Receivers, Reap What You Sow: The Decision in CMI Industrial Pty Ltd (In Liq) [2015] QSC 96

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By Nirupa Manoharan, Senior Associate and Jennifer O’Farrell, Lawyer

In Re CMI Industrial Pty Ltd (In Liq); Byrnes & Ors v CMI Limited [2015] QSC 96 (‘CMI’), the Queensland Supreme Court held that ‘priority creditors’ for the purposes of section 433(3) of the Corporations Act 2001 (Cth) (‘Act’) (such as employees) are not entitled to be paid from ‘floating charge’ assets generated by reason of a receiver’s post-appointment trading activities.  That is, such priority creditors are only entitled to be paid from floating charge assets which were available as at the date of the receivers’ appointment.

The decision is of assistance to receivers, who are often confronted with claims by priority employees from assets ‘coming into their hands’.  The decision is also very favourable for secured lenders holding a floating charge (or, since the introduction of the PPSA, a ‘circulating security interest’) who may reap the benefits of a receiver’s profitable trading activities.


In CMI, liquidators and receivers were appointed to CMI Industrial Pty Ltd (the ‘Company’).  The receivers were appointed by Ford Motor Company (‘Ford’) who had a fixed and floating charge over all of the Company’s property.  CMI Limited, the respondent (‘Respondent’) also had a floating charge over the Company’s property, which ranked ahead of Ford’s charge.
After their appointment, the receivers continued to carry on various businesses of the Company with a view to selling the businesses as a going concern. The receivers were unable to sell the businesses, and eventually sold the Company’s assets on a break-up basis.  However, by continuing to trade during their appointment, the receivers generated what the Court described as an ‘inventory trading profit’.

The Respondent argued that this ‘inventory trading profit’ should be distributed to it in accordance with its first-ranking floating charge.  However, the liquidators applied to the Court for directions as to whether inventory trading profit should be paid to priority employee creditors, including pursuant to section 433 of the Act.

Section 433(3) relevantly provides that receivers who assume control of property of a company that is secured by a ‘circulating security interest’ must pay out of ‘the property coming into his, her, or its hands’ certain debts (most common being entitlements owing to employees) in priority to any claim for principal or interest owing under the relevant debenture.  The definition of ‘circulating security interest’ includes a floating charge: section 51C(b) of the Act.

The Court’s Decision

The Court closely examined the purpose behind section 433(3), being to prevent a floating charge-holder from ‘scooping the pool’ of available assets which are generated by the efforts of the employees of the company.  Mullins J’s judgment usefully summarises many of the leading authorities on the operation of section 433 of the Act.

The liquidators argued, amongst other things, that: (a) the use of the words ‘coming into’ in section 433(3) indicated that the obligation on the receivers was an ongoing one that applied to all property that came into the hands of the receivers; and (b) the receivers had been appointed to the ‘all present and after acquired property’ of the Company.  The inventory trading profit was ‘after acquired property’ which would have been subject to a floating charge.  Hence, it attracted the operation of section 433.

By contrast, the Respondent argued that the property was limited to that which had come into the hands of the receivers at the date of their appointment and not ‘property’ obtained by the receivers using the assets of the business following their appointment. The Respondent submitted that this was consistent with the object of section 433, in that it: (a) permits priority creditors to be paid from the proceeds of floating (or circulating) assets; (b) prevents charge-holders from ‘scooping the pool’; and (c) protects priority creditors from the potential consequence of receivers diminishing the available pool of floating or circulating assets.

The Court accepted the Respondent’s submissions and held that the scheme under section 433 of the Act did not confer any statutory entitlement upon the priority creditors in respect of the inventory trading profit.  The date for identifying ‘floating’ or ‘circulating’ assets out of which priority creditors could be paid was the date of appointment of the receivers, and not any date thereafter.


The Courts have now definitively stated that the date for determining the assets available to meet priority creditors’ claims is the date of receivers’ appointment.  The case confirms that any subsequent profits generated by receivers from assets, which otherwise satisfy the characteristic of being ‘floating’ or circulating’ assets, will nevertheless be available to satisfy a secured parties’ floating charge.

Secured parties should carefully consider the impact of this decision, especially when contemplating appointments to trading companies with a high volume of inventory turnaround.

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

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