Receiver challenged after links with referrer arise

Inadvertent? Perhaps, but non-disclosure of shared corporate interests could come back to bite a court appointed receiver.

SiN cannot identify them but let us take our cue from the Family Court’s in-house anonymisers, who dubbed them Messrs Fuller and Martini in the recent judgment of Sadler & Sadler and Others , a ruling that affirmed their appointment as receivers to a pair of trusts and a superannuation fund at issue in a matrimonial spat.

The application to appoint was made by the wife who has been sole director of the trustee for the trusts since the husband became bankrupt in 2015. With a final hearing on the matters in dispute scheduled for November this year, the wife wants the trust units and other assets converted to cash as do, no doubt, her advisers.

The application on July 20 to appoint receivers however moved various third parties with interests in the unit trust to object. They held that the appointment would allow the mortgagee to various trust assets to take possession. Those objections were unsuccessful but a ground for appeal was swiftly identified and brought before the Full Court of the Family Court on Monday.

Putting aside for a moment the wife’s complaints about the bankruptcy trustee’s allegedly sloth-like responses to her enquiries, it turns out that the receivers hail from the Newcastle office of a national insolvency firm at the big-end of mid-tier.

One of the receivers has close links to the wife’s solicitor, who was of course the person who recommended the receivers. To wit, one of the receivers is a co-director and shareholder with the referring solicitor in several companies.

There’s of course nothing necessarily wrong with such a referral. The solicitor could argue that the receiver is the right person for the job because he knows him so well. What’s at issue as far as those objecting are concerned is the failure of either the lawyer or the receiver to disclose the shared corporate interests to the court. The appellants argued on Monday that the omission denied them a ground upon which to object at the July 20 hearing.

The Full Court has reserved its decision but SiN can at least revisit the comments of Justice Margaret Cleary whose July 20 decision included some comments in relation to the husband’s bankruptcy trustee, who is a partner in a national mid-tier insolvency practice which might reasonably be described as the receivers’ firm’s arch rival.

As noted earlier, the wife alleged that her husband’s trustee was not moving with satisfactory speed, a complaint articulated by the judge in this way: “The wife says the husband’s Trustee in Bankruptcy …… does not intend to take any timely action to realise the interests that are held in these various structures and which the wife considers to be matrimonial assets.

“There may be, although it is yet untested, some substance in what the wife says. The Trustee in Bankruptcy, although legally represented, did not file a response to the wife’s application nor any affidavit and took a neutral stance both on the adjournment application and on the appointment of receivers.” Maybe AFSA’s Mark Findlay has the matter on his watch list.

About the Author

Peter Gosnell
Sydney Insolvency News illuminates the practice of insolvency in Australia's largest city, highlighting the triumphs and failures of Sydney's registered practitioners and the accounting and legal professionals who work with them. SiN is produced by Peter Gosnell, former business editor and senior business reporter at The Daily Telegraph newspaper. During a decade-long career, your correspondent reported on such notable corporate collapses as HIH, One.Tel, Westpoint and Fincorp as well as some of the nation's highest profile bankruptcies and the investigations and prosecutions arising from Australia's most notorious instances of white collar crime.

1 Comment on "Receiver challenged after links with referrer arise"

  1. The courts take a reasonable approach to issues of practitioner independence, including receivers. The Full Court of the Family Court looked at this issue and noted that the identified involvement was not with any of the companies or trusts associated with the parties but rather with companies owned by one of the receivers and the wife’s solicitor. The Court said that
    “(i)t is not at all clear why that association would cause the receiver to have a conflict of interest in dealing with the interests of the trusts the subject of the appointment and the wife and husband on the one hand and the appellants on the other. We do not see that there is a serious possibility of conflict or that there is a reasonable apprehension that the receivers would be impeded or inhibited from acting impartially”.
    While the relationship should have been disclosed, and the failure to do so added to the concern raised, the Court took into account the limited role of the receivers.
    See D Pty Ltd and Ors & Sadler and Ors [2016] FamCAFC 187.
    The Full Court judgment is more important on the question of when the appointment of a receiver is “necessary” for the purpose of family law proceedings: s 80(1)(k) Family Law Act, not s 420 Corporations Act. For reasons given in the judgment, the Full Court allowed the appeal against Justice Cleary’s decision and ended the appointment of the receivers.

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