Competing priorities: fixed charge versus administrator's statutory and/or equitable lien

The New South Wales Supreme Court has considered the competing priorities between a 'fruits of the action' lien and an administrator's statutory or equitable lien. The decision of Ward J, in Australian Receivables Ltd v Tekitu Pty Ltd (Subject to Deed of Company Arrangement) (Deed Administrators Appointed) & ors [2012] NSWSC 170, dealt with a claim by a former solicitor of a company (later subject to a deed of company arrangement) to a lien or charge over funds paid into court from a controlled moneys account, for unpaid legal fees for pre-administration litigation work.

Her Honour held that:

• an equitable 'fruits of the actions' lien arose in favour of the solicitor over the funds held in court;
• the equitable 'fruits of the action' lien was one that arose by operation of law and thus was not registrable as a charge and is not void against the administrator; and
• the lien prevails over the statutory or equitable lien of Tekitu's administrator and it would not be unconscionable for the solicitor to assert the lien.

This case demonstrates circumstances where a 'fruits of the action' lien will have priority over an administrator's statutory or equitable lien. In particular, the decision highlights the need for administrators to investigate the status of any unresolved litigation and to identify whether there are any unpaid fees owing to current or former legal representatives of the company.