Clearing Away the Mud: Supreme Court clarifies Vesting of Disclaimed Property

Introduction

In Re Empire Plant Hire Pty Ltd (in liq) [2021] VSC 549 ("Empire Plant"), the Supreme Court of Victoria recently considered the interesting question of when a receiver may be appointed over disclaimed property to assist in its recovery by an interested party.

Disclaim, Vest and Receive

Insolvency practitioners have multiple tools at their disposal to assist them with the task of realising, and disposing of, company assets.'  In particular, practitioners will be familiar with s.568 of the Corporations Act 2001 (Cth) ("Act"), which permits an external administrator to disclaim onerous or unsaleable property, subject to certain notice requirements. After disclaimer, the Court may make orders that the disclaimed property vest in, or be delivered to, a party who can demonstrate an entitlement to that property under s.568F of the Act.'  At law, s. 568F is somewhat awkward.'  As stated by Justice Rares in National Australia Bank Ltd v State of New South Wales [2009] FCA 1066 at [28]: "the question of where the title goes after a disclaimer is as clear as mud".'  The sensible, although unsettled, answer is: the Crown.'  Section 568F of the Act permits the Court to, in effect, relieve the Crown of its title in disclaimed property and confer it on another party with claims to it.

Empire Plant

C. Investment Enterprises Pty Ltd ("CC"), as vendor, and Empire Plant Hire Pty Ltd ("Company"), as purchaser, entered into a contract for the sale of construction equipment and materials. The equipment and materials were delivered by CC to the Company, but the Company defaulted on payment. Under the contract's terms, CC was granted a security interest in all of the Company's present and after-acquired property on an event of default. CC, owed over $2 million by the Company, proceeded to obtain a winding up order against it.'  During the subsequent liquidation of the Company, the liquidator disclaimed the equipment and materials, giving the relevant Form 525 notice. CC made an application to the Court for orders:

1. vesting the equipment and materials in CC; and
2. appointing a receiver to recover the equipment and materials situated at multiple sites across metropolitan Melbourne.

Dealing first with the vesting order, the Court concluded (albeit reservedly) that either the Commonwealth or the State of Victoria held title to the disclaimed property.'  Appropriately, CC obtained both ASIC's and the Victorian Government Solicitor's Office's confirmation that they would not intervene in the proceeding.'  Funnily enough, ASIC did not consider that the equipment and materials had vested in it at all. Having regard to CC's clear entitlement to the equipment and materials, and the Crown's apparent disinterest in them, the Court readily made orders vesting the property in CC under s. 568F of the Act. With the property vested in CC, s. 123 of the Personal Properties Securities Act 2010 (Cth) ("PPSA") operated to allow CC, as security-holder, to seize the equipment and materials by any method permitted by law.'  Unfortunately for CC, that property was dispersed throughout Melbourne at various sites under the control of third parties. Previous attempts by CC to gain access to the sites had been rebuffed.'  Accordingly, CC sought an order under s. 37(1) of the Supreme Court Act 1986 (Vic) for the appointment of a receiver to the property to assist in recovery. While the vesting order and s. 123 of the PPSA gave CC the right to seize the equipment and materials, the ' Court was sympathetic to CC's position.'  Ultimately, the Court agreed that it was appropriate to appoint an independent insolvency practitioner as receiver, experienced in recovering property, with the backing of the Court's order. In appointing the receiver, the Court tailored its orders to dispense with the requirement that the independent receiver provide security for his appointment.'  This was because any loss or damage to the property caused by the receiver would be a matter between CC and the receiver.'  The Court also granted the receiver a specific power to enter onto land, and do anything for the purpose of obtaining access to, and taking possession of, the equipment and materials.

Comment

Empire Plant illustrates the course open to secured parties to take control of collateral where it has been disclaimed by its liquidator, but is not in the possession or control of the company. Seeking the appointment of a receiver can be a practical solution to taking possession of and realising the secured property held by third parties.

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~ by' Mark Pennini,' Associate