This week's TGIF considers the decision in
Hussain v CSR Building Products Limited, in the matter of FPJ
Group Pty Ltd (In Liq), in which an ROT clause was held to be
a "security", defeating the liquidators' unfair
On 18 July 2014, FPJ Group Pty Ltd (FPJ Group)
was wound up in insolvency.
The liquidators of FPJ Group sought to recover monies from CSR
Building Products Pty Ltd (CSR) in respect of
eighteen alleged preference payments that were made pursuant to a
credit agreement between FPJ Group and CSR (Credit
The liquidators claimed that FPJ Group was insolvent and unable
to pay its debts under the Credit Agreement as at 21 November 2013.
It was submitted that 18 payments totalling $153,554
subsequently made following 21 November 2013, constituted voidable
transactions as they resulted in unfair preferences under section
588FA of the Corporations Act 2001 (Cth)
Pursuant to section 588FA of the Act, there will only be a
voidable transaction if it results in a creditor receiving from the
company, in respect of an unsecured debt that the company
owes the creditor, more than the creditor would receive from the
company in respect of the debt if the transaction were set
The goods provided by CSR, in respect of the payments the
liquidator was seeking to impugn, were subject to a retention of
title (ROT) clause, pursuant to
which property in the goods would not pass from CSR to FPJ Group
until such time as payment for the goods had been made.
Was the ROT clause a "security" for the purposes of
the unfair preference claim?
Edelman J found that the Credit Agreement's ROT clause could
be considered "security" for the purposes of the unfair
preference prohibition, on the following grounds:
"unsecured debt" was not defined for the purposes of
previous authorities had, for other purposes, considered that
ROT clauses constituted security in respect of payment obligations;
the introduction of a definition of "security
interest" in the 2010 amendments to the Act to accommodate the
new Personal Property Securities Act 2009 (Cth)
(PPSA) regime, which provides that ROT
arrangements constitute security interests, supported the
interpretation that ROT arrangements are a form of security.
The Court held that the presence of the ROT clause in the Credit
Agreement was one ground upon which the liquidators' preference
claim must fail.
Potentially Conflicting Decision
Three days prior to the delivery of the Court's judgment,
the Victorian Supreme Court in Blakeley v Yamaha Music
Australia Pty Ltd  VSC 231, found that a liquidator had
at least an arguable case that pre-PPSA transactions involving ROT
arrangements were unsecured. A final determination was not made by
the Court, in the context that the liquidator only had to show an
arguable case in order to avoid a striking out of its proceedings
in the matter.
The recent case of Hussain v CSR Building Products Limited,
in the matter of FPJ Group Pty Ltd (In Liq) demonstrates that
the Federal Court is willing to accept that traditional ROT
arrangements do amount to security in respect of the underlying
debt, preventing a payment of that debt being impugned as an unfair
preference in the context of insolvency. However, as demonstrated
in the also recent case of Blakeley v Yamaha Music Australia
Pty Ltd  VSC 231, some doubt remains as to the status of
ROT clauses as security in this context, particularly in the case
of pre-PPSA arrangements.
Practitioners should be mindful that there may yet be scope for
arguing that ROT arrangements are not effectively security for the
purposes of the unfair preference prohibition, particularly in the
context of pre-PPSA ROT arrangements.
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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