[vc_row css_animation=”” row_type=”row” use_row_as_full_screen_section=”no” type=”full_width” angled_section=”no” text_align=”left” background_image_as_pattern=”without_pattern”][vc_column][vc_column_text]A lien is defined typically as “a right to keep possession of property belonging to another person until a debt owed by that person is discharged” or, in other words, it is a form of unregistered security that we need to be aware of.
A recent case highlights how a lawyers lien was said to attach to specific debtor monies on the appointment of the liquidator. Case: Moray & Agnew v Shade Systems Pty Limited (In Liquidation) [2020] NSWSC 1186
Say Lawyer A acted for Smith Pty Ltd (SPL) in its debt recovery action against principal contractor, XYZ Builders. SPL was successful in obtaining a $200k+ costs orders against XYZ Builders, but had yet to complete its proceedings before having a court liquidator appointed to it (by the ATO).
Lawyer A is owed significant sums from SPL for its pursuit of XYZ Builders, and so applies to court for orders that it is entitled to a lien over the costs order.
Lawyer A was successful despite:
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- the liquidator having a defeasible right to the cost order proceeds; and
- XYZ Builders lodging a Proof of Debt (POD) in the liquidation for liquidated damages against SPL – it was argued that they have a right of set-off, per s 553C of the Corporations Act 2001. The Court said this may have extended to the Liquidators claim, but not Lawyer A’s, due to a lack of mutuality.
This kind of lien is called the “fruits of the action” lien.
Key Takeaways
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- Keep an eye out for POD’s lodged by lawyers
- Don’t bank on collecting debtor monies when the debtor and company were in pre-appointment litigation
- The PPSR is not the only way in which security can be granted to a creditor
- s553C is a complicated provision, containing a number of threshold requirements. Intention, commensurability and mutuality are key, but did you know that set-off also exists outside 553C as an equitable right?
Article written by Matthew Hudson – Senior Manager, Brisbane[vc_empty_space height=”20px”][/vc_column_text][/vc_column][/vc_row][vc_row css_animation=”” row_type=”row” use_row_as_full_screen_section=”no” type=”full_width” angled_section=”no” text_align=”left” background_image_as_pattern=”without_pattern”][vc_column width=”2/3″][social_share_list][/vc_column][vc_column width=”1/3″][/vc_column][/vc_row][vc_row css_animation=”” row_type=”row” use_row_as_full_screen_section=”no” type=”full_width” angled_section=”no” text_align=”left” background_image_as_pattern=”without_pattern”][vc_column][templatera id=”9945″][/vc_column][/vc_row][vc_row css_animation=”” row_type=”row” use_row_as_full_screen_section=”no” type=”full_width” angled_section=”no” text_align=”left” background_image_as_pattern=”without_pattern”][vc_column width=”1/3″][/vc_column][vc_column width=”1/3″][qode_button_v2 target=”_self” icon_pack=”font_elegant” fe_icon=”arrow_left” hover_effect=”” text=”Back to the Blog” link=”https://svpartners.com.au/bottom-line”][/vc_column][vc_column width=”1/3″][/vc_column][/vc_row]