Receivers may be personally liable for body corporate levies – Appeal Court

The Court of Appeal has found that receivers can be personally liable for body corporate levies accrued during a receivership.

The judgment is based on a broader interpretation of the relevant provisions in the Receiverships Act 1993 than applied by the High Court in Body Corporate 162791 v Gilbert, and reverses that decision.1

Receivers should be wary of the broad reach of section 32(5) of the Receiverships Act, which creates personal liability for rent and other payments due under agreements relating to the use, possession or occupation of property in receivership.

Background

The body corporate was chasing John Gilbert, the receiver of QSM Trustee Limited (also in liquidation), for payment of outstanding body corporate levies, along with interest and costs, for the five units owned by QSM in the Mid City complex in central Auckland. The Court of Appeal was presented with two issues:

whether Mr Gilbert was personally liable under s 32(5) of the Receiverships Act 1993 (the Act) to pay the body corporate fees and, if so whether his liability should be limited or excused under s 32(7) of the Act? Liability for body corporate fees

The section makes receivers liable for rent and other payments that accrue under pre-receivership leases or rental contracts. Section 32(5) of the Act provides that a receiver is personally liable for "rent and any other payments becoming due under an agreement" subsisting at receivership "relating to the use, possession, or occupation by the grantor of property in receivership." The purpose of these provisions, the Court noted, is to ensure that receivers do not obtain benefits for the debtor company or the secured creditor without paying for them.

Due under an "agreement"?

At the High Court, Associate Judge Abbott considered that the word "agreement" could be defined as "a negotiated and typically legally binding arrangement."2 He did not consider that body corporate levies, payable under the Unit Titles Act 2010, fell within the statutory definition. While acknowledging that the wording of the statute is "rather awkward", the Court of Appeal rejected the High Court's "narrow and legalistic construction" of "agreement",3 saying that the ordinary meaning of the word, as well as the drafting of s 32, indicated that it was intended to be of "wide import". In any event, on the facts of the case, the Court noted that a legally binding agreement existed between QSM and the other unit owners at the property that created a...