Australia: Re-run of Re Amerind – Part 2: Circulating security interests and circulating assets

This week's TGIF is the second of a two-part series considering Commonwealth v Byrnes [2018] VSCA 41, the Victorian Court of Appeal's decision on appeal from last year's Re Amerind decision about the insolvency of corporate trustees.

The first part looked closely at what the Court of Appeal did – and did not – decide in relation to how receivers and liquidators should deal with property recovered pursuant to an insolvent corporate trustee's right of indemnity: see Re Run of Re Amerind – Part 1: The Insolvent Corporate Trustee's Right of Indemnity

This second part looks at what is required for an asset to be a "circulating asset" under the Personal Properties Securities Act 2009 (Cth) and what that means for receivers when handling the property of insolvent companies.


The facts were recounted in more detail in last week's piece.

In short, receivers were appointed to the corporate trustee of a trading trust. They traded the business and generated a receivership surplus of approximately $1,600,000.

The receivers sought directions on the issue of whether, in distributing the receivership surplus, they were required to comply with the statutory priority regime applied by of s 433 of the Corporations Act 2001 (Cth). That provision requires that a receiver must pay out of property coming into their hands debts in accordance with the statutory priorities in s 556 of the Corporations Act.

As explored in a Corrs thinking piece from 2017 ( Federal Government Loses Out On Corporate Collapse), if the statutory priorities regime did not apply, the company's trust creditors would be paid before the Commonwealth, which would be left out of pocket for the amounts it had paid to former employees for wages and entitlements.

The central issue depended in turn on two questions:

  • Was the insolvent corporate trustee's right of indemnity from trust assets "property of the company" for the purposes of s 433 of the Corporations Act?
  • Did the receivership surplus fall within the ambit of property which is secured by a "circulating security interest"?
  • In this week's TGIF we look at the second question.

In this week's TGIF we look at the second question.


Like with many issues in this area, the answer to the second question depends on interlocking terms and definitions in the Corporations Act and the PPSA:

  • under s 433(2) of the Corporations Act, the statutory priority regime applies to property where a receiver is appointed by holders of debentures secured by a "circulating security interest" and property subject to such an interest comes into their hands;
  • under s 51C of the Corporations Act, a circulating security interest is defined to mean a security interest that is a "PPSA security interest" where that interest has attached to a "circulating asset" under the PPSA, and the grantor has title to the asset; and
  • under s 340 of the PPSA, a "circulating asset" is defined in detailed terms based on the character of the asset (such as debtor accounts), and there are exceptions for where the secured creditor has taken "possession" or "control" of the asset.

Once you have looked at the detail, it becomes clear that the provisions turn on what is a "circulating asset".

At a broad conceptual level, the effect of s 340 of the PPSA is that property used or generated in running the business – such as debtor accounts and inventory – will generally be a "circulating asset" unless a secured creditor has already taken possession or control of it (that is, taken it out of "circulation").


At first instance, the trial judge held that the right of indemnity itself had to meet the statutory test of a circulating security interest.

His Honour held that the right did not meet the detailed terms of s 340 of the PPSA as to what is a "circulating asset", meaning that the statutory regime did not apply.


The Court of Appeal overturned the trial judge's decision, holding that s 433(3) requires that the priority regime must be applied to such property of the company as constitutes circulating assets within s 340 of the PPSA.

Importantly, the Court clarified that whether an asset is a "circulating asset" is to be determined based on its characteristics as at the time the receiver is appointed, not when the security interest is granted.

In this case, the property to which the receivers had recourse in generating the receivership surplus were "circulating assets" under s 340 of the PPSA – such as cash in a trade account, funds advanced under debtor finance facilities, and the proceeds of inventory realisation.

Therefore, the receivership surplus had to be distributed according to the statutory priority regime. Much of this would be expected to go to the Commonwealth, which had paid more than $4,000,000 to former employees for wages and entitlements.


The Court of Appeal has gone a long way to clarify the complicated operation of s 433 of the Corporations Act. Essentially, receivers can now answer the question of whether certain property must be distributed in accordance with the statutory priority regime by asking themselves one question:

Was this property a "circulating asset" under s 340 the PPSA as at the time that I was appointed?

Granted, this will not always be an easy question. It will often depend on detailed factual questions about whether a secured creditor has taken possession or control of an asset. These issues are more extensively explored in a recently published Corrs thinking piece ( Is a Non-Circulating Security Interest Really Non-Circulating?).

In short, given the complexity of the s 340 provisions and the fact-specific exceptions, it will often be a question that requires careful and considered investigation and advice.

However, as mentioned in last week's piece, the importance of these provisions and the ongoing disputes in relation to their interpretation may mean that the Court of Appeal's decision will make its way up to the High Court.

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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