Fleet Financing

No rescue privileges to rescue admins

The Supreme Court of New South Wales considered the application of the “universal principle” in Volkswagen Financial Services Australia Pty Ltd v Atlas CTL Pty Ltd (receivers and appointed managers) (in liquidation) [2022] NSWSC 573, dismissing a claim for equitable lien made by the administrators and liquidators for trading costs and compensation.

Key points to remember

  • Administrators should ensure that they give due consideration to risks and/or secured funding arrangements before deciding to proceed with operations.
  • The “universal principle” does not create an equitable lien on assets or funds that do not have a sufficient connection with the activities of directors.
  • When administrators are working to preserve or realize secured assets, it is useful to keep a clear record of costs with reference to specific ownership and security.

What happened?

Atlas CTL Pty Ltd (receivers and appointed managers) (in Liq) (Atlas) and PJM Fleet Management Pty Limited (Receivers and Appointed Managers) (In Liq) (PJM) are related entities within a group that, through PJM, operated a vehicle rental business and, through Atlas, the retail sale of short-term cars and trucks and the rental of vehicles to carpooling operators.

PJM purchased or leased vehicles through finance companies associated with automakers, including BMW, Nissan, Volkswagen and Toyota (Financing providers), which were then made available to Atlas under a master lease agreement. Each of the financing providers had security on the vehicles they financed, with Nissan and Volkswagen having general security on Atlas.

The directors were appointed on October 22, 2019. On the same day, Toyota appointed a receiver and director of PJM. The directors decided to market the Atlas business as a going concern. An expression of interest campaign was launched, but one of the potential buyers indicated that it would not provide ongoing funding.

On October 28, 2019, the administrators signaled that they would engage with secured creditors if the company was deemed not viable to trade. On the same day, BMW appointed receivers and managers.

A business sale campaign continued but without a secure agreement to cover trading costs.

As of November 19, 2019, there was a substantial trading loss and a liquidation is not expected to produce a return. Other receivers and officers were later appointed by Nissan and Volkswagen, and on November 26, administrators were appointed as liquidators of PJM and Atlas.

As of July 2021, all vehicles subject to safety claims have been sold. By this point, all finance providers had appointed receivers. The Atlas business was shut down and little was realized from Atlas or PJM assets. However, there was a fund of over $5 million from the sale of the vehicles financed by Volkswagen (Volkswagen Fund).

Fair privilege claim

The directors argued that their fees, expenses and compensation totaling approximately $2.4 million were secured by an equitable lien, relying solely on the “universal principle” of Re Universal Distributing Co Ltd (cash) (1933) 48 CLR 171-174 (Universal) as stated in Stewart v Atco Controls Pty Ltd (live) (2014) 252 CLR 307 (Co).

The universal principle is that, where a creditor having security forming part of an administration in liquidation or insolvency, which is taken over, preserved or realized (at the expense of the liquidator or the administrator), the secured creditor cannot conscientiously take advantage of the efforts of the liquidator or the administrator without assuming the costs. Equity creates a charge or lien on a fund created by the realization of this security as a result of these efforts.

The administrators also relied on Primary Securities Limited v Willmott Forests Limited (Receivers and Appointed Managers) (In Liq) (2016) 50 VR 752 (Primary) to the effect that the universal principle can apply even in the absence of funds.

The Directors held that an equitable lien would arise when:

  • the outside director is acting reasonably;
  • the administrator attempts to retain, secure or realize assets;
  • there is a sufficient link between the work performed and the rescue objective;
  • there is a fund (or assets) which may properly be the subject of the lien; and
  • it would be unconscientious for creditors who might profit from the fund (or assets) to do so without acknowledging the administrator’s work.

In general terms, the arguments were that it was reasonable to try to sell the business as a going concern when the secured creditors had taken a “wait-and-see” approach and it would be contrary to order public to discourage appointees from continuing to Commerce.

The claim took what has been called a “global” approach, extending to administration and liquidation costs. Generally, the lien claim focused on Atlas’ goodwill during administration and vehicles after liquidation.

There was initially an argument for an apportionment among the lenders, but eventually the directors’ claim was to be secured for a lump sum against the Volkswagen fund, with the secured creditors having to settle any apportionment among themselves.


The Court dismissed the administrators’ claim for an equitable lien, with Chief Justice Hammerschlag in Eq finding that the claim had failed both in principle and in evidence.

In principle, the universal principal did not help the directors, mainly because the business losses claimed and the remuneration incurred during the administration did not have a sufficient link with the Volkswagen fund.

In terms of proof, the burden of quantification rested on the administrators. The ‘globular’ approach to claims meant that there was a somewhat random allocation of costs allocated to relevant activities and the underlying material was euphemistically referred to as lacking ‘granular identification’.

Application of the universal principle

The Court observed that the expense and the benefit must be directly related, in the sense that the costs allegedly secured by the lien must be incurred exclusively to raise the fund (or maintain or realize the property concerned). The Court concluded that the directors had no role in the maintenance or creation of the Volkswagen fund, but rather that the efforts of the directors were not directed towards the maintenance, preservation or realization of any vehicle, but to their continued use – putting vehicles at risk. and expose them to wear, tear and deterioration.

With respect to the directors’ decision to continue trading, the Court referred to the legal position that a director who decides to trade is personally liable for debts incurred in doing so under Section 443A(1) of the Corporations Act 2001 (Cth) (Corporations Act). The Court found that the directors were very experienced and fully aware that the transactions were at their own risk, which was reflected both in their actions and in the cash flow indicating that further business loss was expected. Accordingly, the Court found that the secured creditors had not been lax in dismissing the directors’ claim.

As to the amount of compensation claimed, the Court was satisfied that it should be approved, but noted that such approval might be of limited practical benefit.

The Court also entered judgment for BMW against the directors for rental costs during the period the directors negotiated the business.


This question reminds directors to ensure that there are secure arrangements in place for funding trading costs and compensation should they decide to go ahead and pursue a sale as a going concern. On the other hand, trading is a gamble and equity will not necessarily come to the rescue.

Certain unique aspects of the facts in this case play a role in the outcome. The nature of the business and the security may have influenced the waiver of the legal lien under Section 443F(1) of the Companies Act at the outset of the hearing.

The nature of the warranty on separate groups of vehicles may also have influenced the overall approach taken to the claim. The parties do not appear to have explored in their argument that part but not all of the warranty was general rather than vehicle specific.

On the question left open by the High Court in Universal and Atco as to whether a fund is necessary, the Court noted the potential practical difficulty of applying the universal principle to an asset other than money, but did not no need to delve into this question. The Court clarified that the decision of the Victoria Court of Appeal in the Primary case does not allow an equitable lien to extend to property other than that which is preserved or realised. The costs must still be incurred exclusively for the purpose of preserving or realizing the specific good.