Australia: Not so perfect solution - Court relief sought to avoid automatic vesting of security interest

This week's TGIF considers a recent Federal Court decision in which relief was sought under section 588FM of the Corporations Act to ensure a security interest perfected after the 'critical time' did not automatically vest.


On 7 April 2016, administrators were appointed to OneSteel. OneSteel, a member of the Arrium Group of Companies, subsequently entered into a deed of company arrangement.

Prior to entering administration, OneSteel used plant and equipment hired from K.J Renfrey Nominees Pty Ltd atf The Renfrey Family Trust (hereinafter referred to as 'Renfrey'). After OneSteel was placed into administration, Renfrey discovered that it had incorrectly registered its security interest under a hire services agreement against OneSteel's parent company, Arrium Limited.

A dispute arose as to whether the security interest had vested in OneSteel due to the ineffective registration under the Personal Property Securities Act 2009 (Cth) (PPSA).


The OneSteel administrators did not pursue their claim that the security interest had vested under s 267 of the PPSA. Instead, the parties entered into a new agreement whereby Renfrey would be granted "new" security interests over the existing plant and equipment.

Furthermore, the administrators agreed they would relinquish any interest in the collateral and do all things necessary to ensure an effective registration for the purposes of the PPSA.

On 13 December 2016, within 20 days of the security interest arising, Renfrey registered its security interest in the plant and equipment on the PPSA.


Despite the agreement reached between the parties, and the subsequent perfection on the PPSR, the parties approached the Court due to a concern that the new security interest may have automatically vested in OneSteel by reason of s 588FL(4)(b) of the Corporations Act 2001 (Cth).

That section provides that a security interest will vest in the company [OneSteel] if it first becomes enforceable against third parties after the date of the winding up (or the 'critical time'). The 'critical time', in this instance, was the date the administration began i.e. 15 April 2016.

The parties contended it was unclear as to whether s 588FL(4)(b) was engaged because of the uncertain language of s 588FL(2).

Davies J considered this case to be an appropriate vehicle to grapple with the construction of s 588FL in relation to its application to a security interest granted and registered after the insolvency event. This was particularly so in light of the reasons of Brereton J In the matter of OneSteel Manufacturing Pty Ltd (administrators appointed) [2017] NSWSC 21 (OneSteel) and, specifically, his Honour's remarks at [70] that s 588FL applied only to a security interest that was perfected at the 'critical time'.


Davies J held that section 588FL read as a whole covered security interests granted after the 'critical time'. In his Honour's view, this construction avoided the anomalous result that s 588FL would only apply to security interests arising after the critical time but registered before they arise and not to security interests arising after the critical time but registered after they arise.

In respect of the remarks of Brereton J at [70] in OneSteel, Davies J observed that his Honour was there concerned with whether s 588FL applied to a security interest that had been defectively registered before the critical time and not a security interest arising after the critical time.

In support of his construction, his Honour considered the word 'when' in s 588FL(2)(a) did not import the requirement that, for s 588FL to apply, the security interest must be enforceable and perfected at the time it arises. Rather, 'when' included the meaning of "upon or after which; and then" such that for s588FL(2)(a) to apply, enforceability and perfection could apply after the 'critical time'.


As a consequence of this construction, his Honour held that s 588FL was engaged by reason of s 588FL(2)(b)(ii).

Pursuant to that section, if a security interest is registered after the insolvency event, the interest will vest irrespective of whether it is registered within 20 business days after the security agreement came into force. As such, but for an order under s 588FM, the security interest would vest in OneSteel.


An order under s 588FM, to avoid the operation of s 588FL on 'just and equitable grounds', will depend on the factual context and the interests of creditors.

In circumstances where there had been no delay in registration, and no prejudice caused to creditors who transacted with the company without notice of the interest, his Honour considered it just and equitable to fix a later time for the purposes of s 588FL(2)(b)(iv) such that the vesting provisions were not engaged.


Extensions of time to register under section 588FM are more commonly sought in circumstances where a creditor has failed to perfect their interest within a certain time prior to the winding up.

Following this decision, administrators, and those whose assets are necessary for the continued operation of the business, should be mindful of making an application for such an order to avoid automatic vesting of a security interest which arises under a new security agreement entered into post-appointment.

In such circumstances, the court may make an order that the commercial arrangement is in furtherance of the objects of Part 5.3 of the Act and, as such, an order to avoid automatic vesting may be just and equitable.

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.

Chambers Asia Pacific Awards 2016 Winner – Australia
Client Service Award
Employer of Choice for Gender Equality (WGEA)

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”

Mondaq Advice Centre (MACs)
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.