A five-member bench of the High Court has unanimously allowed an appeal against the decision of the Victorian Court of Appeal in Atco Controls Pty Ltd (in liq) v Stewart. Stewart, the liquidator of a wholly owned subsidiary of the appellant, Newtronics Pty Ltd, asserted an equitable lien over $1.25 million that the liquidator said secured his remuneration and costs in realising a settlement between the subsidiary and the appellant. The appellant claimed that the sum was secured by a charge held over the subsidiary’s assets and should instead be paid to it. The Court of Appeal of Victoria unanimously held that the liquidator’s asserted equitable lien did not arise.

The High Court held that the principle in Re Universal Distributing Co Ltd (in liq) applied, stated by the Court at [22]:

a secured creditor may not have the benefit of a fund created by a liquidator’s efforts in the winding up without the liquidator’s costs and expenses, including remuneration, of creating that fund being first met. To that end, equity will create a charge over the fund in priority to that of the secured creditor.

The settlement sum was created by the liquidator bringing litigation against the receivers, and it was uncontroversial that the liquidator acted properly and within his duties in doing so. The Court rejected each of Atco’s claims as to why the situation should be distinguished from Universal Distributing including Atco’s central argument, accepted by the Court of Appeal, that it did not stand to benefit from the action brought against it. Rather, Atco claimed that the litigation was in the interests of Seeley International Pty Ltd, a former customer of Newtronics who had indemnified the liquidator. The High Court held that even though the action was in Seeley’s interests, that does not affect the question of whether the equitable lien arose: the liquidator acted properly in bringing the proceedings because those proceedings aimed to realise Newtronics’ assets.