The High Court recently delivered judgment in the matter of Stewart v Atco Controls Pty Ltd (In Liquidation).[1] The case turned on the application of the well-known principle in Universal Distributing[2] that a liquidator who incurs expense in a winding up to care for, preserve or realise property is entitled to a first ranking charge for those expenses against any fund thereby created.

The decision offers some insight into the High Court’s position regarding the implication of an equitable lien. It also provides some clarity as to the High Court’s view of the role of liquidators.

The case is particularly noteworthy given it overturned a unanimous decision of the Court of Appeal which found that, in the circumstances, it would not be unconscientious for the secured creditor to assert its prior right over the realised fund.


In 1993, Atco Controls Pty Ltd (Atco) established Newtronics Pty Ltd (receivers and managers appointed) (Newtronics) as a subsidiary.

From 1995, Atco held a registered mortgage debenture, containing a fixed and floating charge, over Newtronics. It also provided letters of support in which it promised to provide Newtronics with funds in order to meet its trading obligations and promised that it would not call up the debt owed to it to the detriment of unsecured creditors.

In December 2001, Seeley International Pty Ltd (Seeley) successfully sued Newtronics and was awarded damages in the amount of $8.9 million.

Immediately following that judgment, Atco demanded payment to it of all monies outstanding pursuant to its charge. At that time, the amount advanced by Atco was $19.09 million. Newtronics refused and Atco appointed receivers who subsequently sold the Newtronics business in March 2002 for $13 million.

With no assets left to satisfy its judgment debt, Seeley, the largest unsecured creditor, approached the Federal Court for orders, which were granted, that Newtronics be wound up and Mr James Stewart be appointed liquidator.

Seeley and the liquidator entered into a series of agreements by which Seeley undertook to indemnify the liquidator for costs and expenses incurred in performing specific tasks and conducting investigations into the affairs of Newtronics.

One such agreement was entered into on 27 March 2006. It provided that Seeley would indemnify the liquidator in pursuing an action to enforce the letters of support provided by Atco.

In April 2006, the liquidator commenced proceedings against Atco and, in December 2006, joined the receivers appointed by Atco.

Newtronics was successful in its claim against Atco but unsuccessful against the receivers.

Both Atco and Newtronics appealed.

On the day the appeals were due to be heard, Newtronics settled with the receivers on terms that required that the receivers pay Newtronics $1.25 million (the Settlement Sum).

On 22 September 2009, two days after receiving the Settlement Sum, and without informing Atco, the liquidator paid the amount to Seeley by way of reimbursement of the costs and expenses Seeley had paid under the indemnity agreement.

On 21 October 2009, Atco’s appeal against Newtronics’ attack on its charge was allowed.

On 29 October 2009, Atco demanded payment to it of the Settlement Sum pursuant to its charge. Newtronics refused on the basis that the liquidator was entitled to assert an equitable lien over the Settlement Sum.


Atco argued that, given the nature and purpose of the liquidator’s action against it, the principle in Universal Distributing did not apply.

The key points relied on by Atco were that:

  • it had not ‘come in’ to the winding up and applied for its rights to be determined. It had been dragged in to the litigation to defend the attack on its charge;
  • citing the decision of In re MC Bacon Ltd,[3] it would be unjust to reimburse the liquidator from funds subject to a charge it had unsuccessfully sought to challenge;
  • it did not consent to the litigation nor was it undertaken for its benefit;
  • the funding agreement between Seeley and the liquidator precluded the implication of the lien by providing that the liquidator would make an application to the Court under s564 of the Corporations Act 2001 (Cth) (the Act); and  
  • the implication of an equitable lien should be determined by reference to substance rather than form and this litigation, in substance, was undertaken by Seeley to further its interests.


The High Court held there was no basis for excepting this case from the Universal Distributing principle.

Dixon J’s reference to “come in”

According to the High Court, Dixon J’s reference may be understood, in the context of a liquidation, that a secured creditor “comes in” to a winding up when it lays claim to, and seeks the benefit of, a fund created by the liquidator in the winding up in order to satisfy its charge.[4]

The fact that Atco had not willingly participated in the realisation of assets was irrelevant.

On its reading of “comes in”, the High Court did not see Atco to be in a position relevantly different from the debenture holder in Universal Distributing. It had come into the winding up by appealing against the liquidators decision. 

Relevance of MC Bacon

The High Court considered that Atco’s reliance on this case was misguided as it did not involve the question of whether an equitable lien arose in favour of a liquidator. 

MC Bacon concerned a claim by a liquidator for reimbursement, out of a fund in the hands of a secured creditor, of costs, which included costs the liquidator had been ordered to pay the secured creditor, following the dismissal of the action in which he sought to invalidate the creditor’s security.[5]

Falcke’s case

Atco had sought to rely on the decision in Falcke v Scottish Imperial Co[6]and the principle that a stranger who carries out work or services, or otherwise confers a benefit on another, without a request, actual or implied, to do so, is not entitled to payment or compensation.

The High Court held that the decision in Falcke had no bearing on a case involving work undertaken by a liquidator in a winding up and that Atco’s mistaken reliance on this decision “stems from its wrong assumption that Atco, as a secured creditor, must have requested that the litigation be brought”.[7]

Section 564

The High Court held that, once Atco’s security was held to be valid, and the Settlement Sum was insufficient to satisfy both its debt and the liquidators costs and expenses, an application under s564 was not necessary as there was no surplus dividend to distribute. 

The substance of the litigation

The High Court rejected Atco’s submission that the nature and purpose of the action brought against it precluded the implication of the lien and, in doing so, provided several observations as to the role of a liquidator:

  1. A liquidator’s duty is owed to the body of creditors as a whole and to the court.[8]
  2. A liquidator is to do what he or she can to augment the disposable assets of the company.[9]
  3. It is the duty of a liquidator to realise assets and, to that end, a liquidator has the power to bring proceedings.[10]
  4. It is also part of a liquidator’s duties to “carefully scrutinise” charges existing over company property and, in certain circumstances, attack them and have them declared void.[11]


The effects of this decision are somewhat profound.

Seeley, the unsecured creditor, received the Settlement Sum by way of its indemnity for the liquidator’s costs and expenses. The result leaves Atco, who had successfully defended the validity of its charge, effectively worse off.

The Victorian Court of Appeal emphatically found that no lien arose in favour of the liquidator and looked beyond the form to the substance of the proceeding – it was litigation commenced to deny Atco its security and give Seeley priority, “this is not a case where equity should come to the aid of the liquidator who was seeking to further the interests of Seeley at the expense of Atco”.[12]

The High Court acknowledged that, while the liquidator’s action may have been in Seeley’s interests, that did not affect the question of whether an equitable lien arose. It held the true purpose of the proceedings which resulted in the fund was the realisation of Newtronics’ assets.[13]