Re Forge Group Limited: which post-receivership assets are available to priority creditors?

13 April 2017

In Re Forge Group Limited [2017] FCA 170, the Federal Court considered whether a tax refund paid after the appointment of receivers was ‘property subject to a circulating security interest’ (to which certain creditors have priority ahead of a secured creditor). Justice Gilmour found that the tax refund was not ‘subject to a circulating security interest’. The decision supports the application, in at least some circumstances, of the decision in Re CMI Industrial Pty Ltd (in liq) [2015] QSC 96 to security interests created after the commencement of the Personal Property Securities Act (PPSA).

However, receivers should always take care, and seek advice, before distributing assets that could be classed as circulating.

The Commonwealth Department of Employment (which administers the Fair Entitlements Guarantee scheme) was the primary contradictor in the proceeding, reflecting the increasingly active role the Department is taking to assert its priority.


ANZ appointed receivers and managers to the Forge group companies on 11 February 2014.  Following their appointment, the receivers lodged an application under section 170(9) of the Income Tax Assessment Act 1936 (ITAA36), objecting to tax assessments for 2012 and 2013.  The outcome of that application was that Forge was entitled to a tax refund of $53,469,010.64, which was paid in two tranches on 9 and 11 March 2015.

The issues and decision 
The legislation: section 433 of the Corporations Act 2001 (Cth) (Act) and the PPSA

Pursuant to section 433 of the Act, where a receiver is appointed before the company is in liquidation, and the receivers are appointed to property that is ‘comprised in or subject to a circulating security interest’, the receivers must pay the claims of priority creditors (including employees) out of ‘the property coming into his, her or its hands’.

Section 51C of the Act defines ‘circulating security interest’ as a security interest that is:

  1. a PPSA security interest, if:
    1. the security interest has attached to a circulating asset within the meaning of the Personal Property Securities Act 2009 ; and
    2. the grantor (within the meaning of that Act) has title to the asset; or
  2. a floating charge.

Section 51 of the Act defines ‘PPSA security interest’ as ‘a security interest within the meaning of the Personal Property Securities Act 2009 [PPSA] and to which [the PPSA] applies, other than a transitional security interest within the meaning of [the PPSA].’ A ‘transitional security interest’ pursuant to section 308 of the PPSA includes a security interest arising under a security agreement that was in force immediately before the commencement of the PPS register.


In Re CMI, Mullins J held that profits generated by receivers appointed under a fixed and floating charge (granted before the commencement of the PPSA) were not property ‘comprised in or subject to a circulating security interest’ for the purposes of section 433 of the Act. The security interest was a transitional security interest, as it arose under a pre-PPSA agreement. Therefore, the question was whether there was a ‘floating charge’ over the profits or not. Justice Mullins held that there could not be a floating charge, because it had crystallised, and become a fixed charge, upon the appointment of the receivers.

Justice Gilmour’s reasons 

In Re Forge, Gilmour J applied Re CMI to ANZ’s general security agreement (GSA). Forge’s right to a tax refund only arose when the ATO issued a new notice of assessment for the relevant financial years. Applying Re CMI, because the right to a refund arose after the appointment of receivers, Gilmour J held the refund was not subject to section 433 of the Act.

His Honour emphasised the date of appointment, and treated the security interest as though it were a floating charge that had crystallised. It appears that “Crystallisation” however is not presently a concept that is contained in the PPSA. Rather, it is suggested that the Court must consider the definition of ‘circulating asset’ in section 340 of the PPSA.

However, his Honour did find that the refund was not ‘circulating’ pursuant to section 340 of the PPSA. The focus of his Honour’s analysis was whether ANZ had given express or implied authority for the funds to be dealt with by Forge in the ordinary course of business (which is relevant pursuant to section 340(1)(b) of the PPSA). However, before that question arises, the Court must consider whether the asset is deemed to be circulating because of section 340(5) of the PPSA. Justice Gilmour only considered section 340(5)(a) of the PPSA, ‘an account that arises from granting a right, or providing services, in the ordinary course of a business’. A tax refund does not meet that description. The balance of section 340(5) of the PPSA was not addressed.

One possibility not addressed in the decision was also whether the refunds, once paid, were an ‘ADI account (other than a term deposit)’, which is a circulating asset under section 340(5)(c) of the PPSA. In Re Forge the funds may have been paid to the receivers’ bank name (and therefore were not an asset of Forge), though this is not apparent from the judgment. Where the funds are paid to the company, the situation may be less clear.


The decision supports the application of Re CMI to PPSA securities.

However, given the fact that ‘crystallisation’ is foreign to the PPSA, care should be taken before deciding whether a post-appointment asset is free from the operation of section 433 of the Act. For example, trading receivables generated by receivers (as in CMI) may be an ‘account that arises … in the ordinary course of business’ and therefore may be a circulating asset to which section 433 of the Act applies.

This article was written by Grant Whatley, Partner and Tom Langdon, Associate. 

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