Urgent Interim Relief: Appointment of Receivers

A receiver is a person appointed to take over control of assets for the purpose of protecting them and individuals’ rights to them. Receiverships typically arise in the context of a secured creditor exercising a contractual right to appoint a receiver; think a bank appointing receivers to, for example, a distressed construction company.  This paradigm situation is not the focus of this paper.  However, there are two situations in which a receiver may be appointed to on an interim basis to safeguard property: first, under the court’s equitable jurisdiction; and secondly, as it relates to trusts, under the Trusts Act 2019.

Equitable Jurisdiction

The Court has a power to appoint receivers under its general equitable jurisdiction.[1]  As Katz J noted Rea v Omana Ranch Ltd, the Court has historically exercised its power to appoint receivers in two situations:[2]

a)     There was a need for the interim protection of property (and the income of property), including disputes about partnerships, sales or mortgages of land, and the administration of estates.

b)     To facilitate execution of judgments where no remedy by execution at law is open to an entitled party or is likely to be ineffective owing to the particular nature of the property of the liable party. In such circumstances the Court may appoint a receiver of specific items of the liable party’s property.

It is the interim protection of property that is of note for this paper.  And it is fair to say that, at least in modern times, the power to appoint an interim receiver has seldom been used.  Even in Rea, the appointment of the receiver had been made through a consent order (and after judgment had been issued).  The issue before her Honour related to the receivers’ remuneration, which had been overlooked in the consent order.  Katz J nevertheless helpfully took the opportunity to explain the nature of receivers’ role:

Court-appointed receivers are officers of the Court. They are answerable to the Court alone and are not controlled by either the grantor or its creditors. A Court-appointed receiver must always act within the limits of the Court order making the appointment and within any subsequent directions of the Court. The Court retains the right to review and control the receivers’ conduct. In administering the property to which the receivership extends, a receiver has a duty to act impartially and in accordance with the directions of the Court.

More recently, in Armani v Armani Walker J described receivers’ function as follows:[3]

The function of the court-appointed receiver of a company is to preserve the company’s assets and its potential for earning profits in the future.  The court appointed receiver is not so much a company doctor as a company caretaker.

There is authority that the appointment of a receiver is a measure of “last resort”, and only used when other remedies (such as those provides for in the rules, as discussed in other sections of this paper) are not available or are ill-suited.[4]  That is perhaps why the remedy is so seldom sought in New Zealand.  So while the remedy is not one that judges are likely to be familiar with, practitioners should consider it if no other options appear to fit the situation with which they are faced.

Jurisdiction under the Trusts Act 2019

In contrast to the general equitable jurisdiction, an interim remedy with which practitioners are likely to become increasingly familiar is the appointment of receivers to trusts under the Trusts Act 2019.

The statutory power to appoint a receiver in the Trusts Act 2019, which only came into force in January 2021, is an innovation in New Zealand trust law.  Section 138 provides that “[t]he court may, on an application by an interested person or on its own motion, appoint a receiver to administer a trust.”[5] Before exercising this power, the court must be satisfied that it is “reasonably necessary in the circumstances” and “just and equitable” to do so.[6]

There are two matters of interest.  First, the Act gives standing to interested persons but it does not define who those persons are. Walker J thankfully provided some clarity in Armani v Armani:[7]

On a purposive construction, there is nothing pointing to a legislative intention that the category of “interested person” be narrow or limited to a particular type of beneficiary.  The term beneficiary in the Act specifically includes a “discretionary beneficiary”.  Had that been the intention, more specific terminology would have been employed.  I consider that an “interested person” can encompass a fellow trustee, a creditor or a beneficiary, whether final or discretionary, depending on the circumstances.

Secondly, the requisite standard under s 138 is clearly lower than the historic equitable standard described above.  As Jagose J noted in Reaney v Reaney, that appears to have been by design – to make the remedy more accessible and allow it to respond to a great range of situations.[8]

In Armani, Walker J also considered the meaning of “reasonably necessary”, concluding that:[9]

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.

Whether the appointment of a receiver is justified in any given situation will be highly fact-dependent.  Greater clarity will be provided as more cases are decided under s 138.  However, it is reasonable to assume that an applicant will be required to establish, at a minimum, that there is some risk to trust property, which would be alleviated if an independent receiver were to be appointed.

[1]             The High Court Rules recognise that the Court may appoint receivers, although they do not themselves empower the Court to make such an appointment – that power is founded in the equitable jurisdiction. Instead, the rules deal with such matters as the receiver’s address for service and their remuneration. See rr 7.59-7.67 of the High Court Rules 2016

[2]             Rea v Omana Ranch Ltd [2012] NZHC 2639, [2013] 1 NZLR 587 at [10].

[3]             Armani v Armani [2021] NZHC 3145 at [63].

[4]             Armani v Armani [2021] NZHC 3145 at [65]-[67].

[5]             Trusts Act 2019, s138(1).

[6]             Section 138(2).

[7]             Armani v Armani [2021] NZHC 3145 at [79] (footnotes omitted).

[8]             Reaney v Reaney [2021] NZHC 784 at [10]-[11].

[9]             Armani v Armani [2021] NZHC 3145 at [86].