Spendright v Classfact [2009] NSWSC 317

In this case the security property was encumbered by a first and second registered mortgage. The mortgagor was placed into administration and the administrator sold the property for a figure apparently above its market value. The administrator obtained consent from the first mortgagee, ING, for the sale but not the second mortgagee.

In earlier proceedings the administrator sought orders pursuant to s 442C(2)(c) of the Corporations Act to sell the property notwithstanding the second mortgagee’s resistance. Those proceedings were settled by consent orders. In return for the second mortgagee providing a discharge it was agreed by all parties that ING would release the second mortgagee from a different mortgage which ING held.

Subsequently the administrator realised that he might have rights of subrogation against the second mortgagee and so sought to reneg on the consent orders. The administrator now proposed that the sale go ahead but the money to pay out ING’s other mortgage be held in Gadens’ trust account pending final resolution. The second mortgagee could not be found to respond to this new proposal so the administrator approached the Duty Judge with only a few hours to spare before the contract expired.

In considering the administrator’s application the Court noted that it had the power to order judicial sale in these circumstances citing New Beach Apartments v Epic Hotels [2007] NSWSC 474] . The Court noted that by previously consenting to the sale the second mortgagee had shown himself happy with the price. Based on the reasoning that the second mortgagee’s position would not suffer as a result, the Court made the judicial sale order. The Court also adopted the unusual course of directing the Registrar or an officer of the Court to sign the discharges if the second mortgagee could not be found in time.

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