In Re CMI Industrial Pty Ltd (in liq); Byrne &
Ors v CMI Limited  QSC 96, liquidators sought directions
as to whether they were required to pay trading profits made by the
receivers to priority creditors under s433 of the Corporations
Shortly before the liquidators' appointment, receivers were
appointed to the company under a fixed and floating charge. The
receivers sold inventory on hand at the time of their appointment
and the proceeds were paid to priority creditors. In order to try
to sell the business, the receivers continued to operate various
businesses of the company, purchased additional inventory for
manufacture and processing and generated trading profits as a
The respondent also held a charge over the company, although it
was not the appointor of the receivers. The respondent claimed that
the trading profits made by the receivers should be paid to it in
accordance with its charge.
The liquidators contended that the receiver's trading
profits should be paid to priority creditors under s433.
In relation to circulating security interests (including
floating charge assets), section 433(3) provides that the
"...must pay, out of the
property coming into his, her or its hands, the following debts in
priority to any claim for principal or interest in respect of the
The liquidators considered that the receivers' obligation to
pay priority creditors under s433 was ongoing and applied to all
property "coming into" the receivers' hands,
including property acquired after the date of the receivers'
In rejecting the liquidators' arguments, the Supreme Court
of Queensland held that:
The scheme of priority under s433 revolves around the date of
the receiver's appointment and operates in respect of assets
that are identified as being subject to a circulating security
interest (formerly the 'floating' part of a fixed and
floating charge) as at that date.The property "coming
into" the hands of the receiver is the property which is
identified as being secured by the circulating security interest at
the date of the receiver's appointment.
Accordingly, s433 does not confer any statutory entitlement on
priority creditors in respect of trading profits made by receivers
conducting the business of the company after the date of
their appointment as that profit was not an asset identifiable at
the date of the appointment of the receivers.
This decision confirms that priority creditors do not have a
statutory entitlement under s433 to the receiver's trading
profit and reaffirms the importance of ascertaining which assets
are subject to a circulating security interest as at the date of
the receiver's appointment.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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A recent NSW decision has implications for liquidators of trustee companies dealing with trust funds and priority debts.
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