Stored Mossgreen art and antique rental and insurance liability issue flares

Stored Mossgreen art and antique rental and insurance liability issue flares
Stored Mossgreen art and antique rental and insurance liability issue flares

The judge in the ongoing Mossgreen court hearings has made an order that the BDO administrators are justified in not returning the auction goods before the Full Court rules on the appeal of an earlier judgement on the fate of the valuable art and antiques currently caught up in the collapse of the auction house.

"I will make an order to that effect," Justice Perram said yesterday.

But the issue of the ongoing storage costs at the Armadale (pictured) and Clayton premises has become the centre of an unravelling legal embroglio.

His honour noted the issue was one of "spot fires' that had arisen during the voluntary administration.

BDO's James White had urgently sought by way of interlocutory application a series of directions to protect the besieged accountancy firm in terms of storage rental and insurance costs going forward.

"The effect of my decision is that the administrators, to the extent that they have been conducting the process of looking after and attempting to return by means of orderly stocktake the consigned goods to the consignors, have acted outside the functions which are conferred on an administrator and, accordingly, they are not entitled to indemnity or remuneration in respect of that," Federal Court judge Nye Perram noted yesterday.

"The consequence of that conclusion, so far as rent which has been paid in the past is concerned, is that the rent is the administrators’ cost," he noted.

BDO are appealing an earlier judgement that ruled the fee-seeking administrators were "intermeddling" in other people's goods in circumstances "where they had not been invited to do so, were not performing their statuatory functions and had not been appointed receivers" when BDO sought to require the consignors to pay a levy for the return of their goods.

There was a stocktake that cost more than $1 million which Federal Court judge Nye Perram noted could have been court approved if permission had been sought by BDO prior to its undertaking.

"If the Full Court reverses my decision, then the administrators will be entitled to recover that rental and insurance cost by means of the equitable lien which will, by that time, have been reinstated," Federal Court judge Nye Perram noted.

"If they are unsuccessful in the appeal to the Full Court, then they will have no equitable lien and they will have no entitlement to be reimbursed in respect of the rent.

"The difficulty with the proposed interlocutory orders which are being sought is that, although couched, as Mr Foreman of counsel put it, as if it were an interim stay, they are not actually interim in effect.

"If I now make an order, as is sought, that the administrators are justified in causing the company to retain and to continue to pay the rent, then, even if the Full Court upholds my decision, at least for the period covered by that direction, the administrators will have been acting within their statutory remit.

"This is because I will have so held this afternoon, even though, on this hypothesis, I will have held in a final order that the administrators are not entitled and the Full Court will have upheld that.

"That is not a situation which seems to me to be possible.

"I doubt whether I have the power to make the orders which are sought in relation to trying to put the administrators in a position where they can pay the rent and be sure that it has got to their account. 

"Even if I do have the power, I would not, as a matter of discretion, exercise it for the reasons which I have given.

"I therefore refuse that aspect of the interlocutory application.

"On the other hand, the administrators are also concerned that, if consignors begin turning up at the premises in the next day or so before the Full Court appeal and demand their goods and the goods are returned to them, and if thereafter the administrators are successful in their Full Court appeal, they will have lost their lien because the goods will have been gone.

"This seems to me to be an unanswerable submission.

"I therefore accede to the suggestion that I should make an order that the administrators in substance would be justified in not returning the goods before the disposition of the Full Court appeal and I will make an order to that effect."

The auction house held a large quantity of goods belonging to other people, consisting of:

(a)  goods delivered to it to be auctioned but which had not yet been auctioned at the time the administrators were appointed;

(b)  goods delivered for auction but which had failed to sell and which were awaiting collection by their owners; and

(c)  goods which, although successfully sold at auction, had not yet been collected by the successful bidder.

The judge noted a number of persons whose goods were successfully sold at auction by Mossgreen now claim that the money received by it from their respective purchasers is held on trust for them and is not, therefore, available for general creditors.

The three-cornered contest between the administrators, the trust-asserting consignors and the secured creditor is to be determined by the court later this year.

The judge noted the administrators have in the meantime two alternate interests in recovering the cost of the stocktake and related expenses from the consignors.

"On the one hand, if the secured creditor’s claim for $6 million and the trust claims are unsuccessful then the administrators will be entitled to recover the stocktake expense under their indemnity out of the company’s assets conferred by s 443D of the Act.

"However, this will significantly dilute the return to unsecured creditors as Mr White acknowledged.

"On the other hand, if the secured creditor is successful in asserting his security (or the trust claims succeed), then the administrators will bear the costs themselves since there will be no company property available from which their indemnity may be acquitted.

"In either case, the administrators have a motive to seek to have the consignors meet the cost of the stocktake."

Jonathan Chancellor

Jonathan Chancellor

Jonathan Chancellor is one of our authors. Jonathan has been writing about property since the early 1980s and is editor-at-large of Property Observer.

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