Ashurst Restructuring Roundup

Fiduciary Duties of Receivers

Receivers appointed to enforce a security owe their fiduciary duties to their appointor and not to the mortgagor. So, when realising the assets of the mortgagor, the receivers can focus their attention on pursuing that course of action which, as they judge it, is best calculated to optimise the position of their appointor; Salmon v Albarran [2023] NSWSC 1238 ("Salmon").

This is the case even when, as is usual, the receivers are also appointed as the agent of the mortgagor and that the relationship between a principal and its agent, at least in the ordinary course, is a fiduciary relationship.

As to concerns fiduciary duties, they are proscriptive rather than prescriptive. That is to say, they impose what might be described as "negative obligations" on the fiduciary; being:

(a) a duty not to profit from the relationship other than by charging fees and by any other means which are agreed with the person to whom the duty is owed; and

(b) a duty not to be in a position where their personal interests may conflict with the interests of that person.

Whilst not said expressly in Salmon, there would be an intolerable tension if these duties were owed simultaneously by receivers to each of their appointor and the mortgagor. This would particularly be the case if receivers were required, as it were, to juggle the respective interests of both their appointor and the mortgagor and where those interests are in conflict.

That tension is resolved by recognising that the primary objective of receivers is to realise the assets of the mortgagor for the benefit of the secured creditor. So, whilst receivers will owe statutory duties to the mortgagor including, most relevantly, the duty imposed by s 420A, Corporations Act ("CA"), which applies when realising the assets of the mortgagor, they can focus their attention on pursuing that course of action which, as they judge it, is best calculated to optimise the position of their appointor, including deciding the means by which the assets will be sold.

Author: Richard Fisher, AM.