entitledtohave recourse
to trust propertyinrecoveringhisorherremunerationandexpenses. Where atrustee
companyunderadministrationisthe trustee of multiple trusts,questionsmayarise asto which
trust assetsthe administratorisentitledtocall uponinrecoveringhisorherremunerationand
expenses.
155. In Trio CapitalLimited (admin apptd) v ACTSuperannuation ManagementPty Limited [2010]
NSWSC941, Trio was the responsible entity(“RE”) of a numberof managedinvestment
schemes(“MIS”s),some of whichhadassets(unimpairedschemes)andsome of whichdidnot
(impairedschemes). While underadministration,Triocontinuedtoreceive incomeasanRE
fromsome but not all of the MISs.
156. The assetsof Triowere insufficienttopayall of the administrators’remunerationandexpenses
relatingtoitsadministrationof all of the MISs. The Court consideredwhetherornot the
administratorswere entitledtocall onthe assetsof the unimpairedschemestopay
remunerationandexpensesincurredinexercisinggeneral administrationfunctionsand
administeringthe impairedschemes.
157. In decliningtoallowthe administratorstoclaimpaymentof theirremunerationandexpenses
fromthe assetsof the unimpairedschemes,PalmerJheldthatitwouldnotbe rightfor the

administratorstobe allowedtoprefertheirowninterestsoverthe interestsof the membersof
the unimpairedschemesbystructuringpaymentsinsuchaway that expensesincurredin
respectof one setof schemeswere borne outof the assetsof otherschemes. PalmerJ
concluded:
“It is clear thatthe trusteeof severalseparatetrusts cannotchargethebeneficiaries of one
trustwith the costsand expensesincurred in relation to workdonefor the benefitof another
trust. If the trusteecannot,withsomeaccuracy,apportion theexpensesof administration
between the varioustrusts,‘themaximthatequality is equity should providethe solution to
the problemof apportionment’”.
158. Thisapproach wasfollowedin ReDalewon Pty Limited (in liq) [2010] QSC 311 in refusingto
allowa liquidatortouse the assetsof twotrusts tomeettheirfeesandexpensesin
circumstanceswhere the majorityof the workrelatedtoone trustwithinsufficientassetsto
satisfythe total remunerationandexpensesclaimed.
Real property
159. An administrator’srighttoindemnityoutof real propertyownedbythe companycanbe
complicatedbythe interactionbetweenthe administrator’srightsunderthe Actand at general
lawand the provisionsof legislationsuchasthe Real Property Act 1900 (NSW).
160. In Re Conlan (asliq of Oakleigh AcquisitionsPty Limited) [2001] WASC 230, the Court considered
that indefeasibilityprovisionsinWesternAustralianlegislationdidnotpreventaliquidatorfrom
havingan equitablelienwithpriorityoverregisteredmortgage holdersof Torrenland.
161. In reachingthatconclusion,the Courtrecognisedthe competitionbetweenthe liquidator’s
equitable lienandthe legal interestof the mortgagees. The Courtfoundthatthe facts were
withinthe principlein UniversalDistributing suchthatit wasappropriate forthe liquidator’slien
to take priorityoverthe interestof the mortgagees. Indoingso,the Courtrecognisedthe
publicpolicyconcernof protectingitsofficerstoavoidasituationwhere qualifiedpersonsare
reluctantto acceptoffice asan external administrator butstatedthatthisalone wasnot
sufficienttoovercome the mortgagees’rights.
162. The Court thenconcludedthat:
“In thesepeculiar circumstancesI thinkthe principle of which Dixon J spoke [in Re Universal
Distributing] applies.Ido notthink the indefeasibility principle standsin the way of a
conclusion thatthe registered mortgageesmay haveto sufferthededuction of the costs,
chargesand expensesincidentalto the realisation of theEulup Road property beforethe
balanceof the fund is distributed to them. Whetherthe properexplanation forthisis that
there is a right in personamin supportof theequitable lien (which would thereforebean
exception to the indefeasibilityprinciple) is problematic.It may simply be the existenceof
statutory regimeswhich require the assistanceof thegeneral law in order to sit comfortably
together.”

163. The basisfor findingthatan administrator’sequitablelienmaytake priorityoverthe interests
of a registeredmortgageeis,therefore,unclearandmaywell be the subjectof challenge in
future litigationonthispoint.
CONCLUSION
164. The scheme of liabilityandindemnityprovidedforbyDivision9of the Act may be fraughtwith
dangerfor unwary administrators.
165. Administratorsmustbe vigilantintheirconductof the administrationtoensure thattheydo
not inadvertentlybecome personallyliablefordebtsof the company,particularlyin
circumstanceswhere the assetsof the companymaybe insufficienttoallow the administrator
to recoversuchexpensesthroughhisorherrightof indemnity.
166. Administrators mustalsobe mindful toensure thatthe liens securingtheirrightof indemnity
will attachto assetssufficienttosatisfytheirremunerationandexpensesandthatsuchliens
have sufficientpriorityoverothercreditorssoasto be meaningful.
167. In circumstanceswhere trustpropertyisinvolved, additional cautionisrequireddue tothe
general interestof equityinprotectingthe trustfund. Ordersfromthe Courtwill usuallybe
requiredbefore anadministratorwillbe entitledtoexercise theirrightof indemnityoutof trust
property.
168. The powersof the Courtunders. 447A to make ordersmodifyingthe operationof Part5.3A of
the Act may be useful incircumstanceswhere aproposedtransactionisinthe bestinterestof
the companyand itscreditors,yetmayexpose the administratortoincreasedriskincarrying
out hisor heradministration. There are,however,limitsonthe scope of the ordersthatcan be
made unders. 447A and the circumstancesunderwhichthe Courtiswillingtomake such
orders.
169. Administratorsmust,therefore, actquicklyinseekingmodificationordersbefore embarkingon
a course of conduct whichcouldexpose themtoincreasedrisk inthe eventsuchordersare
refused.
170. The time limitssetbythe Act inrespectof the conductof voluntaryadministrationsare tight.
In seekingtocomplywiththese tighttimeframes,administratorsmustbe careful toensure that
haste doesnotleadto error or undue risktakingontheirpart. Administratorsmustatall times
be mindful of the circumstancesinwhichpersonal liabilitymayattachto themand constantly
assesswhethertheyare adequatelyprotectedbytheirrightof indemnity.
Claire Latham
Barrister
9th
FloorWentworthChambers
Ph: (02) 8815 9292
E-mail:claire.latham@ninewentworth.com.au

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