When receivers and managers are appointed to a company they are expected to collect and realise all the assets of the company. There will often be funds held in a bank account in the name of the company. These funds may belong to the company or a third party. Sometimes it is not clear who is entitled to the funds in the bank account. In this situation the receivers can apply to the court under s424 for directions and a declaration that the moneys held in the bank account belong to the company and are, therefore, within the scope of the charge under which the receivers were appointed.
In Webster (recs and mgrs apptd) (admins apptd) v Fernandez  FCA 82 the receivers and managers applied to the court for directions and a declaration that funds held in an account at the National Australia Bank (nab) at the time of their appointment were charged property and that they were entitled to the funds. Dodds‑Streeton J ordered that a former administrator of the company be joined as a defendant to the proceeding and that the parties file and serve written submissions so that a decision could be made ‘on the papers’ without the need for oral argument.
Mr Fernandez, the former administrator of the company, based his defence to the receivers’ claim on a number of grounds. Firstly, he alleged that the money in the nab account was subject to a statutory lien or an equitable lien in his favour and this security interest took priority over the claims of the receivers to the charged property. Secondly, Mr Fernandez alleged that the money in the nab account represented the proceeds of sale of certain real property (the Bombala Land) that was excluded from the scope of the charge under which the receivers were appointed.
Dodds-Streeton J at  had no difficulty in finding that the moneys in the nab account were charged property under the terms of the Deeds of Appointment of the receivers. The proceeds of sale of the Bombala Land were specifically excluded from the scope of the charge, but the proceeds of sale of the Bombala Land could not be traced into the money in the nab account. When the floating charge crystallised into a fixed charge upon the receivers’ appointment they were entitled to immediate possession of the moneys in the nab account.
Under s443D of the Corporations Act 2001 (Cth) an administrator has a right of indemnity for certain debts and liabilities and for their remuneration. This right of indemnity is secured by a statutory lien on the company’s property under s443F(1). The administrator’s statutory lien has, subject to s556, priority over the company’s unsecured debts (s443E(1)(a)). It also has priority over debts secured by a floating charge if the floating charge crystallises during the administration in one of the ways specified in s449E(3)(b) (usually by the appointment of a receiver) but only in relation to debts incurred, or remuneration accruing, before written notice of the appointment was given to the administrator (s444E(3)).
The administrator has no statutory priority for debts incurred, or remuneration accruing, after he receives written notice of the receivers’ appointment. Moreover, there is no priority for the administrator’s indemnity over the debts secured by a floating charge in respect of debts incurred for principal and interest and borrowing costs unless the chargee consents in writing (s443E(4)).
In Webster (recs and mgrs apptd) (admins apptd) v Fernandez  FCA 82 the chargee had not consented in writing to the administrator’s indemnity taking priority over the debts secured by the floating charge. Hence, the administrator could not rely upon his statutory lien . The administrator was, therefore, forced to rely upon an equitable lien.
An equitable lien arises by operation of law in the following circumstances.
Where a party has by his efforts brought into court a fund in the administration of which various parties are interested, his costs and expenses should be a first claim upon the fund: Shirlaw v Taylor (1991) 31 FCR 222 at .
An equitable lien also arises where a person produces outlays of incontrovertible benefit to charged property (Dean-Willcocks v Nothintoohard Pty Ltd (in liq)  NSWCA 311 at ). But the equitable lien applies only in relation to costs and expenses incurred in caring for or preserving or realising the company’s property, rather than to the costs and expenses of the administration generally.
There was no equitable lien in Webster (recs and mgrs apptd) (admins apptd) v Fernandez  FCA 82 at  because there was no evidence that the $200,000 in the nab account was related to the actions, efforts or expenditure of, or costs reasonably incurred by, the administrator in caring for, preserving or realising charged property.
In the result, the chargee was entitled to priority over the administrator in relation to the money in the bank account.
Lavan Legal comment
Webster’s case shows that generally a receiver will be entitled to enforce the chargee’s priority in respect of moneys in a bank account because these moneys fall within the charged property. However, as the moneys in a bank account are originally subject to a floating charge, an administrator can claim priority over them in respect of debts incurred, and remuneration accruing, during the administration before he receives notice of the appointment of the receivers. This is significant because companies often go into administration before receivers are appointed.
Webster’s case is a reminder that the chargee should immediately take steps to serve the administrator with a written notice of the appointment of a receiver to prevent the administrator’s statutory priority from eroding the chargee’s priority. It also highlights the fact that an administrator’s equitable lien in respect of the expenses incurred, and remuneration accruing, in collecting, preserving and realising the assets of the company for the incontrovertible benefit of the chargee ranks ahead of the chargee.
The administrator’s statutory and equitable liens will not need to be perfected by registration because they are excluded from Personal Property Securities Act 2009 (PPSA 2009) as security interests that arise by operation of law (s8(1)(c)). Nevertheless, they will still be subject to the limitations discussed in this bulletin.
Where charged property includes money that is held in a bank account at a bank other than the chargee, it may be subject to a security interest in favour of that other bank as an ADI account (see PPSA 2009, s2(2)(c)(i) and s25). This form of security interest does not need to be perfected by registration under PPSA 2009 because it is usually perfected by control. The only party who can perfect a security interest in an ADI account by control is the ADI in which the ADI account is held (s25). Other parties can perfect their security interests in the ADI account by registration, but the security interest of the ADI in the ADI account that is perfected by control trumps a security interest in the ADI account perfected by any other means.
It is not necessary for a bank to perfect a right to combine bank accounts because PPSA 2009 does not apply to this type of interest (PPSA 2009, s8(1)(d)). A right to combine accounts is not in itself a security interest (see Cinema Plus Ltd v ANZ  NSWCA 195). But when a right to combine accounts is exercised it will deprive the company of assets against which an administrator could exercise a statutory or equitable lien: Cinema Plus Ltd v ANZ  NSWCA 195 at .
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