Judicial Clarity for FEG and Receivers on Circulating Assets



Global Publication March 2017

In an important decision the Federal Court has provided clarity as to the date for fixing the categorisation of assets for the purposes of s 433 of the Corporations Act 2001 (Act) following the appointment of receivers and managers (Receivers) and as to the operation of the Personal Property Securities Act 2009 (PPSA).


Section 433 of the Act requires Receivers to pay specified categories of debts or claims (Priority Creditor Claims) out of property subject to a circulating security interest in priority to the claims of the secured party.

Prior to the introduction of the Personal Property Securities Act 2009 (PPSA):

  • s 433 provided Priority Creditor Claims were to be paid out of floating charge assets (ie those assets that the company was free to deal with in the ordinary course of business without seeking the secured party’s permission for the dealing); and

  • the appointment of external administrators to a company:

- did not prevent an appropriately drafted charge over future property attaching to property acquired after the date of appointment of external administrators (Relevant Date)

- automatically crystallised a floating charge. Any property acquired by the company after the Relevant Date would therefore be subject to a fixed charge.

However, s9 of the Act defines a “floating charge” to include a charge that conferred a floating security at the time of its creation but has since become a fixed or specific charge.

Given the PPSA abandons the concept of crystallisation of floating charges, can a circulating security interest now attach to future property created or acquired by Receivers after the Relevant Date which did not exist and was not identifiable at the time of the appointment?

In Langdon, in the matter of Forge Group Ltd (Receivers and Managers Appointed) (In Liquidation) [2017] FCA 170 delivered on 1 March 2017 (Re Forge), The Honourable Justice Gilmour firmly rejected that proposition and gave directions to the effect that a $53 million tax refund received after the appointment of Receivers was not caught by s 433 and was not subject to a circulating security interest.


Voluntary administrators were appointed to Forge Group Ltd (Forge) and a number of its subsidiaries (Forge Group) on 11 February 2014.  Later that day, Forge’s secured party appointed Receivers.

The Forge Group was an income tax consolidated group for the purposes of Part 3-90 of the Income Tax Assessment Act 1997 (ITAA97). Forge was the head company of that group.  In that capacity it became liable for the tax of the Forge Group and lodged assessments of the group’s taxable income.

Prior to external administration, members of the Forge Group had routinely entered into long term contracts to perform major mining project works. As a consequence of the appointment of external administrators, a number of those contracts were terminated.

Forge had estimated anticipated profits on those long term contracts for the purposes of income tax returns for the financial years ending 30 June 2012 (FY12) and 30 June 2013 (FY13).  Upon the termination of the contracts, it became possible to ascertain the actual total profit or loss derived from those contracts.  Following a review of Forge Group’s consolidated income tax position for FY12 and FY13 the Receivers lodged an application/objection under s 170(9) of the Income Tax Assessment Act 1936 (ITAA36).  That objection was accepted and resulted in the Australian Taxation Office refunding Forge approximately $53 million (ATO Refund).

The Application

The Receivers sought directions pursuant to s 424 of the Act as to whether the ATO Refund was property comprised in or subject to a circulating security interest which must be paid to satisfy Priority Creditor Claims pursuant to s 433(2) of the Act or whether it could be paid to the secured party. The Australian Government Department of Employment (FEG), acted as contradictor.

Whilst case law to date had made it relatively clear that (relevantly) an employee’s entitlement to priority was fixed as at the Relevant Date, the issue of the date for fixing the property under the floating charge which might be available for Priority Creditor Claims had been uncertain.

In Re CMI Industrial Pty Ltd; Byrnes v CMI Ltd [2015] QSC 96 (Re CMI) Mullins J found that s 433 of the Act is subject to a temporal limitation.  That is, “property” the subject of the floating charge, which may have been future property at the time the floating charge was granted, must exist and be identifiable as at the Relevant Date to be caught by the operation of s 433.

In Re CMI the subject property was trading profits made post-appointment by Receivers.  However, in Re Forge the companies effectively ceased trading following the appointment of the Receivers and the ATO Refund was in respect of tax paid by the companies prior to their appointment.

As would be expected of a contradictor, FEG submitted the decision in Re CMI was plainly wrong, distinguishable on the facts or the limitation on the scope of s 433 that it supported should not be adopted on a number of grounds.

The Decision

Justice Gilmour rejected those submissions and found that property must be identifiable and exist as at the Relevant Date to be the subject of a circulating security interest. He said that were it to be otherwise, a floating charge (using pre PPSA terminology) would, in effect, float indefinitely even after the appointment of Receivers.

That finding meant it was not necessary to determine whether the ATO Refund was property subject to a circulating security interest. However, His Honour went on to consider the submissions made in that regard.

In a helpful analysis of the operation of the PPSA in the context of the provisions of the Forge GSA (and other financing documents) he determined that an asset is only circulating within the meaning of s 340 of the PPSA when it circulates in the ordinary course of business as permitted by the secured party. His Honour concluded that that the express constraints in the Forge GSA did not permit Forge to expressly or impliedly deal with property free of the security and that there was not an ordinary course of business after the Relevant Date.


The decision in Re Forge provides guidance to practitioners that:

  • property must be identifiable and exist as at the Relevant Date to be the subject of a circulating security interest and caught by s433 of the Act; and

  • there is not an ordinary course of business after the date of appointment of external administrators.

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