Going around in circles on section 433? Court identifies when certain assets will be subject to a circulating security interest

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By Ariel Borland, Partner; and Jennifer O’Farrell, Associate

A recent Federal Court of Australia decision contains some important points for receivers who are assessing their obligations under section 433 of the Corporations Act 2001 (Cth) (Act) to pay priority employee creditors out of assets subject to a circulating security interest.  The decision of Gilmour J in Langdon; in the matter of Forge Group Limited (recs and mgrs apptd) (in liq) [2017] FCA 170 (Forge) confirms that the assets which become subject to section 433 must be in existence at the time of the appointment of receivers.

In Forge, tax refunds arising from the Commissioner of Taxation’s (Commissioner’s) amended assessments after the appointment of receivers were found not to be assets subject to circulating security interests for the purposes of section 433 of the Act.

Whilst a useful decision, for the reasons below, we caution receivers from placing too much reliance on the conclusions in the case.  In deciding whether an asset is subject to section 433, it is always important to apply independent analysis as to what the assets in question are and when and how the assets came into existence.  If in doubt, seek legal advice and, if necessary, the direction of the Court.


Receivers were appointed to Forge in 2014 (Receivers).  There was a concurrent appointment of administrators and then liquidators.  Forge is the “head” company of entities within a consolidated tax group, known as the “Forge Group”.  It was liable to pay tax for the Forge Group.

The Receivers lodged an objection to the original assessments and Commissioner ultimately amended his 2012 and 2013 assessments of Forge’s liability to pay tax.  The result was that the Commissioner issued a refund to Forge in the amount of $53.4 million (Refund).  The Receivers applied to the Court for directions under section 424 as to whether the Refund was an asset subject to a circulating security interest within the meaning of section 433 of the Act.  Section 433 mandates that receivers, “pay, out of the property coming into his, her or its hands” priority employee entitlements under section 556(1)(e), (g) or (h) of the Act.  The “property” referred to in section 433 is that which is “comprised in or subject to a circulating security interest”.  If there is available property comprised in or subject to a circulating security interest, the priority employee entitlements must be paid ahead of any amounts payable to a secured creditor.  In this regard, ANZ Fiduciary Services Pty Ltd (ANZ) had a fixed and floating charge over Forge’s property.

Assets which are subject to “circulating security interests” are identified by section 51C of the Act.  These are assets which are, amongst other things, secured by a “PPSA security interest” that has “attached to a circulating asset within the meaning of the Personal Property Securities Act 2009 (Cth)”.  Circulating assets are identified in section 340 of the Personal Property Securities Act 2009 (Cth) (PPSA) as follows:

(1) … the personal property is a circulating asset if:

(a) the personal property is covered by subsection (5) (unless subsection (2) or (3) applies); or
(b) in any other case – the secured party has given the grantor express or implied authority for any transfer of the personal property to be made, in the ordinary course of the grantor’s business, free of the security interest

(5) This subsection covers the following personal property:

(a) an account that arises from granting a right, or providing services…
(b) an account that is the proceeds of inventory;
(c) an ADI account (other than a term deposit);
(d) currency;
(e) inventory;
(f) a negotiable instrument

The Decision

Ostensibly, the Refund bore some of the hallmarks of a “circulating asset”: it was arguably currency and it potentially could have been transferred in the ordinary course of Forge’s business.  However, the Court found that the Refund was not subject to section 433(3) of the Act.

Foremost, the date for determining whether property is subject to 433(3) – in the sense that it is “property coming into [the receivers’] hands” – is  the date of the receivers’ appointment.  Assets coming into existence after this date, such as the Refund, are not caught by section 433.  Gilmour J adopted the Court’s decision in Re CMI Industrial Pty Ltd (in liq) (2015) 105 ACSR 635 in this regard.  We reported on that decision here.

In the particular case of the Refund, the fact that the Refund was in fact paid to the Receivers after their appointment was not the only consideration.  It was also important that the right to receive the Refund (ie, the “chose in action”) arose only after the amended assessment was issued, which was also after the Receivers’ appointment.  In this regard, the proper construction of the relevant tax legislation was critical to the decision.  Not every tax refund will be treated the same way.  Receivers should always consider the tax framework in which they are operating and when rights to receive refunds crystallise.

Furthermore, the Court found that even if the Refund (or the right to receive it) had arisen prior to the Receivers’ appointment, the Refund was not a “circulating asset” within the meaning of section 340 of the PPSA because ANZ’s security documents did not grant Forge express or implied authority to transfer the Refund in the ordinary course of Forge’s business.  Neither was the Refund available to Forge in the ordinary course of business.  Again, not every tax refund will be treated the same way.  Receivers should always check the terms of the relevant security documents and whether such documents allow certain assets to be used within the ordinary course of business.


Forge is a very useful decision for receivers.  However we caution receivers from placing too much value on it, as these cases will inevitably turn on their facts. Receivers are currently coming under a great deal of scrutiny (particularly by the Commonwealth Department of Employment, which administers the Fair Entitlements Guarantee Scheme) as to whether they have accurately identified assets falling within the ambit of section 433 and complied with their obligations under that section. In our experience, what will in fact comprise an asset subject to a circulating interest (falling within section 433) typically requires a great deal of analysis and a consideration of the following factors: (a) what the particular asset is; (b) how it came into existence; and (c) when the asset came into existence.  If in doubt, seek legal advice.

For further information, please do not hesitate to contact us.

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