Shirlaw v Taylor

[1991] FCA 531

Re: KEVIN RICHARD SHIRLAW
And: BARRY ANTHONY TAYLOR
No. G163 of 1991
FED No. 531
Corporations - Taxation - Equity
91 ATC 4768 (extracts)
5 ACSR 767/22 ATR 533/102 ALR 551
(1991) 31 FCR 222

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Sheppard(1), Burchett(1) Gummow(1) JJ.

CATCHWORDS

Corporations - provisional liquidation followed by liquidation - assets gathered in by provisional liquidator - whether the costs charges and expenses of the provisional liquidator may be recouped from those assets - whether secured by equitable lien - whether deferred to rights of liquidator under his statutory priority and to the rights of the Commissioner of Taxation under s. 221P of the Income Tax Assessment Act 1936 ("the Act").

Taxation - priority given by s. 221P of the Act - whether ranked before the equitable lien of provisional liquidator of the taxpayer.

Equity - equitable lien - may arise other than from contractual dealings - court appointed administrator of a fund - whether lien arises for costs charges and expenses of the administration.

Income Tax Assessment Act 1936

Federal Court of Australia Act 1976

Companies Act 1981

Companies Act 1961 (N.S.W.)

Companies Ordinance 1962

Supreme Court Rules (N.S.W.)

Companies Rules 1968 (N.S.W.)

Rules of the Supreme Court of the Australian Capital Territory

Companies (Queensland) Rules 1985

Victorian Supreme Court (Companies and Securities) Rules 1985

Companies (Western Australia) (Transitional Provisions) Rules 1982

Rules of the Supreme Court of Tasmania

Rules of the Supreme Court (Companies Transitional Provisions) 1982 (Tas.)

The Companies Act 1862 (25 and 26 Vic., c. 89, (Imp))

Ayerst (Inspector of Taxes) v C. and K. (Construction) Ltd (1976) AC 167

Re Laverton Nickel N.L. and the Companies Act (1979) 3 ACLR 945

Re Joseph Phillips Ltd (1964) 1 All ER 441

Garden Mews-St Leonards Pty Ltd v Butler-Pollnow Pty Ltd (No. 4) (1984) 2 ACLR 682

Re W.T. and M.E. Peterie Pty Ltd (In Liq.) and The Companies Act (1979) 1 NSWLR 708

Hewett v Court (1982) 149 CLR 639

In re Pumfrey The Worcester City and County Banking Company v Blick (1883) 22 Ch D 255

In re Beddoe Downes v Cottam (1893) 1 Ch 547

Octavo Investments Proprietary Limited v Knight (1979) 144 CLR 360

Batten v Wedgwood Coal and Iron Company (1885) 28 Ch D 317

In Re Universal Distributing Company Limited (In Liquidation) (1933) 48 CLR 171

Calverley v Green (1984) 155 CLR 242

Muschinski v Dodds (1985) 160 CLR 583

Tancred v Delagoa Bay and East Africa Railway Co. (1889) 23 QBD 239

In re The General International Agency Company (Limited) (1865) 36 Beav 1; 55 ER 1056

Skip v Harwood (1747) 3 Atk 564; 26 ER 1125

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

Moodemere Pty Ltd (In Liquidation) v Waters (1988) VR 215

Clark Equipment Credit of Australia Ltd v Como Factors Pty Ltd (1988) 14 NSWLR 552

Bertrand v Davies (1862) 31 Beav 429; 54 ER 1204

Scott v Nesbitt (1808) 14 Ves Jun 438; 33 ER 589

In the Matter of Tharp (1852) 2 Sm and Giff 578; 65 ER 533

In re Berkeley Applegate (Investment Consultants) Ltd (In Liquidation)

Harris v Conway (1989) Ch 32

Nationwide News Pty Ltd v Samalot Enterprises Pty Ltd (1986) 5 NSWLR 227

Nationwide News Pty Ltd v Almona Pty Ltd (1987) 6 ACLC 84

Booth v Thomson (Provisional Liquidator of Highland Engineering Limited) (1972) SLT 141

Morrison v Morrison (1855) 2 Sm and Giff 564; 65 ER 527

In re Beni-Felkai Mining Company, Limited (1934) Ch 406

Re Obie Pty Ltd (1985) 1 Qd R 464

Deputy Commissioner of Taxation v Access Finance Corporation Pty Ltd (1987) 8 NSWLR 557

HEARING

SYDNEY

#DATE 2:9:1991

Counsel and solicitors Mr D.E. Grieve QC and
for the appellant: Mr G. Raffell instructed by

Messrs Sly and Weigall

Counsel and solicitors Mr I.v Gzell QC and
for the respondent and Mr B. Meagher instructed by
for the Australian Messrs Cutler, Hughes and Harris
Securities Commission:

ORDER

The appeal be allowed.

The orders of Higgins J. made 22 March 1991 be set aside, and in lieu thereof the declarations set out in the Schedule hereto be made.

The respondent pay the costs of the appellant of the appeal and of the proceedings before Higgins J.

The order of the Master made 28 November 1990 as to the costs of the proceedings before him be restored.

THE SCHEDULE

(1) The appellant has an equitable lien upon the funds in his

trust account in respect of the provisional liquidation of R. and G. Shelley Pty Limited (In Liquidation), for the payment to him of the sum of $96,466.20, together with his taxed legal costs.

(2) The respondent is entitled as the liquidator of R. and G.

Shelley Pty Limited (In Liquidation), after satisfaction of the said equitable lien, to have any balance remaining in the said trust account accounted for by the appellant to him and paid to or at his direction.

NOTE: Settlement and entry of Orders is dealt with by Order 36 of the Federal Court Rules.

JUDGE1

This is an appeal, by leave, from a decision of a Judge of the Supreme Court of the Australian Capital Territory (Higgins J.) in which certain orders by a Master of that Court were set aside. The bench is constituted with no resident member of the Supreme Court of that Territory, but after the formation by the Chief Justice of the necessary opinion specified in sub-s. 25 (3) of the Federal Court of Australia Act 1976.

1. R. and G. Shelley Pty Limited was incorporated in the Australian Capital Territory ("the Territory") on 27 March 1981. As trustee of a trading trust, it carried on a building and civil engineering business both in the Territory and in the State of New South Wales. On 23 July 1990, acting, it appears, under the cross-vesting legislation and on the application of the company, the Supreme Court of New South Wales appointed the appellant to be provisional liquidator of the company. Pursuant to sub-s. 372 (2) of the Companies Act 1981 ("the 1981 Act") the provisional liquidator had conferred upon him the powers specified in paras. (a) - (k) thereof.

2. On 3 September 1990, upon a creditor's petition dated 15 August 1990, the Supreme Court of the Territory ordered that the company be wound up and the respondent was appointed liquidator. The application had been opposed by the provisional liquidator. It is common ground that this appointment brought to an end the provisional appointment of the appellant, who will, however, for convenience continue in these reasons to be called "the provisional liquidator".

3. Sub-s. 373 (2) of the 1981 Act provides that a provisional liquidator is entitled to receive such remuneration by way of percentage or otherwise as is determined by the Court. On 15 November 1990, the Registrar of the Supreme Court of the Territory approved fees of the provisional liquidator which amounted to $96,466.20, plus legal costs to be taxed. The provisional liquidator was then holding in his trust account a fund of some $175,000 received by him whilst in office. The liquidator, the present respondent, demanded that the provisional liquidator, the appellant, account to him for and deliver up to him the whole of that fund. On his part, the appellant asserted an equitable lien over the fund in respect of his costs, charges, expenses and remuneration. It should be added that upon the appeal to this Court, we admitted by consent evidence indicating a claim by the Commissioner of Taxation in the sum of $659,494 for which an absolute priority for payment is claimed pursuant to s. 221P of the Income Tax Assessment Act 1936 ("the Tax Act").

4. Cross-applications by the appellant and the respondent were heard by a Master of the Supreme Court of the Territory, and on 28 November 1990 he ordered that the appellant pay to the respondent forthwith the balance of the funds of the company in his trust account remaining after the deduction by him of the remuneration approved by the Registrar on 15 November 1990 together with his costs, charges and expenses. In effect, the provisional liquidator was thereby permitted to deduct from the fund held by him his approved remuneration and expenses. The Master was of the opinion that the provisional liquidator had an equitable lien for these sums upon the fund and that, as a result, he was a secured creditor, not an unsecured creditor, within the sense of s. 441 of the 1981 Act.

5. Unlike a sequestration order in bankruptcy, the making of a winding-up order does not effect any transfer of the legal title to the property of the company: Ayerst (Inspector of Taxes) v C. and K. (Construction) Ltd (1976) AC 167 at 177. This must certainly also be so where the liquidator has been appointed provisionally. Section 374 of the 1981 Act provides that where a winding-up order has been made, or a provisional liquidator appointed, the liquidator or provisional liquidator, as the case may be, shall take into his custody or under his control "all the property to which the company is or appears to be entitled". The section strengthens the position of a liquidator by providing that on his application, the Court may make vesting orders in respect of all or any part of the property of the company. Further, sub-s. 384 (1) empowers the Court to require the payment or delivery to the liquidator or provisional liquidator of money and property to which the company is prima facie entitled.

6. The appointment of a provisional liquidator will come to an end when a winding-up order is made and a liquidator (who may well be a different individual) is appointed. The appointment may be brought to an end by other means. The proceedings to wind up the company may be dismissed, and the provisional liquidator thereby discharged: Re Laverton Nickel N.L. and the Companies Act (1979) 3 ACLR 945 at 948. A winding-up order may be made but then discharged on appeal: Re Joseph Phillips Ltd (1964) 1 All ER 441. The provisional liquidator may be removed from office by the court before the final hearing of the winding-up application: Garden Mews-St Leonards Pty Ltd v Butler-Pollnow Pty Ltd (No. 4) (1984) 2 ACLC 682. Hence the need to provide for the payment of the costs expenses and remuneration of provisional liquidators, other than on the assumption that these outgoings inevitably will be carried across to an administration on winding-up. As will appear, that is a significant consideration for some of the issues which arise on this appeal.

7. Section 451 of the 1981 Act provides that in the event of the company being wound up, certain transactions shall be treated as void as against the liquidator; also, certain floating charges given before the commencement of the winding-up may be invalid: s. 452. Section 453 confers upon the liquidator the right to recover in respect of certain transactions to which the company was a party before the commencement of the winding-up. These provisions have the consequence, as was pointed out in argument, that the pool of assets available to the liquidator may in a given case exceed to a substantial extent the assets taken into the custody of the provisional liquidator under s. 374 or s. 384. That will be another significant consideration.

8. Section 441 sets out the order in which debts are to be paid in the winding-up of a company. But, the system of priority is therein expressed to be one only over all other unsecured debts. Special provision is made in s. 446 for the priority over certain securities of certain unsecured claims of employees, and s. 221P of the Tax Act, in some circumstances, confers a priority over secured debts. Nevertheless, the claim to security made by the provisional liquidator, if made good as the Master held it had been, would place his claims ahead of the unsecured claims listed in s. 441. The first of these, in sub-s. 441 (a) is the costs, charges and expenses of the winding-up including the remuneration of the liquidator. The effect of the orders made by the Master was to put the provisional liquidator ahead of the liquidator on the footing that the former was a secured, not an unsecured, creditor.

9. Higgins J. held that the orders made by the Master were pursuant to an interlocutory judgment with the result that an appeal lay to him as a single Judge, rather than to a Court of three Judges of the Territory Supreme Court. On 22 March 1991, Higgins J. ordered that the appeal by the liquidator be upheld, and that the orders of the Master be set aside. The respective rights and obligations of the liquidator and the provisional liquidator were adjudicated, not by a declaratory order, but by relief in the nature of a mandatory injunction. Higgins J. ordered that the provisional liquidator pay to the liquidator forthwith the whole of the funds of the company in the trust account of the provisional liquidator. His Honour held that the only priority for the claims of the provisional liquidator was that provided in s. 441 and, in particular, that there was no equitable lien arising in his favour which put him ahead of the unsecured claims listed in s. 441.

10. The first two of the nine paragraphs in s. 441 of the 1981 Act are in the following terms:
    

"441 Subject to the following provisions of this Subdivision, in the winding up of a company the following debts shall be paid in priority to all other unsecured debts:

(a) first, the costs, charges and expenses of the winding up, including the taxed costs of an applicant payable under section 366, the remuneration of the liquidator and the costs of any audit carried out under s. 422;

(b) if the winding up was preceded by the appointment of a provisional liquidator - second, the costs, charges and expenses properly and reasonably incurred by the provisional liquidator during the period of his appointment and the remuneration of the provisional liquidator;

. . ."

Section 444 provides that debts of the one class are to rank equally. It does so in these terms:

"444 After provision is made for the costs, charges and expenses referred to in paragraph 441 (1) (a), the debts of a class referred to in each of the remaining paragraphs of sub-section 441 (1) rank equally between themselves and shall be paid in full, unless the property of the company is insufficient to meet them, in which case they shall be paid proportionately."

Higgins J. directed attention to the second ranking priority conferred upon a provisional liquidator by para. 441 (b), and held that, in the face of that paragraph, to treat the provisional liquidator as entitled to an equitable lien over funds in his hands would be to place him ahead of the first ranking priority conferred upon the liquidator by s. 441 and thereby to subvert the statutory order.

1. Section 540 of the 1981 Act conferred upon the National Companies and Securities Commission ("the NCSC") the right to intervene and to appear by counsel in any legal proceeding relating to a matter arising under the 1981 Act; upon so intervening, the NCSC became a party to the proceeding with all the rights, duties and liabilities of such a party. This right was exercised by the NCSC in the present proceeding when it was before the Master. Before Higgins J. and this Court, counsel appeared for the Australian Securities Commission ("the ASC") and the ASC's legislative entitlement to do so as successor to the NCSC was not disputed.
   The Submissions of the Parties

2. It is necessary first to refer to some legislative history.

3. In the Territory, the 1981 Act was preceded by the Companies Ordinance 1962 ("the Ordinance"). The Ordinance, together with the Companies Act 1961 (N.S.W.) and corresponding legislation in the other States, was part of the first attempt at uniform companies legislation in Australia. Provision was made in s. 292 of the Ordinance for a system of priorities between unsecured debts payable in a winding-up which in some respects resembled that later found in s. 441 of the 1981 Act. Paragraph 292 (1) (a) read:
   

"292 (1) Subject to the provisions of this Ordinance, in a winding up there shall be paid in priority to all other unsecured debts -

(a) firstly, the costs and expenses of the winding-up including the taxed costs of a petitioner payable under section two hundred and twenty four of this Ordinance, the remuneration of the liquidator and the costs of any audit carried out pursuant to section two hundred and eighty-one of this Ordinance;

. . ."

But there was no provision comparable to s. 441 (b) dealing with the position of a provisional liquidator. For that, it was necessary to turn to O. 75 r. 43 (4) of the Rules of the Supreme Court of the Australian Capital Territory, which was inserted by Statutory Rule 222 of 1969. This provided:

"O. 75 r. 43 (4)

Subject to the Ordinance and to any order of the Court the provisional liquidator shall be entitled to be paid out of the property of the company all the costs charges and expenses properly incurred by him as provisional liquidator and such salary or remuneration by way of percentage or on a time basis or otherwise as may be authorised by the order appointing him or any subsequent order. The provisional liquidator shall have a charge upon the company's assets until the same has been paid."

1. In New South Wales, provision to like effect had been made by r. 50 (4) of the Companies Rules 1968 (N.S.W.). The effect of this provision and its relationship with the system of priorities specified in sub-s. 292 (1) of the 1961 legislation, was discussed by Needham J. in Re W.T. and M.E. Peterie Pty Ltd (In Liq.) and The Companies Act (1979) 1 NSWLR 708. There had been no challenge before his Honour to the validity of r. 50 (4). Needham J. noted that the rule, if valid, would make it appear that the claims of the provisional liquidator were outside sub-s. 292 (1), which applied only to unsecured debts.

2. The provisions of the Rules of the Supreme Court of the Territory dealing with cases arising under the 1981 Act are found in O. 75A. They contain no repetition of the charging provision found in O. 75 r. 43 (4). Nor do the Supreme Court Rules (N.S.W.), Part 80.

3. On the appeal the respondent submitted that there was disclosed a legislative intention in the 1981 Act (i) to abolish the status of a provisional liquidator as a secured creditor in respect of his remuneration and his costs, charges and expenses, (ii) to bring those claims within the scheme of priorities as unsecured debts, and (iii) to rank the claim of the provisional liquidator below that of the liquidator.

4. The respondent further submitted that even if the primary submission failed and under the 1981 Act the appellant was to be treated as a secured creditor standing outside sub-s. 441 (1), nevertheless that was not the end of the matter. This was because the Commissioner of Taxation had a claim under s. 221P of the Tax Act in a sum greater than the amount of the fund in the hands of the appellant, and sub-s. 221P (2) gave the Commissioner a priority over the claim of the appellant, as former provisional liquidator, whether that claim was unsecured or even secured.

5. We should add that the Commissioner of Taxation was not joined as a party in the proceedings before the Master or Higgins J., although there would have been obvious utility in his being bound by any declaration concerning the respective priorities as between him, the provisional liquidator and the liquidator. Upon the appeal, counsel for the respondent liquidator also represented the ASC and, at least in that latter capacity, drew attention to the special position given the Commissioner by s. 221P.

1. Counsel for the appellant submitted that the equitable lien asserted by his client was not subjected to any prior rights given the Commissioner by s. 221P. But the response of counsel for the respondent was that his client as liquidator now had control of the assets of the company, by virtue of the effect given to his appointment by s. 374 of the 1981 Act, and that the liquidator was a "trustee" for the purposes of s. 221P of the Tax Act. The result was said to be that the liquidator's obligation to pay the Commissioner had priority over any security held by the former provisional liquidator: sub-s. 221P (2). By agreement of counsel, we were informed that whilst not a party to the appeal, the Commissioner supported that contention.

2. On the other branch of the appeal the appellant further submitted that (i) the previous provision in O. 75 r. 43 (4) of the Rules of the Supreme Court of the Territory stating that a provisional liquidator had a charge upon the assets of the company until his proper costs, charges and expenses were paid, did no more than reflect what was already the position under the general law, (ii) the general law continued to apply in respect of provisional liquidations under the 1981 Act, and (iii) this was so notwithstanding the introduction, in sub-s. 441 (b) of a second ranking unsecured priority in favour of provisional liquidators.

3. We turn to consider the claim to an equitable lien.
   Equitable Lien

4. The most commonly encountered species of equitable lien, that of the unpaid vendor for the purchase money and that of the purchaser who has paid the vendor without obtaining a conveyance, have been said to arise only under contracts of which equity would grant specific performance. But Deane J. has expressed the view that this requirement of specific performance should not be accepted: Hewett v Court (1982) 149 CLR 639 at 664-665. Nor is it the case that a contract is necessary between equitable lienor and lienee to attract equitable intervention. The trustee's lien is an obvious example. Even though the trust has come to an end, the trustee will not be compelled to transfer the trust property to the beneficiaries until he is paid or secured for his proper expenses in administration of the trust: Scott on Trusts, 4th Ed., ss.244.1, 345.2. His right is a first charge on the trust property: In re Pumfrey The Worcester City and County Banking Company v Blick (1883) 22 Ch D 255 at 262. This is the price the beneficiaries must be prepared to pay for what Lindley L.J. called "the gratuitous and onerous services of trustees": In re Beddoe Downes v Cottam (1893) 1 Ch 547 at 558; see also Octavo Investments Proprietary Limited v Knight (1979) 144 CLR 360 at 369-370. Confirmatory provisions in the Trustee Acts of all States, that the trustee may reimburse himself or pay or discharge out of the trust property all expenses incurred in or about the execution of his trusts or powers (N.S.W. sub-s. 59 (4), Vic. sub-s. 36 (2), Qld s. 72, W.A. s. 71, S.A. sub-s. 35 (2) and Tas. sub-s. 27 (2)), have never been treated as supplanting the general law. This body of principle may suggest an analogy for the case sought to be made by the appellant.

5. In Hewett v Court, supra at 667 and following, Deane J. referred to the treatment of the subject in "Pomeroy's Equity Jurisprudence", 5th Ed., 1941. The view is there expressed (ss.1239) that in addition to equitable liens arising from contractual dealings in property, equity may raise liens based either upon general considerations of justice or upon the principle that he who seeks the aid of equity in enforcing some claim (e.g. in an administration of assets) must admit the equitable rights of others directly connected with or arising out of the same subject matter; see also Note, "Equitable Liens", (1931) 31 Col. L. Rev 1335 at 1342-1343. Thus, 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: Batten v Wedgwood Coal and Iron Company (1885) 28 Ch D 317 at 324-325; In Re Universal Distributing Company Limited (In Liquidation) (1933) 48 CLR 171 at 174-175, per Dixon J. Another illustration of these principles is provided by cases where the claim to contribution by one co-owner upon the other to recoup expenditure which benefits their joint property will be supported by an equitable lien or charge upon the undivided share of the other co-owner; see Calverley v Green (1984) 155 CLR 242 at 263 per Mason, Brennan JJ; Muschinski v Dodds (1985) 160 CLR 583 at 598 per Gibbs C.J.

6. Counsel for the appellant supported his submissions that the Rules of Court, as they applied to the 1961 legislation in the Territory and in New South Wales, did no more than reflect the general law, and that the general law survived the passage of s. 441 in the 1981 Act, by reference to various Rules of Court in the Supreme Courts of some of the other States, which were brought into force or continued after the passage of the 1981 legislation. We refer specifically, by way of example, to the Rules in Queensland and Victoria.

7. Rule 65 of the Companies (Queensland) Rules 1985 provides:
   

"65 A provisional liquidator shall, subject to any order of the Court, be entitled to be paid out of the property of the company all costs charges and expenses properly incurred by him and such remuneration as may be authorized by the order appointing him or by any subsequent order and may retain out of such property the amount of such costs charges expenses and remuneration."

The Victorian Supreme Court (Companies and Securities) Rules 1985 contain in r. 9.06 the following:

"9.06 Subject to any order of the Court a provisional liquidator shall, on accounting to any liquidator, be entitled to be paid out of the property of a company all costs, charges and expenses properly incurred by him and remuneration as may be authorized by the order appointing him, or any subsequent order, and may retain out of that property the amount of his costs, charges, expenses and remuneration."

To the same effect are sub-rule 51 (6) of the Companies (Western Australia) (Transitional Provisions) Rules 1982, and sub-rules 44 (6), (7) of Part VI of the Rules of the Supreme Court of Tasmania as continued by the Rules of the Supreme Court (Companies Transitional Provisions) 1982 (Tas.)

1. It is true that the Victorian, Queensland, Western Australian and Tasmanian rules do not state in terms that the provisional liquidator shall have a charge upon the company's assets until his entitlement has been paid. In that respect, these rules differ from r. 50 (4) of the Companies Rules 1968 (N.S.W.) and from O. 75 r. 43 (4) as introduced into the Territory in 1969. However, a right, spelled out by statute or by delegated legislation, to have a designated fund applied to the satisfaction of a debt or entitlement of a particular description bears the character of a secured right, rather than a purely personal right; see Tancred v Delagoa Bay and East Africa Railway Co. (1889) 23 QBD 239 at 242. Thus, there is force in the submission by the appellant that at least in four States, at a time when s. 441 of the 1981 legislation was in force there was not seen to be any necessary contradiction in the treatment of the provisional liquidator as having an equitable lien of the nature in question alongside his second ranking unsecured priority given by para. 441 (b). This would be so a fortiori if, as the appellant submitted, the rules which we have described above did no more than reproduce the general law as it existed before and after the advent of s. 441 of the 1981 Act.

2. Section 85 of The Companies Act 1862 (25 and 26 Vic., c. 89, (Imp)) empowered the Chancery Court to appoint liquidators provisionally. Provisional liquidators, as regards their costs, were treated as standing on a like footing to court appointed receivers. This appears from a decision given soon after the 1862 Act: In re The General International Agency Company (Limited) (1865) 36 Beav 1 at 2; 55 ER 1056 at 1057. The very word "provisional" would have suggested that the office of a provisional liquidator was analogous to that of a court appointed receiver. In Story's "Commentaries on Equity Jurisprudence", 1st English Ed., 1884, at 831, it is said, with reference to the judgment of Lord Hardwicke L.C. in Skip v Harwood (1747) 3 Atk. 564; 26 ER 1125:
   

"The appointment of a receiver is a matter resting in the sound discretion of the court; and the receiver, when appointed, is treated as virtually an officer and representative of the court, and subject to its orders. Lord Hardwicke considered this power of appointment to be of great importance, and most beneficial tendency; and he significantly said: 'It is a discretionary power, exercised by the court, with as great utility to the subject as any authority which belongs to it; and it is provisional only, for the more speedy getting in of a party's estate, and securing it for the benefit of such person who shall appear to be entitled; and it does not at all affect the right'."

1. It is well settled that a receiver or receiver and manager appointed by the court has an indemnity over the assets of the company in question and is a secured creditor with a lien for his expenses, remuneration and costs: Re Application of Central Commodities Services Pty Ltd (1984) 1 NSWLR 25.

2. As Needham J. pointed out in this decision, the powers of the court in that regard were derived not from any specific provision in the 1981 companies legislation, or its predecessors, but from the general equitable principle that such a receiver, as an officer of the court, working for the benefit of all who have legitimate interests in the assets, is entitled to look to the assets of the company of which he is a receiver to meet his remuneration and his liabilities and outgoings. To the like effect are Moodemere Pty Ltd (In Liquidation) v Waters (1988) VR 215 at 229-230 per Tadgell J. and Clark Equipment Credit of Australia Ltd v Como Factors Pty Ltd (1988) 14 NSWLR 552 at 568 per Powell J. Long before, Sir John Romilly M.R. had spoken in similar terms in Bertrand v Davies (1862) 31 Beav 429 at 436; 54 ER 1204 at 1207. After reviewing the authorities, commencing with the decision of Lord Eldon L.C. in Scott v Nesbitt (1808) 14 Ves Jun 438; 33 ER 589, the Master of the Rolls said:
   

"(W)here 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 allowance, 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 due to him on taking his accounts."

1. In addition to the anxiety of the Court to protect the position of its officer, in particular, lest there be in the future an absence of persons willing to take such appointments, the claims of the officer under a court appointed administration may be seen as in the nature of "salvage". The principle is that those taking the benefit of the administration should not escape bearing the burden of the proper cost of it; see In the Matter of Tharp (1852) 2 Sm and Giff 578; 65 ER 533 and In re Berkeley Applegate (Investment Consultants) Ltd (In Liquidation) Harris v Conway (1989) Ch 32 at 51. In the latter decision, it was held, at 50-51, that there was:
   

". . . a general principle that where a person seeks to enforce a claim to an equitable interest in property, the court has a discretion to require as a condition of giving effect to that equitable interest that an allowance be made for costs incurred and for skill and labour expended in connection with the administration of the property. It is a discretion which will be sparingly exercised; but factors which will operate in favour of its being exercised include the fact that, if the work had not been done by the person to whom the allowance is sought to be made, it would have had to be done either by the person entitled to the equitable interest (as in In Re Marine Mansions Co., LR 4 Eq 601 and similar cases) or by a receiver appointed by the court whose fees would have been borne by the trust property (as in Scott v Nesbitt, 14 Ves Jun 438); and the fact that the work has been of substantial benefit to the trust property and to the persons interested in it in equity (as in Phipps v Boardman (1964) 1 WLR 993)."

Similar reasoning supports what was said by Dixon J. in In Re Universal Distributing Company Limited (In Liquidation), supra, as to the costs and expenses of one who has by his efforts brought into court a fund for administration. This must be so particularly where the administration has been conducted by an officer appointed by the court for that purpose.

1. Accordingly, we respectfully agree with the view expressed by McLelland J. in Nationwide News Pty Ltd v Samalot Enterprises Pty Ltd (1986) 5 NSWLR 227 at 230-231, that (i) a provisional liquidator appointed by the court has (in the absence of any inconsistent statutory provision) an equitable lien for expenses and remuneration over the assets under his administration analogous to that held by a court appointed receiver; and (ii) the lien arises upon and survives the termination of the appointment. See also Nationwide News Pty Ltd v Almona Pty Ltd (1987) 6 ACLC 84. It also should be noted that in Booth v Thomson (Provisional Liquidator of Highland Engineering Limited) (1972) SLT 141, Lord Fraser indicated that he had already found in earlier (unreported) proceedings that the provisional liquidator's remuneration and his solicitors' expenses were charged on the funds of the liquidation.

2. It follows that we accept the submission that the previous provision in O. 75 r. 43 (4) of the Rules of the Supreme Court of the Territory, in stating that a provisional liquidator had a charge upon the assets of the company until his proper costs, charges and expenses were paid, did no more than reflect what was already the position under the general law.

3. The question then becomes whether the general law continues to apply in respect of provisional liquidations under the 1981 Act, notwithstanding the introduction by sub-s. 441 (b) of the second ranking unsecured priority in favour of provisional liquidators.
   Section 441 (b)

4. The equitable lien of the provisional liquidator arises upon his discharge from his office, whether by the making of a winding-up order, the dismissal of the winding-up proceedings or his removal by the Court. The quantum of the sum secured by the lien will be that for which his accounts are passed, an event which in the nature of things will be subsequent to his discharge from office; cf. Morrison v Morrison (1855) 2 Sm and Giff 564 at 577-578; 65 ER 527 at 533 per Stuart V.C. In cases such as the present, this is provided for by the entitlement given by sub-s. 373 (2) of the 1981 Act to provisional liquidators to receive such remuneration as is determined by the Court. Here, as we have indicated, the Registrar dealt with the provisional liquidator's fees by his determination of 15 November 1990.

5. It was submitted for the respondent liquidator that s. 441 (b) of the 1981 Act represented a deliberate decision to defer the claims of a former provisional liquidator to those of a liquidator. Then it was submitted that the answer for provisional liquidators was to accept office only if their remuneration and expenses first were guaranteed by the creditors or contributories; cf. In re Beni-Felkai Mining Company, Limited (1934) Ch 406 at 421-422. The obtaining of such undertakings and the settling of the terms in which they are expressed may take time. Yet the essence of the remedy of appointment of a provisional liquidator is that, like an interim injunction, it may be speedily obtained from the Court, on some occasions very speedily indeed. One should not lightly attribute to the Parliament any intention to legislate so as to diminish the availability or utility of such an important interlocutory remedy.

6. If it is borne in mind that (i) provisional liquidation is not always followed by winding-up, (ii) where this does happen, the same individual may not always be both provisional liquidator and liquidator, and (iii) the pool of assets controlled by the two forms of administration is not the same, then, the initial attraction, for its simplicity, of the argument that the only priority given is that specified in s. 441 (b) of the 1981 Act, is much diminished. The second ranking priority may give the superficial appearance of a deliberate legislative intention to postpone a provisional liquidator's rights; but, in reality, it is fully explained as a provision about any claim to payment from the pool of assets gathered in by the liquidator. If, however, the provisional liquidator has himself gathered in a sufficient pool of assets, he will not be looking beyond those assets, and will simply rely on the lien which he has over them.

7. Where the appointment of a provisional liquidator is terminated by dismissal of the winding-up proceedings, he is entitled to satisfy his equitable lien out of the assets of the company in his hands before accounting for the remaining balance to the company: Re Joseph Phillips Ltd, supra at 444. It would be an odd result if, where the winding-up proceedings are dismissed, the provisional liquidator has the benefit of the equitable lien in the manner we have described, but where (perhaps as a result of what is revealed by dint of his activities as provisional liquidator) it becomes inevitable that there be a winding-up, the provisional liquidator then has no more than the second ranking priority given by s. 441 in respect of the assets on the winding-up administration.

8. In our view, upon the proper interpretation of s. 441, when provisional liquidation is followed by a winding-up, the equitable lien of the provisional liquidator remains as much a secured debt as it does when there is no ensuing winding-up. However, to the extent to which the available assets subjected to the lien are insufficient to satisfy it, the unsecured balance still due and owing to the provisional liquidator may be recouped out of the further assets brought into the winding-up. But by reason of sub-ss. 441 (a) and (b), the entitlement of the provisional liquidator to recover out of those further assets is deferred to the costs, charges and expenses of the winding-up in the course of which, as it happens, those assets will have been brought into the administration.

9. There then remains the question of the impact of s. 221P of the Tax Act.
   Section 221P

10. Section 221P is as follows:
    

"221P (1) Where an employer makes a deduction for the purposes of this Division, or purporting to be for those purposes, from the salary or wages paid to an employee and refuses or fails to deal with the amount so deducted in the manner required by this Division, or to affix tax stamps of a face value equal to the amount of the deduction as required by this Division, as the case may be, he shall be liable, and where his property has become vested in, or where the control of his property has passed to, a trustee, the trustee shall be liable, to pay that amount to the Commissioner.

(2) Notwithstanding anything contained in any other law of the Commonwealth, or in any law of a State or of the Northern Territory -

(a) an amount payable to the Commissioner by a trustee in pursuance of this section has priority over all other debts (other than amounts payable under subsection 221YHJ(3) or 221YHZD(3)), whether preferential, secured or unsecured; and

(b) where an amount is payable by a trustee to the Commissioner under subsection 221YHJ(3) or 221YHZD(3), an amount payable by the trustee in pursuance of this section ranks equally with the amount payable under subsection 221YHJ(3) or 221YHZD(3), as the case requires, in priority to all other debts, whether preferential, secured or unsecured.

(3) Where a trustee, being the trustee of the estate of a bankrupt or the liquidator of a company that is being wound up, is liable to pay an amount to the Commissioner in pursuance of this section, subsection

(2) does not operate so as to make that amount payable in priority to any costs, charges or expenses of the administration of the estate or of the winding-up of the company (including costs of a creditor or other person upon whose petition the sequestration order or the winding-up order, if any, was made and remuneration of the trustee) that are lawfully payable out of the assets of the estate or of the company except where, in the case of the winding-up of a company, the Crown in right of a State or any other creditor is entitled to payment of a debt by the liquidator in priority to all or any of those costs, charges and expenses and has not waived that priority."

In sub-s. 6 (1) of the Tax Act, the term "trustee" is defined as follows:

"'Trustee' in addition to every person appointed or constituted trustee by act of parties, by order, or declaration of a court, or by operation of law, includes -

(a) an executor or administrator, guardian, committee, receiver, or liquidator; and

(b) every person having or taking upon himself the administration or control of income affected by any express or implied trust, or acting in any fiduciary capacity, or having the possession, control or management of the income of a person under any legal or other disability."

1. In Re Obie Pty Ltd (1985) 1 Qd R 464, in a judgment delivered by McPherson J., the Queensland Full Court held that (i) a provisional liquidator appointed to take possession of and protect the assets of a company does not have "control" of the property of the company within the meaning of s. 221P, (ii) a provisional liquidator is not a "trustee" for the purposes of that section, and (iii) a provisional liquidator is not required by s. 221P to make any payment to the Commissioner. This decision was followed by the New South Wales Court of Appeal in Deputy Commissioner of Taxation v Access Finance Corporation Pty Ltd (1987) 8 NSWLR 557. Its correctness was not challenged before us.

2. The result following from these authorities is that the appellant, as provisional liquidator, has not been required by s. 221P to make any payment to the Commissioner, even though, in effect, the section gives to the revenue an absolute priority over all secured debts.

3. The appellant resisted the demand of the liquidator, the respondent, that he account to the respondent for, and deliver up to him, the whole of the fund in his provisional liquidator's trust account. It follows from what we have said that before accounting to the liquidator, the appellant is entitled to satisfy his equitable lien out of the fund in his hands. That which the liquidator is empowered by s. 374 of the 1981 Act to take into his custody or under his control is all the property to which the company is, or appears to be, entitled. The fund in the hands of the former provisional liquidator, insofar as he has his equitable lien over it, is not property to which the company is or appears to be entitled. The submission of the respondent to the contrary should be rejected. The respondent's submissions as to the operation in this case of s. 221P fail.

4. After satisfying his equitable lien, the appellant will be obliged to account for the balance to the respondent. Section 221P, subject to the operation of sub-s. (3) thereof, then will attach to any such balance because it will be within the control of the respondent as liquidator. In the circumstances, there is no need for a declaration to that effect. Not only is the Commissioner not a party to the present proceedings, but, in any event, as we understand the submissions put for the liquidator, there is no dispute between him and the Commissioner as to the operation of s. 221P upon assets coming within the control of the liquidator.
   Conclusions

5. The orders of Higgins J. made 22 March 1991 should be set aside. In lieu thereof, there should be a declaration that the appellant has an equitable lien upon the funds in his trust account for the payment to him of the sum of $96,466.20 together with his taxed legal costs. There should be a further declaration to establish that after the satisfaction of the said equitable lien, any balance remaining in the said trust account should be accounted for by the appellant to the respondent and paid to or at the direction of the respondent. There is no need for these declarations to be supported by mandatory orders.

6. The respondent should pay the costs of the appellant of the appeal and of the proceedings before Higgins J. The order made by the Master on 28 November 1990 as to the costs of the proceedings before him, should be restored.