Receivers are often faced with the dilemma of goods in their possession which are not readily identifiable as “property of the corporation” pursuant to section 420 of the Corporations Act 2001 (Cth) (CA). Selling or disposing of assets that are not property of the company may make receivers liable for the loss or conversion of such goods. Therefore, it is important that receivers identify the property of the company correctly.

This article examines the recent case of Re Arcabi Pty Ltd (Receivers & Managers Appointed) (in liq) [2014] WASC 310 which involved unclaimed goods and provides guidance for receivers on what to do when faced with this predicament.

Receivers and unclaimed goods

Re Arcabi Pty Ltd involved unclaimed goods of a third party in the possession of the receivers for which the Court was asked to make orders pursuant to section 424 of the CA permitting the receivers’ sale of such assets and utilisation of the proceeds of sale.

Previously, there have been cases such as International Art Holdings Pty Ltd (Administrators Appointed) v Adams [2011] NSWC 164 and Re Carson; Hastie Group Ltd (No 3) [2012] FCA 719 where administrators have sought similar directions. Re Arcabi appears to be the most contemporaneous case where receivers have sought such directions.

The business of Arcabi Pty Ltd (Arcabi) involved the storage and sale of rare coins and bank notes (Goods). Third parties would provide these Goods to Arcabi for storage or sale by consignment.

On 17 July 2013 receivers were appointed by Westpac Banking Corporation. The receivers undertook extensive investigations to ascertain the inventory of Arcabi and determine which Goods were owned by the third parties. Despite such investigations, there were still some Goods which remained in the receivers possession for which they could not identify the owner and which remained unclaimed.

The receivers sought directions from the Court pursuant to section 424 of the CA to determine whether they were justified in treating those Goods that remained on the premises as the property of the company and therefore able to sell the Goods in the ordinary course of the receivership and apply the proceeds towards extinguishment of the secured debt. The purpose of seeking such orders was to protect the receivers from any potential future legal action by the owners of unclaimed Goods.

Like in the case of International Art Holdings there was an emphasis on establishing facts from which it could be inferred that there was an intention by third parties to abandon the property in the receivers’ possession. At common law, “abandonment” is the “giving up, a total desertion, an absolute relinquishment” of private goods by the former owner.2 If it can be established that the Goods have been abandoned then the view could properly be taken that there is no other person with better title than the company (or any such person has abandoned any such claim).3

In this case, the receivers had taken the following steps to try to identify the owners of the unclaimed Goods:

  1. caused advertisements to be published advising the intended sale of the unclaimed Goods, with no relevant response received from any person claiming an interest in the Goods;
  2. written to those investors who are listed in the company’s records as the potential owner of the unclaimed Goods including by registered post (at the address in Arcabi’s records and the address recorded with the Australian Electoral Commission), with no relevant response received; and
  3. obtained notification from the police that the unclaimed Goods had not been reported lost or stolen.

After taking the above steps the Court considered there was nothing more that the receivers could have reasonably been expected to do to find to the owners of the unclaimed Goods and therefore they were entitled to regard the Goods as abandoned and take steps to realise such Goods on the basis that they:

  1. issue notices to those persons listed in the records of the company as the potential owner of the unclaimed Goods, advising them of the intended sale of the Goods and the terms upon which the net sale proceeds are to be held by the receivers; and
  2. hold the sale proceeds in a separate account and apply them:
    1. towards the payment of the receivers’ costs incurred in connection with identifying, attempting to locate the owner of and realising the unclaimed Goods;
    2. towards any claim in respect of the unclaimed Goods which, in the opinion of the receivers, is a valid claim; and
    3. after a period of six months from the sale, distribute the balance of the sale proceeds in the ordinary course of the receivership.

Administrators and Liquidators

As discussed, cases such as International Art Holdings have set out the principles of what administrators should do in the case of unclaimed goods in their possession. Largely, the case of Re Arcabi followed those principles however there are a few differences that administrators and liquidators need to be aware.

Administrators and liquidators may seek directions from the Court when faced with the prospect of unclaimed goods in their possession pursuant to section 447D and section 511 of the CA respectively.

Further, administrators must also be conscious not to breach section 442C of  the CA  which provides that administrators must not dispose of property of the company which is subject to a security interest except where such a disposal may be made with leave of the Court.

Administrators and liquidators should also be alive to the possible implication of section 267 of the Personal Property Securities Act 2009 (Cth) (PPSA). Where parties may have a secured interest in the goods in the possession of a company but have failed to perfect it as required under the PPSA this may result in a vesting of their interest in the company so allowing the secured creditor (with a perfected charge) to have priority over these goods.

Possible steps to be taken

Receivers who are faced with unclaimed goods in their possession should consider the following potential steps to investigate and mitigate the risk of claims later being brought by third parties:

  1. write to any persons who may have an interest in the goods enquiring as to whether they know of any parties that could have an interest in the goods;
  2. consider whether there are any PPSA interests registered and whether they relate to the unclaimed goods;
  3. publish an advertisement in newspapers;
  4. contact the police to determine if the goods are lost or stolen; and
  5. consider if any other avenues of enquiry with regards to ownership are open to you.

If after conducting the above enquiries there is still uncertainty as to the ownership of such goods, an application may be made to Court pursuant to section 424 of the CA seeking directions to protect the receivers from liability.

Consideration should also be given to any relevant state legislation in relation to the disposal of goods pursuant to the subject of a bailment.4

Selling or disposing of assets that are not property of the company by receivers may render them liable for the loss or conversion of such goods. Therefore, sufficient steps should be taken to ensure that receivers properly identify the property of the company in order to mitigate risk.

Ultimately, unclaimed goods may be deemed abandoned and the receiver will be able to deal with the goods as assets of the company but care should be taken to avoid possible liability that may result should third parties later make a claim. Receivers may wish to consider making an application to the Court pursuant to section 424 of the CA seeking sanction for steps proposed to be taken.