Paying the Piper: When will the Federal Court turn to receivership to enforce unsecured judgment debts?

In Scott (Trustee), in the matter of Stolyar (Bankrupt) v Stolyar (No 5) [2024] FCA 37 ("Stolyar 5"), the applicant trustee in bankruptcy successfully obtained orders in the Federal Court of Australia to appoint himself as receiver over a property located at Longworth Avenue, Point Piper ("Longworth Avenue") held in the name of the first respondent, Ms Stolyar.

In an earlier judgment, Ms Stolyar had been ordered to pay to the Trustee amounts totalling in excess of $6 million ("the Money Judgments") and so the Trustee sought to enforce this judgment against Longworth Avenue (then estimated to have a value between $11 million and $14 million) to enable sale and the application of the sale proceeds towards payment of the Money Judgments (among other debts owing by Ms Stolyar to the Trustee).

The power of the Federal Court to appoint a receiver

As a creature of statute, the Federal Court of Australia does not possess an inherent jurisdiction in the same sense as the State Supreme Courts. Instead, the source of its powers is limited to those that are expressly or implicitly conferred by the Federal Court of Australia Act 1976 (Cth) ("the Act"). In Stolyar 5, Justice Markovic considered at [28] that there were two sources of power pursuant to which the appointment of a receiver could be made: ss 53 and 57 of the Act.

Section 53 of the Act provides that a judgment can be enforced in the Federal Court in the same manner as the Supreme Court of the state or territory in which the judgment was given. The Federal Court also retains an express power to appoint a receiver where it appears just or convenient to do so pursuant to s 57 of the Act.

In considering the scope of its power to appoint a receiver, the Court had regard to the equitable principles established in the New South Wales Supreme Court ("NSWSC") which govern the ability of that Court in its inherent jurisdiction to assist parties to enforce the terms of judgments in their favour, known as equitable execution.

In particular, Justice Markovic had regard to Riva NSW Pty Ltd v Key Nominees Pty Ltd [2023] NSWSC 711 ("Riva") where Meek J observed that the power to appoint a receiver in aid of the enforcement of a judgment is generally exercised reluctantly. In Riva, Meek J had in turn quoted extensively from the decision in Hall v Foster [2012] NSWSC 974, a case in which Justice Ball had examined when the exercise of the power would be appropriate, observing that:

1. The NSWSC has an inherent jurisdiction to assist parties to enforce judgments which is referred to as equitable execution (at [16]);
2. This inherent jurisdiction includes the power to appoint a receiver (at [17]); and
3. Equitable execution can only be granted where the legal remedies available to the judgment creditor are inadequate (at [19]).

Markovic J in Stolyar 5 at [33] observed that in relation to this last point:

"At [268]-[269] [ofRiva] after referring to commentary to the effect that the Court may appoint a receiver but only where it proves impossible to obtain the cooperation of the judgment debtor to pay a judgment debt and the ordinary process of execution will not reach the property of the judgment creditor, Meek J noted that it was not necessary for execution at law to be impossible before execution by way of the appointment of a receiver may be ordered."

In Riva, Meek J had also noted that in determining whether it is appropriate to exercise the power to appoint a receiver, the Court should ensure that the appointment facilitates the overriding purpose of the just, quick and cheap resolution of the real issues in the proceedings as mandated by the Civil Procedure Act 2005 (NSW), a purpose which is also contained in the terms of s 37M of the Act.

The Court in Stolyar 5 also had regard to comments made by French J in University of Western Australia v Grey (No 6) [2006] FCA 1825 at [71]:

"The power of the Court to appoint a receiver is statutory. It has its origins, however, as an equitable remedy. An order in the nature of an equitable remedy can be made under s 23 of the Act. The class of circumstances in which such a power may be exercised is not closed. Nor are the purposes for which a receiver may be appointed and the powers and conditions attaching to such an appointment".

Therefore, while the power of the Federal Court to appoint a receiver is statutory, the remedy itself remains equitable (and therefore flexible) in character given it is, historically, a product of that jurisdiction. However, the exercise of the power is also mediated by the Federal Court's overarching purposes in s 37M of the Act to act in a manner that is quick, inexpensive and as efficient as possible. It therefore follows that parties will need to also demonstrate that the appointment of a receiver is an effective method of achieving those purposes. This may require applicants to consider alternative recovery strategies and conduct a comparative analysis of the respective costs involved.

Hence, her Honour concluded at [35]:

"It is apparent that the Court has power to appoint a receiver to aid in the execution of a judgment. In determining whether in the particular circumstances that course is appropriate, the question to resolve is whether, to adopt the requirements of s 37M of the Federal Court Act, the quick, inexpensive and efficient way for the judgment to be enforced is by ordering the sale of the relevant property by equitable means by the appointment of a receiver or, on the facts before me, by leaving it to the trustee to purse the sale by the Sheriff pursuant to the writ of, as Ms Stolyar submits, by leaving to her to undertake a sale in due course."

Factors warranting the appointment of the receiver

The Court ultimately found that the appointment of a receiver to Longworth Avenue was justified on the basis of four considerations.

Longworth Avenue was a unique property

Being a "prestige waterfront apartment with a significant value" her Honour accepted that Longworth Avenue was unique. Thus, her Honour formed the view that an appropriately qualified person (such as the Trustee) should be appointed to oversee its sale to ensure that its value was maximised.

The Trustee and Ms Stolyar accepted that Longworth Avenue was uninhabitable at that time. In light of this evidence, the Court accepted that the Trustee, unlike the New South Wales Sheriff, was in a position to fund and undertake any necessary renovation works required to prepare the property for sale.

The appointment of the receiver was likely to be more cost effective

Were the New South Wales Sheriff to arrange the sale of Longworth Avenue, the proceeds of its sale would be subject to a 3% fixed fee. The Trustee submitted that he anticipated that his costs of sale as the Receiver would be less than the amount of the fixed fee payable to the Sheriff.

The sale of Longworth Avenue was an inevitability

The Court noted that the Trustee was, in any event, ultimately entitled to realise Longworth Avenue pursuant to a charge created in his favour pursuant to an earlier set of Orders made in the proceedings. That being the case, her Honour merely observed that an Order which would result in the sale of Longworth Avenue only accelerated a remedy that would inevitably arise at a later stage.

The Court also referred to the evidence before it that any delay would erode the value of Longworth Avenue by way of accruing strata levies, land tax, and evidence that unauthorised works were being conducted on the site. In these circumstances her Honour considered that prompt Orders for sale were justified.

Ms Stolyar was not a suitable person to undertake the sale of Longworth

Ms Stolyar sought to be permitted to undertake the sale of Longworth only after the resolution of a dispute in relation to her entitlement to the proceeds of sale of another property. The Court rejected Ms Stolyar's request to conduct the sale herself, concluding that any delay in the sale of Longworth would not be in the interests of any party. Further, it remained clear that Ms Stolyar had no means of satisfying the money judgments in favour of the Trustee other than through the sale of Longworth Avenue (being her only other significant unencumbered asset).

On the basis of the above factors, her Honour concluded that the appointment of the Trustee as receiver was appropriate and made Orders accordingly.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.