Background
In the decision Golden Mile Property Investments Pty Ltd (in liq) v Cudgegong Australia Pty Ltd[1], the mortgagor company, Golden Mile Property Investments Pty Ltd (Golden Mile) was deregistered under the terms of the Corporations Act 2001 (Cth) (Corporations Act).
Subsequent to that deregistration, Stacks Managed Investments Ltd (Stacks) exercised its mortgagee’s power of sale.
The New South Wales Court of Appeal considered whether a mortgagee owed a duty to a mortgagor under section 420A of the Corporations Act in circumstances when the mortgagor no longer legally existed.
Facts
On 12 August 2003, Golden Mile was incorporated.
On 5 February 2008, Golden Mile defaulted under its mortgage with Stacks.
On 22 September 2008, Stacks exercised its mortgagee’s power of sale and entered into a contract of sale (First Contract of Sale) with Cudgegong Australia Pty Ltd (Cudgegong). The settlement date for the sale was set for 1 June 2012.
Cudgegong was an entity related to Golden Mile, in that it had two common directors.
It appeared that the purchase price under the First Contract of Sale was much less than the market value of the land.
The liquidator of Golden Mile decided not to pursue any claim against Stacks in relation to the First Contract of Sale, as the view was formed that such an action would have been unlikely to extract any funds for the unsecured creditors of Golden Mile.
On 21 April 2012, Golden Mile became deregistered, as ASIC was of the view that Golden Mile had been fully wound up.
On 21 June 2012, in anticipation that the land would be compulsorily acquired by Transport NSW for the purpose of the North West Rail Link, Stacks and Cudgegong entered into two agreements:
It appeared that the purchase price under the Second Contract of Sale was much less than the market value of the land.
Stacks subsequently received compensation monies from Transport NSW when it compulsorily acquired the land.
At the time of compulsory acquisition, Cudgegong was not the registered proprietor of the land due to the extended settlement date of the Second Contract of Sale. Because of this, Golden Mile was still noted as the registered proprietor on the certificate of title of the land.
Section 420A
Section 420A of the Corporations Act provides that when a controller (which includes a mortgagee) exercises its power of sale in respect of property that has a market value, the controller must take reasonable care to sell the property for not less than the market value.
The judgment of Emmett JA (with Macfarlan JA and Gleeson JA concurring)
It was held that the fact that a mortgagor does not know about the breach of section 420A by a mortgagee does not mean that no breach has occurred under the section (at paragraph 88).
The fact that a deregistered mortgagor cannot bring proceedings to restrain the mortgagee’s exercise of its power of sale does not mean that there is no duty owed by the mortgagee to the deregistered mortgagor under section 420A (at paragraph 88).
Whether section 420A was breached in the sale of the land from Stacks to Cudgegong was relevant to whether Golden Mile had a superior proprietary interest in the land as against Cudgegong at the time at which it was acquired by Transport NSW (at paragraph 108).
If Stacks had breached section 420A, then Golden Mile may have had a superior proprietary interest in the land as against Cudgegong at the time of acquisition, by virtue of the contract of sale being impugned by Stacks’ breach of section 420A (at paragraph 109).
Orders were made that the appeal be allowed and that the matter be remitted to the lower court (at paragraph 119).
Lavan Legal comment
A controller of property formerly by a deregistered corporation must still comply with section 420A of the Corporations Act regardless of the fact the mortgagor has no legal capacity.
Having found that section 420A applied to Stacks, the question of whether it actually breached the section was remitted to the lower court. Lavan Legal continues to watch this space.
[1] Golden Mile Property Investments Pty Ltd (in liq) v Cudgegong Australia Pty Ltd [2015] NSWCA 100
