Osborne Computer Corporation Pty Limited (Voluntary Administrator Appointed) and Ors v Airroad Distribution Pty Limited No. 2870/1995 Corporations Law [1995] NSWSC 101 (26 October 1995)

COURT
IN THE SUPREME COURT OF NEW SOUTH WALES
EQUITY DIVISION
ROLFE J
HRNG
SYDNEY, 24 July 1995
#DATE 26:7:1995
#ADD 26:10:1995


  Solicitors for the Plaintiff         Mr P.A. Somerset
                                       P.A. Somerset and Co


  Counsel
for the Defendant            Mr G.P. McNally


  Solicitors for the Defendant         Parry Carroll Kanjian
ORDER
  Orders made
JUDGE1
ROLFE J  The first plaintiff was, at all material times, the manufacturer of
computer bases. After manufacture the bases were packaged
and ultimately the
packaged bases were placed into containers, which were transported to the
defendant's warehouse by it. The screens,
printers and other equipment
necessary to complete the computers were supplied by third parties, and they
were also delivered to
the defendant's warehouse. The defendant assembled the
various parts and, thereafter, delivered computers to customers of the first
and second plaintiffs, for which services it charged the first plaintiff. The
second plaintiff was, at all material times, the distributor
of the computers.


2.  There is detailed evidence as to the way in which the computers were
identified and dealt with but, for the
purposes of deciding the issues raised
before me, it is unnecessary to refer to it. Suffice it is to say that the
plaintiffs agree,
for the purposes of these proceedings, that the defendant
had a general lien over computers and computer parts in its possession
pursuant to written agreements entered into at the time of each delivery, the
relevant term of which was:- 
    "The company" (the
defendant) "shall have a general lien on
    the goods and any other goods of the consignor" (the first
    plaintiff) "which are
in the possession of the company for all
    sums payable by the consignor to the company and for that
    purpose shall have the
right to sell any such goods by public
    auction or private treaty and out of monies arising from the
    sale may retain the sum
so payable and all charges and expenses
    relating to the detention and sale."


3.  Mr Somerset, who appeared for the plaintiffs,
conceded, for the purpose
only of these proceedings, that this clause was effective to create a general
lien, i.e. a lien in respect
of any indebtedness, and, because of the terms of
the documentation, that lien was applicable to all goods of the first
plaintiff,
which came into the possession of the defendant. It was established
that as at 13 July 1995 the first plaintiff owed the defendant
$194,726 for
services provided by the defendant to it and for legal and other costs.


4.  On 26 June 1995 the first and second plaintiffs
resolved, pursuant to
s.436A(1)(b) of the Corporations Law, ("the Law"), to appoint Mr John Edward
Star as its voluntary administrator.
The appointment became effective at 4 pm
on that day. Both before and after that time on that date computers were
delivered to the
defendant. The present dispute concerns whether the defendant
is entitled to sell the goods to discharge the indebtedness to it,
whether it
is entitled to retain them pursuant to the general lien, or whether it is
obliged to deliver them up to Mr Star as the
administrator of the first
plaintiff. The parties do not require me to determine which goods were
delivered to the defendant prior
to the appointment of Mr Star, and which were
delivered after it.


The Precise Issues For Determination
5.  The parties requested
me to order, pursuant to Part 31 rule 2, that the
following issues be decided as separate issues:- 
    1. Whether by reason of s.437A(1)
of the Corporations Law in
    respect of goods received by the defendant from or with the
    consent or knowledge of the first
plaintiff and/or the second
    plaintiff before the appointment of the third plaintiff as
    administrator and over which the defendant
asserts a contractual
    right of general lien:-
    (a) control of those goods passes to the third plaintiff from
    the date
of his appointment as administrator of the first
    plaintiff and the second plaintiff,
    (b) the third plaintiff can demand that
the defendant deliver
    up possession of the goods to the third plaintiff, and
    (c) the third plaintiff can dispose of those
goods and not
    account to the defendant from their proceeds of sale to
    discharge either in whole or in part the indebtedness
of the
    first plaintiff and/or the second plaintiff to the defendant
    arising prior to the appointment of the third plaintiff
as
    administrator.

    2. Whether the defendant by either:-
    (a) retaining possession of goods referred to in question I

   pursuant to its contractual right of general lien; or
    (b) exercising in relation to those goods the contractual power
   
of sale conferred as an incident to the right of general lien
    is entering into, on behalf of the first plaintiff and/or the

   second plaintiff, a transaction or dealing affecting the
    property of the first plaintiff and/or the second plaintiff
    which
is void by reason of being in breach of s.437D(2) of the
    Corporations Law.


6.  I was advised that the resolution of these questions
would be of
assistance in the overall working out of the administration of the first and
second plaintiffs and, accordingly, I order,
pursuant to Part 31 rule 2, that
these matters be determined as separate issues. I was informed that the
parties desired, if possible,
a speedy resolution of the problem without which
the decision may become commercially otiose.


The Essence of The Dispute
7.  Mr
Somerset, on behalf of the plaintiffs, submitted that the effect of the
Law was to give the administrator a right superior to that
of the defendant to
the goods in its possession, which right the defendant had pursuant to the
contract. Mr McNally of Counsel for
the defendant submitted that the rights of
the administrator to the property were subject to and circumscribed by the
contractual
rights into which the company had entered prior to his
appointment, so that the administrator was bound by the terms of the contract
as were the first and second plaintiffs.


8.  It is desirable, in the first instance, to consider the role of the
administrator.
As I have said he may be appointed by the company pursuant to
s.436A(1); or he may be appointed by a liquidator or provisional liquidator
of
a company; or by a person entitled to enforce a charge on the whole, or
substantially the whole, of a company's property provided
the charge has
become, and is still, enforceable. There are certain qualifications on these
rights of appointment to which it is
unnecessary to refer.


9.  Upon appointment there is an obligation on the administrator to convene a
meeting of the company's creditors
to determine whether there should be a
committee of creditors and, if so, who should constitute it. The creditors
may, by resolution,
remove the administrator from office and appoint someone
else as administrator of the company.


10.  Accordingly, the appointment
of an administrator may be brought about by
the act of one of the various parties to which and whom I have referred. I
consider it
is important to keep this in mind when one is seeking to decide
whether an administrator is invested with a superior title to that
given by
the company to another party under a contract prior to the commencement of the
administration. I say that because it seems
to me it would be a somewhat
strange result if either the company itself, or a liquidator or provisional
liquidator, or a chargee,
or the company's creditors could create a situation
whereby a party with contractual rights against the company found those rights
were either defeated or were susceptible of defeat by the appointment of an
administrator, in circumstances which may well advantage
the party appointing
the administrator and disadvantage a party with contractual rights against the
company. To take the present
case it would be strange, in my view, if the
company could appoint an administrator and, by so doing, recover back its
property in
a manner which would defeat the rights of the defendant. Of
course, if that is the true meaning of the Law effect must be given to
it.
However, as Young J said in Commonwealth Bank of Australia v Butterell  (1994)
14 ACSR 343 at 349:- 
    "I do not consider that the Corporations Law should be construed
    as excluding equitable liens which would be otherwise
held to
    exist by a court of equity were it not for the specific
    provisions of Part 5.3A. One should not read a statute as
    over-riding pre-existing rights unless it says so with some
    clarity."


11.  Mr Somerset submitted the Law did, on the presently
relevant topic, speak
with clarity in that s.437A(1)(a) states:- 
    "While a company is under administration, the administrator:
    (a) has control of the company's business, property and affairs;
    and
    ..."


12.  In addition sub-ss.(b), (c) and (d)
give the administrator power to carry
on the business and manage the property and affairs of the company, to
terminate or dispose
of all or part of its business and of any of its
property, and to perform any function and exercise any power, which the
company
or any of its officers could perform or exercise if the company were
not under administration. Further, sub-s.(2) states that nothing
in sub-s.(1)
"limits the generality of anything else in it".


13.  The question is therefore posed whether the administrator, by
virtue of
his control of the first and second plaintiffs business, property and affairs,
is able to treat that property as freed
from any pre-existing contractual
obligations.


A Consideration Of Other Provisions Of Part 5.3A
14.  Mr Somerset considered a number
of other provisions relating to
administrators and, in respect of the power of sale for which the defendant
contends, he relied upon
s.437D(1) as defeating that. It provides:- 
    "This section applies where:
    (a) a company under administration purports to enter
into; or
    (b) a person purports to enter into, on behalf of a company
    under administration; a transaction or dealing affecting
    property of the company."


15.  It is clear to me that this section would refer to a transaction between
the first plaintiff
and the defendant after the administration was entered
into and, by virtue of sub-s.(2), it would be void, unless one of the
exceptions
referred to therein was met. However the present questions look to
the proposed sale of computers and computer parts received by
the defendant
prior to the appointment of the administrator and, for that transaction to be
void, leaving aside the applicability
of the exceptions, the requirements of
s.437D(1)(b) must be met and, relevantly, the transaction must be entered into
"on behalf
of a company under administration". Mr Somerset submitted that a
sale by the defendant would be "on behalf of" the first plaintiff.
Mr McNally
submitted it would be "on behalf of" the defendant in exercise of its power of
sale and, accordingly, not on behalf of
the first plaintiff.


16.  Mr Somerset relied, essentially by way of analogy, on the various
provisions in Division 6 of Part 5.3A
aimed at protecting the company's
property during administration. He noted that pursuant to s.440B a person
cannot enforce a charge
on property of the company during its administration,
except with the administrator's written consent or with the leave of the
Court,
and that pursuant to s.440C the owner or lessor of property used or
occupied by or in the possession of the company cannot take possession
of it
or otherwise recover it during the administration, except with the
administrator's written consent or the leave of the Court.
He noted that
pursuant to s.440D court proceedings cannot be begun or proceeded with except
with the administrator's written consent
or with the leave of the Court during
administration, and that pursuant to s.440F no enforcement process in relation
to property
of the company can be begun or proceeded with during the
administration, except with the leave of the Court and in accordance with
such
terms as the Court may impose.


17.  Section 440G prohibits the Sheriff or the Registrar or other appropriate
officer of the
Court, during the administration, from taking action to sell
property of the company under a process of execution, or from paying
to a
person, other than the administrator, the proceeds of any such sale, or any
money otherwise paid to that officer and, further,
from taking action in
relation to the attachment of a debt due to the company or paying to a person,
other than the administrator,
money received by virtue of the attachment of
such a debt. Further, pursuant to sub-s.(3), the officer must deliver to the
administrator
any property of the company that is in his or her possession
under a process of execution, whenever begun, and must pay to the
administrator
all proceeds or money that are in his or her possession or have
been paid into Court and have not since been paid out.


18.  Sub-section
(8) provides:- 
    "A person who buys property in good faith under a sale under a
    process of execution gets a good title to
the property as
    against the company and the administrator, despite anything
    else in this section."


19.  Division 7 deals
with the rights of chargees, owners or lessors. Section
441 deals with the right of a chargee to enforce the charge and, in the
particular
circumstances specified by s.441A, provides that s.437D does not
apply relation to a transaction or dealing that affects property
of the
company and is entered into by" the chargee, or a receiver or person who may
enforce the charge.


20.  Section 441D provides
that the Court may limit powers of the chargee, and
s.441H provides the Court may limit the powers of a receiver.


21.  Mr Somerset
submitted that the administrator should not be put in a less
advantageous position qua the contractual rights the defendant is asserting,
than he would be qua a chargee. This submission was based on a consideration
of the perceived intention of the provisions of the
Law relating to
administrators.


22.  "Enforce" is defined in s.9 in relation to a charge on property of a
company under adninistration,
and "enforcement process", in relation to
property, is defined as meaning:- 
    "(a) Execution against that property; or
    (b)
any other enforcement process in relation to that property
    that involves a Court or a Sheriff."


23.  The word "execution" is
not defined, although it is generally understood
as signifying the enforcement of or giving effect to a judgment or orders of a
court,
and that this is the meaning is made clear, in my opinion, by sub-s.(b)
of the definition.


24.  "Charge" is defined as meaning:-

    "... a charge created in any way and includes a mortgage and
    an agreement to give or execute a charge or mortgage, whether
    on demand or otherwise."

Therefore, when one returns to s.440B it prohibits a mortgagee enforcing a
mortgage, save in the circumstances
therein referred to. The whole purpose of
Division 6 seems to be to retain the status quo during administration in the
circumstances
therein referred to, save in cases where a Court officer has
obtained property of the company, which is to be accounted for by him
or her
to the administrator. Certain contractual rights and rights to property and
proprietary rights are made subservient to the
administration, at least to the
point where they cannot be enforced, save with the written consent of the
administrator or the leave
of the Court. On the other hand the rights, whilst
not being enforceable, are not destroyed. The administrator has no power, for
example, to have a mortgage discharged without payment of the amount owing or
otherwise to take away the rights it or any other contract
confers.


25.  However, Mr McNally submitted there is nothing in the Law, which relates
specifically to liens or pledges. In these
circumstances, consistently with
what Young J said, he submitted the property of the first plaintiff, which
came into the possession
of the defendant, prior to the appointment of the
administrator, can be dealt with by it in terms of the contract with the first
plaintiff.


The Nature Of The Defendant's Rights
26.  Mr Somerset's fundamental submission was that s.437A(1) gave the
administrator
the control of the first plaintiff's property, that the
defendant had in its possession such property and that, pursuant to the
exercise
of such control, the administrator was entitled to demand the return
of that property and the defendant was bound to comply with
such demand. The
consequence, Mr Somerset readily agreed, would be to destroy the defendant's
contractual rights. He submitted that
consequence flowed from the terms of the
Law to which, essentially, I have referred. He sought, in particular, to
bolster the submission
by reference to the position of a chargee and, at one
stage, he may have submitted that the defendant is, under its contract, a
chargee.
If that be so it would not, on the facts before me, be entitled to
enforce the charge as it does not extend over the whole or substantially
the
whole of the first plaintiff's property.


27.  Mr Somerset referred me to the decision of Pincus J in Seka Pty Limited
(In Provisional
Liquidation) v Fabric Dyeworks (Aust) Pty Limited  (1991) 4
ACSR 455. In that case his Honour held there was no customary lien, so the
respondent had to rely on an express lien. At p.461 he said:- 

   "But, in my opinion, the rights of the lienee did not constitute
    a 'charge' within the meaning of s.262(1)(d) of the Corporations
    Law because the respondent lienee's right is essentially a right
    to retain possession against the lienor; I am also of the
view
    that the circumstance that the express lien gives a right of
    sale does not convert the lien into a 'charge' within the
    meaning of the statute."


28.  As I understand it "charge" in s.262(1)(d) has the meaning attributed to
it by s.9. Hence his
Honour held that a lien coupled with a contractual power
of sale, did not constitute a "charge", at least for the purposes of that
section. His Honour relied on a line of authority, including the decision of
Needham J in Re Trendent Industries Pty Limited  (1983) 1 ACLC 980 at 987,
where his Honour held that possessory liens, as such, did not constitute
charges registrable under s. 100 of the 1961 companies
legislation, because
they depended for their existence on possession, whereas a charge exists
regardless of possession. The decision
in Seka is authority for the
proposition that a lien is not a charge.


29.  Mr McNally submitted that the defendant's contractual
right was not a
charge, but a pledge, because in addition to the lien there was a power of
sale. Goode "Legal Problems of Credit
and Security" (2nd Edition), at p. 10,
stated:- 
    "There are only four types of consensual security known to
    English law:
the pledge, the contractual lien, the mortgage
    and the charge."

He said that the pledgee's interest "goes beyond a mere right
to detain the
asset. It encompasses the right to use the asset at his own risk so long as
this will not impair it; to sell his interest
as pledgee or assign it by way
of gift ....".


30.  At p. 14 it is stated: - 
    "Whilst a possessory lien is generally described
as a right
    conferred by law to detain property until money owed to the
    detainee has been paid, a possessory lien may also
be created
    by contract. It differs from a pledge in that the terms of the
    contract limit the lienee to a right to withhold
possession of
    the asset as security for payment and do not confer a right of
    sale. The lien does not as such constitute a
transmissible
    interest. A purported contractual lien conferring a right to
    sell in the event of default amounts to a pledge."


31.  In Sykes "The Law of Securities" (4th Edition) at p.649 it is stated:- 
    "The pledge or pawn is the first type of possessory
security
    we have so far encountered. It is, however not quite a typical
    example. Both mortgages and possessory securities
partake to
    some extent of the conveyance type of security; under the
    mortgage the mortgagor conveys, in point of form, the
sum
    totality of juristic rights possessed by him; under the
    possessory security he transfers one right only, viz possession.
    Logically therefore, the creditor, apart from special agreement,
    should have one right only, viz the negative right of
 
  withholding possession from the debtor until the debt is
    paid. However, the pledge goes beyond this in giving the
    pledgee,
even apart from agreement, a power to sell on default,
    though not a power to foreclose. This power is clearly in re
    aliena
and not in re propria because the pledgee has not the
    general ownership, which has remained in the pledgor. In other
    words
we have a right of a hypothec character. In this respect
    the pledge differs from the possessory liens which, where
    unaffected
by statute, furnish instances of the true type of
    possessory security. "


32.  At p. 651, in discussing the remedy of sale,
the author states that if
the time for payment was fixed the pledgee may sell immediately on default,
but if no time has been stipulated
the proper course is for the pledgee to
make demand for payment and, in default of payment, he may sell, providing he
gives notice
of his intention so to do to the pledgor. In the present case it
was not suggested the tune for payment had not arisen.


33.  In
Halsbury's Laws of England (4th Edition) Volume 36 at paragraph 128
the power of sale under a pledge or pawn in default of payment
is considered,
it being stated, in paragraph 129, that the right of sale is exercisable by
virtue of an implied authority from the
pledgor and for the benefit of both
parties.


34.  In Gunnedah Municipal Council v New Zealand Loan and Mercantile Agency
Company
Limited  (1963) NSWR 1229, Herron ACJ, with whom Else-Mitchell and
Wallace JJ agreed, adopted the following statement of Cockburn CJ Donald v
Suckling  (1866) LR 1 QB 585 at pp.618-619:- 
    "The learned Chief Justice said: 'We are not dealing with a
    case of lien, which is merely the right to retain
possession
    of the chattel, and which right is immediately lost on the
    possession being parted with, unless to a person who
may be
    considered as the agent of the party having the lien for the
    purpose of its custody. In the contract of pledge, the
pawnor
    invests the pawnee with much more than the mere right of
    possession. He invests him with a right to deal with the
thing
    pledged as his own, if the debt be not paid and the thing
    redeemed at the appointed time. It seems to me that the

   contract continues in force, and with it the special property
    created by it, until the thing pledged is redeemed or sold at
    the time specified. The pawnor cannot treat the contract as
    at an end, until he has done that which alone enables him to
    divest the pawnee of the inchoate right of property in the
    thing pledged, which the contract has conferred on him.'"


35.
 In my view Mr McNally is correct in submitting that the contract between
the first and second plaintiffs and the defendant is one
of pledge, the two
essential elements being the possession by the defendant and its right to
sell. I also consider that his submission
is correct that the administrator
has no greater right to the company's property than the company has to it.
There is, in my opinion,
nothing in s.43 7A, which would justify a contrary
conclusion and, when one considers s.437D it only prohibits a person entering
into a transaction or dealing affecting property of the company, if it is done
"on behalf of a company".


36.  Division 6 deals
with protection of the company's property during
administration and refers to a number of specific instances for the protection
of
the property. However, it does not deal with the position of a pledge in
terms. I do not consider the analogy to a charge is made
out. The Law deals
with specific rights in various ways. The question then is whether a pledge is
subsumed in a "charge". The definition
of "charge" is unhelpful. Goode, at p.
14 describes a charge in the following terms:- 
    "The charge does not depend on either
the delivery of
    possession or the transfer of ownership, but represents an
    agreement between creditor and debtor by which
a particular
    asset or class of assets is appropriated to the satisfaction
    of the debt, so that the creditor is entitled to
look to the
    asset and its proceeds to discharge the indebtedness, in
    priority to the claims of unsecured creditors and junior
    encumbrancers. The charge does not transfer ownership to the
    creditor; it is merely an encumbrance, a weight hanging on

   the asset which travels with it into the hands of third
    parties other than a bona fide purchaser of the legal title
    for
value and without notice."


37.  The distinction Goode draws between a pledge and a charge is consistent
with what Needham J says
and, of course, accords with the decision of Pincus J
in Seka. In the light of these authorities, and bearing in mind that the
distinction
between a charge and a pledge was well understood when the Law was
enacted, it seems to me that there is no reason to 'include in
the definition
of "charge" a pledge and, accordingly, that a pledge does not constitute a
charge.


38.  The conclusion to which
I have come may not seem to be entirely
consistent with the provisions of the Law, which appear to be aimed at
protecting, at least
during administration, the property of the company under
administration, without derogating from the rights of others to that property,
save during the period of administration. I appreciate that because of the way
in which an administrator may be appointed this may
appear to give a right to
the company, for example, to seek to destroy or suspend rights of a creditor.
However, as I have said,
the law has recognized a distinction between a charge
and a pledge and, if the legislature had intended to include a pledge within
a
charge it would not have been difficult to do so.


39.  In Osborne Computer Corporation Pty Limited and Anor v Riddell and Anor
(Cohen J - 18 July 1995 - as yet unreported), his Honour had to consider the
position of suppliers to the first and second plaintiffs
which, pursuant to
supply agreements, retained title to the goods supplied pending payment. A
supplier sought an order pursuant to
s.440C permitting it to take possession
of its products. Cohen J noted:- 
    "The conditions of sale contained in the Samsung agreement
with
    the company provide that property in the goods supplied will
    not pass from the seller to the purchaser, and full legal
and
    beneficial ownership shall remain with the seller, until the
    purchaser has paid the purchase price for the goods so

   supplied."


40.  The plaintiffs submitted the application of the provisions of the Law
prevented the supplier from taking possession
of its goods, permitted the
administrator to sell those goods after incorporating them in computers as
being in the ordinary course
of business, or by leave of the Court, and
allowed the administrator to retain the proceeds of sale, leaving the
retention of title
suppliers to their rights as ordinary unsecured creditors.


41.  His Honour referred to ss.440B and C, and 442B and C. The supplier
opposed the making of the order sought by the plaintiffs on the ground that it
would effectively destroy its contractual rights and,
it was submitted, this
could not have been intended.


42.  Whilst his Honour did not think the position of suppliers was in the
contemplation of the draftspersons of Part 5.3A of the Law, he considered the
description was sufficiently wide to cover suppliers
with rights of retention
of title. He equated, in a general way, the position of sellers, which retain
title pending payment, to
the situation of a bailor and bailee of goods.


43.  Cohen J was required to decide the case upon the interpretation of
s.442C,
and he held that the exceptions provided by sub.s.(2), namely whether
the proposed sale was "in the ordinary course of the company's
business" could
not apply because:- 
    "If goods held under a particular contractual term are not
    or should not be ordinarily
sold then their sale by an
    administrator cannot, in my view, be in the ordinary course of
    the company's business. If they
are ordinarily sold under
    certain agreed conditions then in order that their sale by
    the administrator be the ordinary course
of the company's
    business it must be subject to those conditions."

His Honour continued:- 
    "Thus, goods supplied with retention
of title provisions can,
    subject to the particular terms of the agreement with the
    supplier, be re-sold only until such time
as a demand for their
    return by the supplier is made. The bailment under which the
    goods are held would then be terminated.
In my opinion, it
    could not then be said that it would be in the ordinary course
    of business to sell those goods which under
the contract are
    bound to be returned to the supplier. If, as is the case with
    Samsung, there is provision for sale subject
to the proceeds
    being placed in a separate account, then the ordinary course
    of the company's business in selling those goods
would require
    that the proceeds be retained as agreed.

    If, on the other hand, there are no restrictions as to sale
    and
there are no terms, express or implied, restricting that
    sale and further, if the right of retention has not been
    terminated
by the original supplier, it would seem that the
    sale of the goods, in whatever form, would be a sale in the
    ordinary course
of the company's business if that had been
    its normal activity in the past."


44.  In my view his Honour's careful analysis
of the parties' rights shows the
care which must be taken in determining rights under the Law.


45.  If, contrary to the view to
which I have come and to the authorities to
which I have referred, a pledge is a charge, the question would anise as to
the ability
of the defendant to enforce it. The provisions of s.441A only
apply, as I understand it, if the whole or substantially the whole
of the
property of the company is subject to a charge or charges, in which event the
chargee may enforce the charge before or during
"the decision period", i.e. as
defined. The fact the right of enforcement is limited to charges over the
whole or substantially the
whole of the property of the company is a further
indication to me that one must interpret "charge", albeit within the wide
definition
it enjoys, as having the meaning generally ascribed to it. By that
I mean that if a contractual security arrangement is not otherwise
recognised
as "a charge", it should not be characterised as such by virtue of the wide
definition given the word.


Conclusions
46.
 In my opinion Mr Somerset's principal submission based on s.437A(1)
should be rejected. I do not consider that section, on its proper
interpretation, allows the administrator to destroy rights in property created
prior to the administration save in circumstances
where the Law expressly so
provides. Accordingly, save for those exceptions, the administrator derives no
higher or superior right
than that which the company in administration
enjoyed.


47.  Secondly, I do not consider that the provisions of the Law, in terms
or
by analogy, give the administrator any power over goods the subject of a
pledge. The pledgee is able to exercise the contractual
rights it has, subject
only to a consideration of s.437D(1).


48.  Thirdly, I am of the opinion that a pledge does not, for the
purposes of
the Law, constitute a change.


49.  Even if I were of the view that a pledge is a charge and that the
defendant was
not entitled to exercise its powers to enforce it, I would not
consider the administrator is entitled to a delivery up of the goods.
I am of
this view because the contractual right is not destroyed, but the exercise,
relevantly, of the power of sale, is suspended.
This would have the result
that the goods are sterilised, in a commercial sense, until such time as the
defendant delivers them up
which, presumably, would be upon payment to it of
the amount owing.


50.  A second issue raised is whether, if, as I believe it
is, the defendant
is entitled to exercise the power of sale, it would be doing so "on behalf of"
the plaintiffs. In my view it would
not in the statutory context in which the
words appear: Citizens Airport Environment Association Inc v Maritime Services
Board and
Anor  (1992) 30 NSWLR 207. The sale would be made on its own behalf
for the purpose of recouping a debt owing to it. I do not consider it can be
said that there
would be any agency 'involved in that happening, such that the
defendant could be said to be selling on behalf of the first plaintiff.


51.  I answer the questions as follows:- 
  1. (a), (b) and (c) and 2. No. 
  I order the plaintiffs pay the defendant's costs
of the determination of the
separate questions. 
  I order the exhibit be returned at the expiration of fourteen (14) days from
to-day's
date unless, within that time, an appeal against this decision has
been brought.