Trust receiver

The background of this matter is set out as follows in Cooke J’s judgment:

In Armani v Armani Walker J considered the threshold for the appointment of a receiver in the following terms at [86]:

My view is that the ordinary meaning of “reasonable necessity” does not precisely equate with a measure of “last resort” but neither is it widely different. There is nothing in the Law Commission report pointing to an intention to alter the approach under the inherent jurisdiction but there is some flexibility in the express connection with the “circumstances of the trust”. In its context, reasonably necessary means something more than expedient or desirable, falling closer to “required” or essential to achieve a particular outcome or purpose, but is not necessarily restricted to measures of a last resort. Even so, the availability of alternative, less drastic remedies will be a factor going to the “just and equitable” requirement.

The terms of section 138 are directed toward the justification for the appointment of a receiver. Amongst other things section 138 requires that it must be shown that the receivership is necessary, what the receiver will do and how the receivership will proceed, and the principles that will be applied when determining priorities. The establishment of those matters operate as noted by Cooke J “… as a form of protection of others, particularly creditors, who may be affected by the appointment of a receiver. These are further reasons why it is not necessary to show that the appointment of a receiver is a last resort. It may more simply be reasonably necessary to take this step to achieve an orderly regularisation of trust affairs when things have gone wrong.”

In Cooke J’s assessment “If [the appointment of the Receiver] is not made I am satisfied the position could become materially worse. This provides the essential rationale for the appointment of Mr Scutter as receiver.”

Cooke J notes in Re Cameron and Robertson-Brown that the application did not provide an estimate of costs. However, it was also noted that as section 138 has not been considered in many cases the information requirements are not well known. Cooke J then goes on to consider the practical operation of the receivership and the interplay of the trustee and receiver powers.

Importantly, consideration is given to the determination of priorities in the following vein:

The principles that the receiver is to apply in determining priorities

[26]This seems to me to be a critical aspect of the Court’s decision in relation to a proposed receivership. Unlike the liquidation of a company, or the bankruptcy of an individual, there is not a pre-existing regime that applies to determine how the assets are to be distributed once liabilities are accounted for. The Court will need to make it clear what rules are to be applied.

[27] In his affidavit Mr Scutter said that the Receiverships Act 1993 and Companies Act 1993 will be followed to assist in determining the priority of creditors. He says the seventh schedule in the Companies Act will be followed to determine the priority of preferential unsecured creditors and the pari passu principle will be applied for each class of creditor identified. Mr Scutter explains that creditors will be classed as secured creditors, preferential unsecured creditors and unsecured creditors.

[28] I agree with that approach. For the avoidance of doubt, the provisions regulating the priority of claims should not be applied simply as a guide, but are to be treated as governing how the priority of claims in the receivership are to be dealt with. In the event of uncertainty leave is reserved to apply to the Court for further directions. That leave is extended to any creditors who wish to apply for directions.

[29] I also record that as a consequence of a further telephone conference I had with counsel it is confirmed that any amounts still held in the solicitor’s trust account representing deposits that have been paid by creditors for purchases of lots are amounts duly held on trust for the benefit of those persons. Many deposits have been refunded, and in the case of the purchase of lot 37 the funds have been released to the Trust with the purchaser now a creditor of the Trust for the whole purchase price. The applicants no longer understand that any deposit for that lot is still held on trust.

[30] Mr Scutter also explains that all creditors will be asked to file a claim in the receivership and provide supporting documents and evidence of any security interests they hold. This also appears to me to be appropriate.

Another aspect of the receivership considered was the duration and an appropriate mechanism to extend this if required.

Editor’s note: As a general observation of receivership applications, the number of successful applications is not high. This may well be because of the approach taken to receivership strategically, rather perhaps than a clearer focus on the supporting rationale, which is sensibly highlighted and traversed in Re Cameron and Robertson-Brown.

References:

• Trusts Act 2019, s 138
• Re Cameron and Robertson-Brown [2022] NZHC 2495
• Bank of New Zealand v Rowley and Skinner [2012] NZHC 3540
• Bank of New Zealand v Rowley and Skinner [2012] NZHC 2835
• Law Commission Review of the Law of Trusts: Preferred Approach (NZLC IP 31, 2012) at 8.70
• Armani v Armani [2021] NZHC 3145