The Corporations Act has different requirements for “controllers” and “receivers” – notably the requirement that all receivers be registered liquidators (and thus subject to the regulatory regime that keeps them all on the straight and narrow). This requirement is found in section 418(1)(d).

Because of their high level of training, specialist expertise, compliance and insurance requirements and general air of nobility, receivers do not come cheap. For this reason, secured creditors are occasionally tempted to appoint a less qualified person as a “controller” instead of appointing a receiver. The Act still regulates controllers, but less stringently.

Recently, the Victorian Supreme Court handed down a judgment that makes it clear that if you are really being appointed as a receiver, you cannot escape the more stringent regulatory requirements by terming yourself a controller.

 

The facts

In Yarrawonga Earthmoving & Garden Supplies Pty Ltd v Clem Court Pty Ltd [2014] VSC 439, Clem Court was the secured creditor of Yarrawonga pursuant to a deed of charge which gave Clem Court security over everything Yarrawonga owned or, as Clem Court’s lawyers described it, “the whole of its undertaking and assets whatsoever and wheresoever both present and future”.

Yarrawonga defaulted in its obligations and Clem Court appointed a receiver (a real one). However, a couple of months later, they unappointed him, and instead installed Mr Viney as “controller” in his place.

Mr Viney was not a registered liquidator. This did not escape Yarrawonga, which approached the court and sought a declaration that he was not validly appointed.

Clem Court responded that Mr Viney was a “controller”, not a “receiver”, so he did not need to be a registered liquidator.

 

The decision

Clem Court argued that, in the appointment document and the ASIC form, they quite clearly said Mr Viney was a controller, not a receiver.

However Yarrawonga contended – and the court accepted – that it does not matter what the parties say. Rather, the court will look at the substance of the appointment.

Analysing the differences between “receivers” (who must be registered liquidators) and “controllers” (who need not be registered) the court observed:

• whether or not a controller is really a receiver in any given case does not depend on what box is ticked on the ASIC form, nor how the deed of appointment describes the appointment;
• rather, it depends on how much of the company’s property is involved, and the terms of the security agreement (as distinct from the appointment document).

As to the “how much property is involved” point, the court noted that the Australian Law Reform Commission had suggested:

…that corporations legislation should only seek to regulate receivers of the whole, or substantially the whole, of the property of a company.

The distinction between controllers and receivers should be understood in that context. The court noted that the purpose of requiring receivers to be registered liquidators was to ensure the interests of all creditors are at front of a receiver’s mind, and pointed out that this was all the more important if someone was appointed to all of the available property, rather than just a single asset.

In the circumstances, it was not expected that someone would be appointed as “controller” of everything a company owned – that job was intended for receivers. Controllers were really meant to seize and sell specific items.

However, of more importance to the court’s decision was the wording of the security agreement itself. The court found that:

…the Charge speaks of the ‘appointment of a receiver’. It sets out extensively the powers of the receiver and provides for the application of moneys received by any receiver. The scope of powers of the receiver set out in the Charge is consistent with those powers granted to receivers under s 420 of the Act.

In those circumstances the court determined that, although Clem Court had called Mr Viney a “controller”, he was really a “receiver”. Given that finding, and the undisputed fact that Mr Viney was not a registered liquidator, the court declared that his purported appointment was invalid from the outset.

 

Take-home points

Sometimes, it will be to a secured creditor’s advantage (particularly in terms of minimising costs overheads) to appoint an unqualified person as “controller” of a secured asset, rather than to appoint a properly qualified receiver.

This case shows us that there are limitations on when this can occur.

If secured creditors or practitioners are ever in doubt about whether or not a “controller” or “receiver” should be appointed in a particular case, legal advice should be sought from recognised experts in this field.