The recent decision of Langdon, in the matter of Forge Group Limited (R&M App)(In Liq) [2017] FCA 170 provided an opportunity for the Court to provide guidance on a number of areas including, of particular interest to financiers, when is the relevant date of assessment for fixing assets the subject of section 433 of the Corporations Act 2001 (Cth) (Act).
In this case the receivers of Forge Group Limited (Forge) exercised their right to bring an application for directions under section 424 of the Act against the following backdrop:
The Court was required to consider two principal matters:
Section 433 provides that where the appointment of a receiver occurs before the winding up of the company commences, section 433 continues to apply post liquidation, such that the receiver must pay priority employees out of property comprised in or subject to a “circulating security interest”, in preference to their appointor.
The Court held that the date for fixing assets, the subject of section 433 is the date of the receivers’ appointment. The Court commented that:
Neither the chose in action nor the Refund existed at the time of any floating charge or when there were circulating assets. They were not property in the hands of the Receivers upon their appointment and are not caught by s 433.
It found that the Refund was the product of the receivers’ application which occurred only by reason of Forge no longer carrying on business and the termination of the subject contracts.
For completeness, the Court also considered the second question even though this was not necessary given the property had been held not to be in existence at the time of the receivers’ appointment.
The Act provides that a circulating security interest is a security interest over a circulating asset. Section 340 of the Personal Property Securities Act 2009 (Cth) (PPSA) deals with circulating assets and lists a number of categories of the same including inventory, currency, accounts, and negotiable instruments (as summarised by the Court):
In order for the Refund to be a circulating asset and available to employees in priority to the secured creditor, it must fall within one of two characterisations (as summarised by the Court at [54]):
The Court held that the Refund was not a circulating asset for reasons including:
“…it is no answer to point to tax refunds which could arise in the ordinary course of business. The Refund was not of that kind”;3
“…a sale or other disposal of a chose in action is not in the ordinary course of Forge’s business;4
“…the Refund was not the product of an overpayment of tax, simpliciter, but was the product of an amended assessment in the particular circumstances of this case…”.5
While the Court did not directly consider the issue, it seems that even if the Refund had come into the receivers’ hands at the time of the appointment, in these circumstances the payment would not have been considered a circulating asset in any event (as it was not obtained in the ordinary course of business including by reference to the secured creditor's security documents).
This case is useful insofar as it clarifies for financiers and receivers that the time for assessing whether or not property is a circulating asset for the purposes of section 433 of the Act is at the time of the receivers’ appointment.
Amounts that came into existence and into the receivers hands after their appointment likely would not have constituted a circulating asset and would therefore have been monies payable to their appointor.
While on these facts the relevant assets were not held to be circulating assets subject to the operation of section 433, each case requires its own careful analysis.
[1] This section sets out a number of specific categories of circulating assets.
[2] Langdon, in the matter of Forge Group Limited (R&M App)(In Liq) [2017] FCA 170 per Gilmour J [128].
[3] Langdon, in the matter of Forge Group Limited (R&M App)(In Liq) [2017] FCA 170 per Gilmour J [129].
[4] Langdon, in the matter of Forge Group Limited (R&M App)(In Liq) [2017] FCA 170 per Gilmour J [140].
[5] Langdon, in the matter of Forge Group Limited (R&M App)(In Liq) [2017] FCA 170 per Gilmour J [149].