Re R and G Shelley Pty Limited (In Liquidation) and Re the Companies Act 1981 [1991] ACTSC 26; (1991) 101 ACTR 5; (1991) 103 FLR 220 (22 March 1991)

SUPREME COURT OF THE ACT

IN THE MATTER OF R. and G. SHELLEY PTY LIMITED (In Liquidation) AND IN THE
MATTER OF THE COMPANIES ACT 1981
S.C. No. 514 of 1990
Company Law - Winding up
[1991] ACTSC 26; (1991) 101 ACTR 5
(1991) 103 FLR 220

COURT

IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Higgins J.(1)

CATCHWORDS

Company Law - Appeal from decision of Master - Competence of appeal - Whether appeal lies to single judge - Whether orders made by Master were made pursuant to an "interlocutory judgment" - Consideration of nature of "interlocutory" and "final" orders.

Winding up - Priority claims between parties - Equitable lien - Question of provisional liquidator's priority over company's funds by reason of an equitable lien as against the liquidator - Relevant legislation and authorities.

Companies Act 1981 (Cth), s.371, s.373(2), s.441, O.75A

Australian Capital Territory Supreme Court Act 1933 (Cth), s.5, s.8AAA(2)

Halsbury's Laws of England (4th Ed) V 28 par 501

"The Law of Securities", Sykes, (4th Ed)

Bankruptcy Act 1966 (Cth)

Companies Act 1961 (NSW), s.292

Companies Ordinance 1962 (ACT), s.232(2), s.292(1)(a), (2), (10), O75 r43(4)

Companies Rules 1968 (NSW), r50(4), 200

Corporations Act 1989 (Cth), s.556

Income Tax and Social Services Contribution Assessment Act 1936 (Cth), s.221P

Companies (NSW) Code

Australian Insolvency Management Practice 50-820

Business Law Education Centre Workshop paper, "Advanced Insolvency Law and Practice

Nationwide News Pty Ltd v Samalot Enterprises Pty Ltd (No. 2) (1986) 5 NSWLR 227; 10 ACLR 748

Hall v Nominal Defendant [1966] HCA 36; (1966) 117 CLR 423

Licul v Corney (1976) 50 ALJR 439

Carr v Finance Corporation of Australia Ltd (No. 1) [1981] HCA 20; (1981) 147 CLR 246

Smith v Cowell (1880) QBD 75

Re Stockton Iron Furnace Company (1879) 10 Ch D 335

Pheysey v Pheysey (1879) 12 Ch D 305

Re Compton; Norton v Compton (1884) 27 Ch D 392

Re Crosley; Munns v Burn (1887) 34 Ch D 664

Re Pannowitz; ex p Wilson (1975) 6 ALR 287

Re Lewis; Lewis v Williams (1885) 31 Ch D 623

Pedler v Hunters Hill Municipal Council (1976) 2 NSWLR 411

Sanofi v Parke Davis Pty Ltd [1982] HCA 9; (1982) 149 CLR 147

Batten v Wedgwood Coal and Iron Company (1884) 28 Ch D 317

Re Massey; In re Freehold Land and Brickmaking Company (1870) LR 9 Eq. 367

Re Asiatic Electric Co Pty Ltd and Companies Act (1970) 2 NSWR 612

WT and ME Peterie (1979) 1 NSWLR 708

ANMI v Williams (1981) 36 ALR 171

Re Audley Hall Cotton Spinning Company (1868) LR 6 Eq 245

Re Application of Central Commodities Services Pty Ltd (1984) 1 NSWLR 25

Bernard v Davies (1862) 32 LJ Ch 41

Bank of NSW v Federal Commissioner of Taxation [1979] HCA 64; (1979) 145 CLR 438

Re Bridal Centre Co (1985) 59 ACTR 1

Jennings v Mather (1902) 1 KB 1

Boehm v Goodall (1911) 1 Ch 155

Re Beni-Felkai Mining Co Ltd (1934) Ch 406

Vacuum Oil Co Pty Ltd v Wiltshire [1945] HCA 37; (1945) 72 CLR 319

Hewett v Court [1983] HCA 7; (1983) 149 CLR 639

HEARING

CANBERRA
22:3:1991

Counsel for the appellant: Mr B. Meagher

Instructing solicitors: Messrs Meyer Boettcher and Clapham

Counsel for the respondent: Mr D. Grieve QC with Mr G. Raffell

Instructing solicitors: Messrs Sly and Weigall

ORDER

The appeal be upheld.

The orders of the Master of 23 November 1990 be set aside.

The provisional liquidator pay to the liquidator forthwith the whole of the funds of the company in his trust account.

DECISION

R. and G. Shelley Pty Ltd ("the Company"), was ordered by this Court to be wound up on 3 September 1990. The petition was dated 15 August 1990. Barry Anthony Taylor was appointed liquidator. Earlier, on 23 July 1990, the Supreme Court of New South Wales had appointed Kevin Richard Shirlaw to be provisional liquidator of the Company on the application of the Company.

2. The Company was incorporated in the Australian Capital Territory on 27 March 1981. As trustee of the Shelley Family Trust, it carried on a building and civil engineering business. It undertook work in both New South Wales and the Australian Capital Territory.

3. On 3 September 1990, the Company applied to have the winding up proceedings in this Court struck out as "oppressive, an abuse of process, frivolous or vexatious" or requiring leave under s.371 of the Companies Act 1981 (Cth).

4. The Master granted that leave and made the orders sought by the ACT creditor.

5. On 23 October 1990, the Company, now under the control of the liquidator, applied for an order that the provisional liquidator deliver up $175,000.00 he was holding and pay the liquidator's costs of the application. The provisional liquidator claimed "an equitable lien" over those funds. He relied on the decision of McLelland J. in Nationwide News Pty Ltd v Samalot Enterprises Pty Ltd (No. 2) (1986) 10 ACLR 748, 751; 4 ACLC 386; 5 NSWLR 227. The equitable lien was, it was claimed, to secure payment to the provisional liquidator of his fees and expenses.

6. The provisional liquidator applied on 12 November 1990 for a declaration supporting the existence of that "equitable lien". He also sought an order enabling deduction of his fees and expenses from the retained funds. The Master has jurisdiction to deal with applications under Order 75A (Companies Act 1981 (Cth)).

7. On 15 November 1990 the Registrar approved the fees of the provisional liquidator. These totalled $96,466.20 (plus legal costs to be taxed).

8. On 23 November 1990, the Master dismissed the Company's application of 23 October 1990. Effectively, the provisional liquidator was given liberty to deduct the approved remuneration and expenses from the fund held by him. The Master was of the opinion that the provisional liquidator had an equitable lien. As a result he was not an "unsecured" creditor. Accordingly, the priorities set out in s.441 of the Companies Act 1981 (Cth) ("the Act") had no application. The entitlement of the provisional liquidator to remuneration is recognised by s.373(2) of the Act. It followed, in the Master's opinion, that the provisional liquidator was entitled to make the deduction he claimed before accounting for the balance to the liquidator.
Competence of Appeal

9. A preliminary question arises as to whether an appeal lies to a single judge from the orders of the Master which have been made the subject of challenge in the proceedings before me. I have no doubt that the Master had jurisdiction to deal with applications to the court under the Act and Order 75A. It follows that the only question is whether the orders made by the Master were made pursuant to an "interlocutory judgment" or any other judgment. If the latter rather than the former, the appeal is to a court of three judges rather than one judge. (See s.8AAA(2), Australian Capital Territory Supreme Court Act 1933 (Cth) ("ACTSCA").)

10. The term "judgment" includes any order (s.5, ACTSCA). The issue, therefore, is whether the orders made by the Master on 23 November 1990 were "interlocutory".

11. Where a right of appeal is conferred, it would be helpful if the competence of the appeal was readily discernible to avoid sterile and time-wasting arguments concerning that issue, particularly when the argument is as to the composition of the appellate tribunal only. It may be different if the question was whether there was any right of appeal at all. Then the resolution of a question of competence would end the litigation. Here there is an appeal. The only question is whether it is to be before one judge or three. If the latter, the proceedings before me have been a waste of time and resources.

12. To decide whether an order is "interlocutory" or "final" depends, it is said, on the nature and legal effect of the orders made. (See Hall v Nominal Defendant [1966] HCA 36; (1966) 117 CLR 423; Licul v Corney (1976) 50 ALJR 439; Carr v Finance Corporation of Australia Ltd (No. 1) [1981] HCA 20; (1981) 147 CLR 246.)

13. However, the real difficulty lies in identifying the lis or matter in issue against which that effect is to be measured. As Taylor J. noted in Hall v Nominal Defendant (supra) (440), an order, whether final or interlocutory, usually "concludes the fate of the particular application in which it is made" but, if made in the course of a particular action or suit, may not conclude the rights of the parties thereto inter se. He also noted that an order may be interlocutory even if "made after the conclusion of proceedings in the action" (440).

14. There are thus two characteristics of an "interlocutory" as opposed to a "final" order. First, the order itself must not be provisional and second, it must decide the principal action or proceeding and not merely be a step on the way thereto however irrevocable that step may be.

15. The orders made by the Master are certainly not provisional orders. The question is whether they should be regarded as a step towards the end of the winding up of the company or whether they finalise a discrete action or proceeding even though relevant to that winding up.

16. In Smith v Cowell (1880) 6 QBD 75, a judgment creditor applied to have a receiver appointed to liquidate the debtor's right to an interest in land. It was held that the order made was "interlocutory". It was however, an application ancillary to the action or proceeding in which the judgment was obtained.

17. By contrast, in Re Stockton Iron Furnace Company (1879) 10 Ch D 335, a declaration that a sale of assets by a liquidator bound the mortgagees was held, on a successful appeal there from, not to be "interlocutory".

18. In Pheysey v Pheysey (1879) 12 Ch D 305, an administratrix in the course of administration of an estate incurred a trade debt. The creditor sued for it, and seized assets of the estate in execution. The Sheriff interpleaded. An order was made in the administration of the estate refusing the creditor's claim.

19. James L.J. said at p 306:-
"It appears to me that this was pre-eminently an

interlocutory order. The order was made in a suit
instituted for the purpose of dealing with the testator's
estate, which must be cleared from all claims before the
final order on further consideration can be made."

20. However, in Re Compton; Norton v Compton (1884) 27 Ch D 392, an order rejecting a creditor's claim in the course of administration of a deceased estate was held to be a final order. In Re Crosley; Munns v Burn (1887) 34 Ch D 664, an order allowing such a claim was held also to be a final order.

21. The apparent conflict with Pheysey v Pheysey (supra) seems to me to be explicable by reference to the brief judgment of Lindley L.J. in Re Compton (supra) (394) "I look on a summons such as this as an action under another form." (See also Re Pannowitz; ex p Wilson (1975) 6 ALR 287.)

22. In other words, if the order is seen as a step in the course of finalising the administration of the estate it is interlocutory, but if it is a discrete action or proceeding in itself, the order disposing of that discrete action will be "final".

23. In Re Lewis; Lewis v Williams (1885) 31 Ch D 623, accordingly, an order directing taxation of a claim for costs and the application of funds out of the estate to a particular debt and such costs in a particular order was held interlocutory. Such an order is more obviously ancillary to the administration proceedings than, say, an action by the executor to recover a debt due to the estate.

24. The above cases illustrate the point made by Windeyer J. in Hall v Nominal Defendant, (supra) where he said (at p 443) that the most satisfactory test:-

"...is it seems to me to look at the consequences of the
order itself and to ask does it finally determine the
rights of the parties in a principal cause between them."
(my emphasis)

25. It is the legal effect of the order in question in finalising the principal cause that is important.

26. This point was made by Barwick C.J. in Licul v Corney (supra) (441),

"To be final..., the order, in my opinion, must of its own
force put an end to the action or proceeding between the
parties. It is not enough, in my opinion, that by reason
of circumstances unconnected with and uncontrolled by the
order itself, it may be or become impossible or
impracticable to succeed in this action."

27. Thus orders setting aside service of summonses even where it may be impossible to re-issue and re-serve the summonses, so that the cause sued upon will fail, are still interlocutory orders.

28. It follows, therefore, that where the order in question is not characterised as "interlocutory" because it is merely provisional (for example, application for leave to appeal which may be renewed), the characterisation of the order as "final" or "interlocutory" will depend on the relationship of that order to the principal proceeding with which it is associated and the legal effect on those proceedings of that order. (See also Pedler v Hunters Hill Municipal Council (1976) 2 NSWLR 411; Carr v Finance Corporation of Australia Ltd (No. 1) (supra); Sanofi v Parke Davis Pty Ltd [1982] HCA 9; (1982) 149 CLR 147.)

29. It seems to me that the Master's orders herein are orders inextricably part of and ancillary to the winding up proceedings. Whilst action by a liquidator to recover company property from a stranger may well involve discrete proceedings resulting in "final" orders relative to those proceedings, the present case is, I think, different. I have no doubt that a claim by a liquidator or provisional liquidator to be paid is ancillary to and part of the winding up. The question in this case, effectively, is as to the manner in which, and the property out of which, and when, the provisional liquidator is to be paid. Orders dealing with those questions are, I think, interlocutory. They are ancillary to, and their decision is directed towards, effecting the winding up.

30. It follows that this appeal is competent and I so rule.
Existence of "Equitable Lien"

31. Apart from equity, liens may be created by common law or statute. In essence, a legal lien involves the right to retain, in specie, the property of another until the lawful claims of the possessor are met. It is a right in rem (see Halsbury's Laws of England (4th Ed) V 28 par 501, et seq; "The Law of Securities", Sykes, (4th Ed) p 26). The legal lien depends on possession. It may be lost by the voluntary surrender of possession (Halsbury op. cit. pars 522, 523).

32. An equitable lien does not depend on possession. It is really a right to have a claim satisfied out of certain property, for example a trustee out of trust property (Halsbury op. cit. pars 503, 504, 551).

33. The provisional liquidator says in effect, that it is inequitable for the liquidator to obtain possession of the funds he, the provisional liquidator, holds without satisfying the entitlement of the provisional liquidator to be paid out of the property of the Company.

34. There is no doubt that if such an equitable lien exists, it exists whether or not the provisional liquidator or the liquidator has possession of the property of the Company or any part of it. The holder of an equitable lien is a "secured" creditor within the meaning of the Bankruptcy Act 1966 (Cth) and the Companies Act 1981 (Cth) as against those persons in respect of whom the debt has priority. (See Sykes, op. cit. p 850-852.)

35. Thus far the law is not in doubt. The question is whether the Master was right in law in holding that viz-a-viz the liquidator, the provisional liquidator enjoyed such a right as against the liquidator. That question depends on the state of the law prior to the relevant statutory provision and also the effect of that provision.

36. In Batten v Wedgwood Coal and Iron Company (1884) 28 Ch D 317, debenture holders sought to enforce a debenture deed against the trustees of the deed and the company. They appointed a receiver and manager. The business of the company was carried on for a time after which its assets were sold.

37. Pearson J. expressed surprise at the dearth of authority, (a frequent lament of judges). He said, however, at p 323,

"...the rule has always been to pay the receiver before
distributing the estate."

38. In that case, the receiver was also the liquidator. The costs of the liquidator had nevertheless also to be accorded a priority as against the costs of the receiver. As to that, Pearson J. said at p 325:-

"The property must be realized by someone in order that it
may be distributed, and whoever has realized it and brought
the proceeds under the control of the Court, has really
constituted the fund which has to be distributed for the
benefit of the receiver and everyone else who is entitled.
These costs must therefore be paid in priority to the
receiver."

39. Orders for the distribution of the fund were made accordingly. It may be noted that no question of a lien arose. Both the receiver and the liquidator were officers of the Court appointed to perform their functions. The fund was under the direction and control of the Court. It was the order of the Court, as to what was fair and equitable, that determined the order of priority of payment out of the fund.

40. Similarly, in the case of In re Massey; In re Freehold Land and Brickmaking Company (1870) LR 9 Eq 367, Lord Romilly MR was obliged to adjudicate on the question of the priority between the liquidator and the solicitor the liquidator had engaged to assist in the winding up. It was pointed out that no question of "lien" arose at all. At p 368 he said:-

"A question of lien only arises where someone can put the
fund in his own pocket, and there is no such person here.
The fund in Court is applicable to pay the costs of the
winding up and the remuneration of the official liquidator,
but the official liquidator cannot get any remuneration
until all the costs of the winding up are paid."

The "lien" was, of course, a reference to a legal lien.

41. That is contrasted with a situation where the solicitor had received the proceeds of an action and had to account for them to the liquidator. There is then, of course, a legal lien known as a solicitor's lien.

42. The Court ruled, at p 369, that the order of priority was as follows:-

"...in the first place the costs of the petition for
winding up are to be paid out of the assets, next the costs
of the winding up, and then the remuneration of the
official liquidator; but no remuneration can be given
until all the costs of the winding up are paid, including
the costs of any provisional liquidator who may have been
properly appointed."

This latter case seems to affirm the proposition that, where a court controlled fund is concerned, the question is as to what is fair and just, rather than of any equitable lien in favour of any party. However, it also supports the view that before legislative intervention, the Court of Chancery had adopted a practice which (after secured creditors) afforded priority to a provisional liquidator as against a liquidator. The costs and expenses of the winding up, of which the costs of the provisional liquidator formed part, would have priority (unless the Court ordered otherwise), over the remuneration of the liquidator. That right or expectation could be described as an "equitable lien", referring to the expectation of a provisional liquidator of payment out of the fund constituted by the assets of the company in priority to the liquidator.

43. In the Companies Act 1961 (NSW), a predecessor of the present legislation, s.292 laid down an order of priority after satisfaction of secured creditors. In Re Asiatic Electric Co Pty Ltd and Companies Act (1970) 2 NSWLR 612, Street J. noted that s.292(10) was not intended to cut down the prior right of any secured creditors. That sub-section empowered the Court to give priority to the unsecured creditors who had indemnified the liquidator against the cost of recovering or protecting assets of the company. Its equivalent in this Territory was s.292(9) Companies Ordinance 1962.

44. The liquidator's remuneration was dealt with in s.292 (1)(a) of that Ordinance. Effectively, the costs and expenses of the winding up, which would include a provisional liquidator's remuneration, and the liquidator's remuneration, ranked equal first after secured creditors (see s.292(1) and (2)). Thus, where a winding up order had been made, s.292 effectively changed the priority previously given to a provisional liquidator as against a liquidator.

45. Rule 200 of the Companies Rules 1968 (NSW) provided for the ranking of claims for costs and expenses of the winding up in cases to which s.292(2) had no application. Section 292(1)(a) and (2) provided only for equal ranking of

"costs and expenses of winding up ... the remuneration of
liquidator and the costs of any (s.281) audit..."

Sub-rule (4) of rule 50 provided that the provisional liquidator (subject to the Act and to any order of the court) was entitled to be paid his remuneration and expenses. It further provided:-

"The provisional liquidator shall have a charge upon the
company's assets until the same has been paid."

The meaning of Rule 50(4) was considered in Re WT and ME Peterie (1979) 1 NSWLR 708. Its validity was not challenged. Section 292(2) of the New South Wales Act, unlike the ACT Ordinance, gave no internal priority to the expenses referred to in s.292(1)(a). Accordingly, Rule 50(4) gave detailed consideration to such priorities. It did not refer to the remuneration of a provisional liquidator in the context of those priorities. Needham J. concluded that Rule 50(4) gave first priority to the provisional liquidator's remuneration and expenses by the device of giving him or her a charge on the assets of the company thus taking the claim outside s.292(1).

46. It may be noted that in that case, there was not the slightest suggestion that the provisional liquidator would get a greater priority as a result of the "charge" than if his or her claim ranked first in the costs and expenses of the winding up. That is, the charge secured the priority accorded by the Act.

47. In ANMI v Williams (1981) 36 ALR 171, Powell J. (200-201) referred to

"the basic proposition that a liquidator, whether appointed
by the creditors, or the court, is but the agent of the
company to wind-up its affairs..., and an agent whose
remuneration and costs - being part of "costs and expenses
of the winding up" within the meaning of s.292(1)(a) of the
Companies Act 1961 - are entitled to share in a first
charge on the assets of the company."

Reference is made in the latter context to Re Massey (supra) and In re Audley Hall Cotton Spinning Company (1868) LR 6 Eq 245.

48. None of these cases suggest that any "lien" exists to secure the "first charge" that the costs and expenses of the liquidation enjoy as against any but those debts ranking lower in priority. It further appears that the priority itself is a creature either of practice of the Court of Chancery or of statute subsuming and declaring that practice or an alteration of it in a statutory form.

49. In Re Application of Central Commodities Services Pty Ltd (1984) 1 NSWLR 25 Needham J. held that a receiver-manager had a right to be indemnified out of the assets of the company in receivership in priority to other claimants and parties interested in the company's property. It followed that the receiver had (26)

"...a lien for his indemnity out of the assets of the
companies."

50. It is to be noted, however, that the lien was against other claimants to whom the receiver had priority (see p 27),

"He (the receiver) has an indemnity and as such is entitled
to a lien, and that lien, as established by Bernard v
Davies (1862) 32 LJ Ch 41 and 43, covers not only his
remuneration but also his properly incurred expenses."

Thus, the first question is not whether there is a lien but whether there is a priority claim between the competing parties. If so, the party with priority may well be able to assert an equitable lien against those with lesser priority.

51. It is the 1981 Companies Act (Cth) which is applicable to the current matter, notwithstanding the enactment of the Corporations Act 1989 (Cth). Section 441 of the 1981 Act expressly provides for the remuneration and expenses of the liquidator of a company to have priority over the remuneration and expenses of a provisional liquidator. Both classes of renumeration and expenses, of course, are part of the costs and expenses of the liquidation so that the Commissioner of Taxation's priority under s.221P of the Income Tax and Social Services Contribution Assessment Act 1936 (Cth) is not presently relevant. (See Bank of NSW v Federal Commissioner of Taxation [1979] HCA 64; (1979) 145 CLR 438.)

52. In any event, s.556 of the Corporations Act 1989 (Cth) is relevantly identical with s.441 of the Companies Act 1981 (Cth).

53. The position of the provisional liquidator was considered in Re Bridal Centre Co (1985) 59 ACTR 1. A provisional liquidator had been appointed and performed certain work. Consequently, the order was discharged with the consent of the petitioners. The parties had agreed that the costs of the provisional liquidator would be paid out of the funds held by him. During the course of his appointment he had, without the court's permission, appropriated some of those funds for fees due to his accountancy firm. He sought to have this situation ratified. Kelly J. rejected the argument that the termination of the provisional liquidator's appointment terminated his right to remuneration. That right was conferred by s.232(2) of the Companies Ordinance 1962. (There are similar provisions in subsequent and current legislation.) However, although that established the right, it did not, per se, provide for the enforcement of or security for that right. His Honour noted two propositions were applicable. The first (at p 9):-

"In many cases where the petition is dismissed it would seem unjust
that the remuneration should come out of the assets of the company
and in those circumstances one would expect that those who seek the
appointment of the provisional liquidator would eventually be
responsible for his remuneration."

54. Further (on the same page), his Honour referred to O.75 r.43(4) (ACT Supreme Court Rules) which empowered the Court, subject to the Companies Ordinance 1962, to order payment of the provisional liquidator's costs out of the assets of the company in question. If so:-

"The provisional liquidator shall have a charge upon the
company's assets until the same has been paid."

The action of the provisional liquidator was an "irregularity" which his Honour, by order, adjusted.

55. This case does not illustrate more than a proposition that the Court, in the circumstances allowed for by O.75 r.43(4) (since superseded), by ordering or approving remuneration for the provisional liquidator, creates a charge on the assets of the company. However, under that Ordinance, a liquidator's claim to remuneration was less in priority to the provisional liquidator's claim. In each case, the fund in possession of any liquidator remained under the control of the Court.

56. Rules made pursuant to the Companies Act 1981 (Cth) do not provide for a "charge" to secure payments to either a provisional liquidator or a liquidator. Indeed, given the priority over all but secured creditors granted to their remuneration and the control of the Court over the property of the company, it is probably unnecessary to make such a provision. It is clear that there is no assumption that there is any sort of "lien", if any, that exists apart from or arising out of the priorities established by the legislation itself.

57. In Re Central Commodities Services Pty Ltd (supra), a receiver was appointed pursuant to the Companies (NSW) Code. The receiver sought to retain his costs and expenses out of the assets of the companies in question. Needham J. said at p 26:-

"I do not think it necessary for me to go to the
authorities in detail but merely to refer to those which
seem to me to establish the right of the receiver to a lien
for his indemnity out of the assets of the companies."

58. The authorities there cited (discussed below) establish the right of a receiver (or similar office holder) to have his or her costs and expenses, including remuneration, paid out of the assets he or she is or has been called on to administer.

59. Bernard v Davies (1863) 32 LJ Eq 41 was a case where trustees and executors of a manager of an estate sought to assert a lien. The application, in effect, was to terminate their administration of the estate. The question posed for decision was whether a lien for their expenses existed against those entitled to possession of the estate, that is, both for the deceased manager's remuneration and that of his executors. Lord Romilly MR affirmed that a manager appointed to administer an estate has, as against the appointing or acquiescing owners, a lien for his expenditure. That was of course, a private appointment. However, in the course of so doing the Master of the Rolls noted, at p 43:-

"...where a receiver or manager is appointed by the Court,
in a suit properly constituted, such manager is to be
considered as appointed on behalf of all persons interested
in the property, and he is entitled to his ordinary
commission and allowances, and also to a lien on the
estate, as against all persons interested in it, for the
balance, whatever it may be, that shall be found to be due
to him on taking his accounts."

In that case, however, no such receiver had been appointed. It may also be noted that the lien was described as being "against all persons interested" in the estate. There was a priority the receiver enjoyed over those persons which the lien then secured.

60. Jennings v Mather (1902) 1 KB 1, was a case of the appointment of a trustee pursuant to a creditor's deed. It was held he had a lien over the trust estate for his costs and expenses which lien passed to his trustee in bankruptcy.

61. Stirling L.J. noted at p 6:-

"A trustee has for his protection a right to have costs and
expenses properly incurred by him in the administration of
the trust paid out of the trust property, and the amount of
such costs and expenses constitutes a first charge upon
that property. A Court of Equity will never take trust
property out of the hands of a trustee without seeing that
such costs and expenses are reimbursed to him, and that he
is relieved from personal liability in respect of them;
and, when the legal title to trust property is vested in
the trustee, he has a right to resort to that
property, without the assistance of the Court, for the
purpose of indemnity against liabilities properly incurred
by him in the administration of the trust."

Mathew L.J. described this right to indemnity as entailing an "equitable lien on the goods (in the trust estate)."

62. In Boehm v Goodall (1911) 1 Ch 155, a court-appointed receiver and manager was held entitled to an indemnity but only against the property over which the Court had assumed control. Even though he was acting on behalf of the partners in a general sense, in the view of Warrington J., he was the agent of the Court, not the partners. His Lordship asked, at p 161:-

"Do the principles of the cases with reference to trustees
or persons standing in a fiduciary capacity apply to the
case of a receiver and manager appointed by the Court? I
cannot come to the conclusion that they do without running
counter to the decisions in all the cases relating to
receivers and managers appointed by the Court."

63. In Re Beni-Felkai Mining Co Ltd (1934) Ch 406, as Needham J. notes in Central Commodities Services (supra), Maughan J. points out that a court appointed receiver has the protection of the Court which appointed him or her which will ensure that the fund over which the Court has control is applied to the costs and expenses of such an officer.

64. That result, his Lordship concedes, rests on a "just discretion". At p 419 he states:-

"In my opinion, then, it is open to me, in the exercise of
a just discretion, the assets being insufficient to satisfy
the liabilities, to make an order as to the payment, out of
the remaining assets, if (sic) any of the costs, charges
and expenses, including the remuneration of the liquidator,
in such order of priority as the Court may think just."

65. That "just discretion" led his Lordship to conclude that the expenses incurred by the liquidator should be paid to those entitled before the latter's remuneration. That could be varied depending on the circumstances.

66. It would, of course, be open to the legislature to substitute some fixed order of priority instead of the result of that "just discretion".

67. Dixon J. noted in Vacuum Oil Co Pty Ltd v Wiltshire [1945] HCA 37; (1945) 72 CLR 319, 335 that an executor of a deceased estate has a lien over the assets thereof for his or her costs and expenses against the beneficiaries but not the creditors of the deceased. Administration creditors, however, will be included in such a lien (if validly entitled to claim against the estate). The priority of the deceased's creditors could be lost by inequitable conduct (337).

68. It is in this context that the remarks of McLelland J. in Nationwide News Pty Ltd v Samalot Enterprises Pty Ltd (No. 2) (supra) should be understood.

69. The facts of the case are also significant. A liquidator was appointed by the Supreme Court of New South Wales. It transpired that the company was in fact incorporated in this Territory. As a result, the New South Wales Supreme Court had no power to wind it up. The liquidator sought orders securing his right to remuneration. The passage which has fuelled the present controversy is as follows at 5 NSWLR, 230:-

"It cannot be suggested for instance that, if a winding up
order were made and a liquidator appointed, thus
terminating the appointment of a provisional liquidator,
the former provisional liquidator could not thereafter make
application under s.373 for determination of his
remuneration. It would make no difference to the existence
of the power that the appointment of the provisional
liquidator were terminated not by the appointment of a
liquidator but by dismissal of the winding up proceedings
as in Re North Australian Properties and Re Bridal Centre
Co or by setting aside the original order, as in Starr,
similarly so far as a liquidator is concerned, by setting
aside the original order, as in the present case or by an
order terminating or staying the winding up. Furthermore,
I have little doubt that a liquidator or provisional
liquidator who is entitled to remuneration would normally
have an equitable lien over the assets under his
administration to secure payment of that entitlement as
well as his expenses, (231) analogous to the lien to which
a court-appointed receiver is entitled: c.f. Re
Application of Central Commodities Services Pty Ltd (1984)
1 NSWLR 25. That lien would survive the termination of his
appointment."

70. Of course, as has been noted, an equitable lien does not depend either on contract or possession. It recognizes and secures a right as between the parties affected by it. (See Hewett v Court [1983] HCA 7; (1983) 149 CLR 639, 645-6 per Gibbs C.J., 653-4 per Wilson and Dawson JJ., dissenting). In Hewett v Court, (supra) Deane J. referred to the concept of "equitable lien" in the following terms (663):-

"Though called a lien, it is, in truth, a form of equitable
charge over the subject property...in
that it does not depend on possession and may, in general,
be enforced in the same way as any other equitable charge,
namely, by sale in pursuance of court order or, where the
lien is over a fund, by an order for payment thereout."
(See also 663-671.)

71. It therefore follows that if a provisional liquidator is to be regarded as having an "equitable lien" as against the liquidator, it cannot depend on the assets of the company which the provisional liquidator has under control or in possession. It can only arise because he or she is entitled to be paid in priority to the liquidator and the lien or "charge" exists to secure that right to prior payment.

72. In Nationwide News Ltd v Samalot Enterprises Pty Ltd (supra) there was no liquidator. The provisional liquidator, his appointment being terminated, would have to account to the Company for the assets under his control. There is nothing in the case which suggests that if a liquidator was appointed, the provisional liquidator would have priority for his costs and expenses as against the liquidator.

73. Both the liquidator and the provisional liquidator have priority over other creditors, save as against other "secured" creditors. By s.441 Companies Act 1981 (Cth) (now s.556 Corporations Act 1989) various categories of creditors are ranked in priority. As against those below, a creditor in a preferred class has a prior call on the assets of the company. It is certainly possible to describe that as a "charge" over the assets of the company relative to those creditors. Of course, if there is a prior charge by way of lien, mortgage or security otherwise, s.441 does not affect the priority of that security.

74. The question, therefore, is to identify the source of such priority that the provisional liquidator has. In my opinion, s.441, when it uses the term "unsecured debts" means unsecured otherwise than as a result of the operation of s.441.

75. The priority the provisional liquidator had, prior to the 1981 Act, flowed, in my opinion, from a judicial discretion subsequently limited by the 1962 Ordinance. There is no doubt that the 1981 Act further limited the order of priority as between the various categories of creditors.

76. To hold otherwise is to say that s.441 is consistent with the continuation of the priority previously accorded the costs and expenses of a provisional liquidator. That cannot be so. In a case to which s.441 applies, that is, where a winding up order has been made, the costs and expenses of the provisional liquidator are accorded second priority (s.441(a) and (b)).

77. To concede, as against the liquidator, a prior "equitable lien", simply reverses this statutory order in every case. As an "equitable lien" it depends in no way on the possession or the preservation of the assets of the company. Historically, it arose from the very priority over other otherwise unsecured creditors which s.441 now has reversed. The present order would warrant a conclusion that the liquidator has an "equitable lien" as against the provisional liquidator.

78. The previous priority and, therefore, the option of enforcing that priority by a "charge" against the assets of the company in liquidation has, rightly or wrongly, been abolished.

79. It follows that I am, regrettably, of a different opinion from the Master.

80. I was referred to the Australian Insolvency Management Practice 50-820 which in turn, referred to a Business Law Education Centre Workshop paper, "Advanced Insolvency Law and Practice. That paper suggests (p 62) that the explanatory memorandum accompanying the 1981 Act does not refer to a demotion of the provisional liquidator's previous priority over the liquidator but rather refers to giving provisional liquidators priority over official Managers. The author suggests that this reveals a mistaken impression that the provisional liquidator's lot was being improved rather than weakened.

81. If the author is right, it underlines the conclusion that the legislature did mean what it has said, even if it had a mistaken belief in doing so as to the prior situation. To decide to correct that supposed error, would be to amend the legislation. That is not a permissible course.

82. It follows that, pursuant to the Notice of Motion dated 23 October 1990 and the Notice of Appeal dated 28 November 1990 it is ordered that:

1. The appeal be upheld.
2. The orders of the Master of 23 November 1990 be set aside.
3. The provisional liquidator pay to the liquidator forthwith
the whole of the funds of the company in his trust account.

83. I will hear the parties on costs.