Australia: Priority and the circulating security interest: timing is everything

Last Updated: 10 March 2017
Article by Scott Guthrie
Services: Banking & Finance, Restructuring & Insolvency
Industry Focus: Financial Services

What you need to know

  • The Federal Court has clarified that when a receiver receives property after their appointment and that property is not produced in a company's ordinary course of business, it will not be subject to the obligation to pay the company's other priority creditors, as provided by section 433 of the Corporations Act 2001 (Cth).
  • The decision issued this week confirms that trading profits generated by a receiver, as well as payments that become payable to a company consequent upon its insolvency, will not be property created in the ordinary course of business.
  • For banks, the decision is a reminder that it is important to check there are appropriate procedures in place to ensure that property over which security is intended to be 'fixed' is not, in fact, circulating and potentially subject to section 433.

This week, the Federal Court provided further clarity about what constitutes property which "com[es] into [a receiver's] hands" for the purposes of section 433 of the Corporations Act 2001 (Cth) (Corporations Act). The Court confirmed that the interpretation of this phrase is determined by reference to property which existed at the date of the receiver's appointment and not after it.

In the Forge decision,1 the Court followed an earlier decision of the Supreme Court of Queensland in CMI Industrial Pty Ltd (in liq)2 (CMI Industrial). It also highlighted the significance of the definition of 'circulating asset' in the Personal Property Securities Act 2009 (Cth) (PPSA) which, in part, focuses on property 'made' in the ordinary course of business.

The Forge decision will be welcomed by both insolvency practitioners and their appointing secured creditors. It confirms that when a receiver receives property post-appointment which is not produced in a company's ordinary course of business, that property will not be subject to the obligation to pay the company's other priority creditors.

Section 433 of the Corporations Act

Section 433 provides that where a receiver is appointed prior to a winding up of a company by a secured creditor pursuant to a circulating security interest "the receiver or other person taking possession or assuming control of property of the company must pay, out of the property coming into his, her or its hands" certain debts in priority to the secured creditor.

The broad policy behind section 433 is to ensure that employees whose labour generates the receivables and other property of a company are not disadvantaged in an insolvency scenario (by not receiving their entitlements) in circumstances where a creditor with the benefit of a circulating security interest could later, absent the statutory prohibition, 'scoop the pool' of the company's assets. A receiver's obligation is to first account to statutory priority creditors (mainly employees) and continues in circumstances where a liquidator is subsequently or concurrently appointed.

However, as section 433 makes clear, it only applies to upset the natural order of the secured creditor's priority by requiring payment to statutory priority creditors "out of the property coming into" the receiver's hands which is comprised in or subject to a circulating security interest.

The question then arises: what is 'property' for the purposes of section 433 and how is that issue determined?

The Forge facts in brief

Forge is a consolidated tax group for the purposes of relevant tax legislation. It was liable for all tax liabilities of the Forge Group and for lodging returns. Forge had been issued with tax assessments for previous financial years on the basis of its estimated annual income. Upon the appointment of the receivers, many of its trading contracts were terminated, thereby rendering the assessments issued (in retrospect) inaccurate. As a result of that inaccuracy, the ATO refunded over $53 million to Forge (the Refund).

The issue for the Court to consider was whether the Refund was 'property' captured by section 433 (meaning that it ought first be distributed to priority creditors) or property that instead was received for the benefit of the receivers (and their secured appointing creditor).

The receivers sought directions that they were entitled to treat the Refund as falling outside the ambit of section 433. The Australian Government Department of Employment (the Department, acting as contradictor) submitted that the Refund was captured by that section (as it was 'property' for the purposes of section 433) and that the statutory priority outlined therein ought to apply.

What is 'property' for the purposes of section 433?

The first thing to say is that section 433 only applies to property subject to a circulating security interest. So what is a circulating security interest? This is determined by reference to:

  • section 51C of the Corporations Act (which defines the term)
  • section 340 of the PPSA (which clarifies the definition in the Corporations Act by in turn defining a 'circulating asset'), and
  • the terms and conditions of the security interest itself.

Broadly a circulating security interest applies to 'free assets' of a company; that is, those assets which the secured creditor permits the borrower to use in the ordinary course of its business.

Against this background, the question becomes: does section 433 apply only to property which 'exists' as at the date of receiver's appointment, or does "property coming into [the receiver's] hands" also include future property?

The Court's answer in CMI Industrial

In CMI Industrial, the Supreme Court of Queensland held that section 433 did not afford certain creditors priority over property that was subject to a circulating security interest which comprised of trading profits made by the receivers after their appointment.

The Court's answer in Forge

As the Federal Court noted in Forge, "applying CMI Industrial, 'property' the subject of a floating charge, which may have been future property at the time the floating charge was granted, must exist and be identifiable as at the date of the receivers' appointment (emphasis added) to be caught by the operation of s 433".3

In Forge, the Department argued that the CMI Industrial case was distinguishable on the facts. This was because in Forge, the receivers did not trade and make profit, but simply received into their hands the Refund, which was referable to the former operations of the Forge Group.

The Federal Court rejected that argument. Firstly, and as above, section 433 only applies to property that 'existed' at the date of the receiver's appointment. The Refund clearly did not. Secondly, the Refund arose by virtue of Forge's insolvency and the subsequent termination of trading contracts. It did not arise in the ordinary course of Forge's business.

The Department also argued that to the extent that the secured creditor's circulating security interest permitted Forge to deal with tax receipts, it did not matter when the Refund was received because the Refund, whenever received, was property contemplated by the terms of the circulating security interest. The Court also rejected that argument on the basis that section 340 of the PPSA defines a circulating asset as one which the secured party, amongst other things, gives implied authority for any transfer of property free of the security interest in the ordinary course of business. Clearly the receipt of the Refund consequent upon an insolvency did not meet that requirement.

Key takeaways

There are a number of takeaways for insolvency practitioners and banks.

  1. Section 433 is clearly limited in its operation to property already 'in existence' at the time of the appointment of receivers (eg receivables and other debtors). It will not operate to capture property which 'comes into existence' after that date.
  2. As a corollary to the above, in accordance with the broad policy behind section 433, the receiver's obligation is likely to only be activated and applied to property which the employees of the company have 'generated', such as inventory, receivables and other 'free assets'.
  3. In accordance with decision in CMI Industrial, trading profits generated by a receiver will not be subject to the obligation under section 433 as that 'property' cannot be said to have been produced in the ordinary course of business.
  4. Payments which become payable to the company consequent upon insolvency (such as tax refunds and other adjustments) will not fall within section 433 as it is property created after the date of receivership and otherwise outside the ordinary course of business.
  5. The Forge case is a reminder to banks to check they have appropriate procedures in place to ensure that property over which security is intended to be 'fixed' is not in fact circulating and potentially subject to the application of section 433. For example, a security interest over a bank account which is not a term deposit may be automatically perfected by control. However, in order to avoid the potential future operation


1 Langdon, in the matter of Forge Group Limited (Receivers and Managers Appointed) (in Liq) [2017] FCA 170
2 CMI Industrial Pty Ltd (in liq) (2015) 105 ACSR 635.
3 Langdon, in the matter of Forge Group Limited (Receivers and Managers Appointed) (in Liq) [2017] FCA 170 at [63].

This article is intended to provide commentary and general information. It should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this article. Authors listed may not be admitted in all states and territories

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.