WHAT HAPPENS WHEN RECEIVERS ARE APPOINTED

BUSH BARRISTER   Jonathan de Vere Tyndall


The win for Richard and Barbara Wright in the Jeogla case last year, against the receiver appointed by the ANZ bank, demonstrates a larger issue outside the facts of the case itself. Do banks' powers in the appointment of receivers work too harshly? 

The legal ability of a bank to appoint an out of court receiver over farm property is contained in most farm mortgages and also in the Conveyancing Act,  (S115A). This is whether the farmer is a sole trader, a partnership or a company. Generally, if there is any "default" in making monthly repayments, being a day late for instance, the Bank immediately has the right to appoint a receiver. 

There can also be "default" in not observing another condition of the mortgage. For instance, the power to appoint a receiver may arise if the farmer fails to pay farm rates and taxes on time, fails to insure the farm improvements in the joint name of the bank and pay the premium before it is due, fails to keep the land clear of noxious growths and animals or fails to give the bank a lien over any crops on the land if requested by the bank. 

These events of default, which could trigger major legal consequences, are arguably trivial. Many farmers who have read their mortgages, and who can understand legalese, may not have remembered these legal obligations they have agreed to in their farm mortgage. They are more critical if the farmer has already had a S11 mediation certificate within the past 3 years.

The appointment of a receiver occurs immediately a written notice of appointment is given to the receiver. This is regardless of whether the farmer has knowledge of the event until a later date. There is no obligation on the bank to act reasonably before making the appointment. There is no obligation under the general law, in the absence of a demand provision in the mortgage itself, to give prior notice, since farmers are excluded from Consumer Credit Code protection not being consumers. If a demand is made, the recipient only has enough time to get money from a convenient place, but not time to negotiate a deal or another loan. In some cases this has been found to be 1 hour or just enough time to affect the mechanics of payment. 

Because of the drastic consequences, bank mortgagees should have to go to Court first, in line with the Canadian position, before they can appoint a receiver. At the very least, making a prior written demand with notice ought to be mandatory. 

The remuneration of the receiver is set by the Conveyancing Act, at 5% of the total monies received during the receivership. However, the receiver can apply to Court for more, but the farmer company or the disenfranchised directors or shareholders have no standing in that application. They are silent. The IPSA scale itself is not fixed or mandatory and receivers are encouraged to set fees with their bank appointors that reflect their own costs' structures. So if the receiver starts selling up, the farmer could be wearing high hourly charge out rates of a city based accounting firm. The more a receiver takes for fees, the harder it is to get out of receivership and not face company liquidation or personal bankruptcy. 

In the area of company receivers, the law was reformed in 1993 following the recommendations Harmer Report. The report recommended having a clear right in the company's legislation to remove a receiver on the application of the company or other persons affected, when it was "just to do so". However, the actual legislation, now S434A of the Corporations Law, did not adopt that recommendation, but included a proviso that the receiver must be guilty of some misconduct and left out other persons affected, for instance directors or shareholders, from being able to apply. While there are other areas of the Corporations Law which might be used to remove a receiver, there is no clear mandate by S434A for other persons affected being able to remove a receiver for a bad business decisions or overstaying his welcome, which is not misconduct. 

It also recommended the receivers be fixed with a specific duty to take reasonable care and not act negligently, in selling assets, rather than just a duty to act in good faith, honestly and fairly without collusion or fraud, which was the prior position. 

The general law relating to non-corporate receiverships has not been reformed. So for farmers without company structures, receivers cannot be removed from office for mere negligence, in the absence of something technical in the appointment.

There should be an easier way to remove farm receivers and stop them from committing acts of negligence before they happen. Harsh consequences are allowed to follow trivial defaults, with a lack of notice and access to Court supervision, followed by high charges. What's wrong about the Wright case is that these matters are only resolved after the damage is done. Receivers know that dead men don't argue.




Jonathan de Vere Tyndall, Blandford Chambers, Murrurundi (02) 65466572
j.tyndall@bigpond.com