CITATION  VSC 127
JUDGE/S ROBSONJ .
Amerind, acting as trustee, granted security to a bank to secure invoice financing arrangements. The bank’s security was perfected. Amerind went into administration and the bank appointed receivers. The Commonwealth Department of Employment contended that various assets were subject to a circulating security interest and so subject to employee priority under Corporations Act s433.
The court held:-
- Amerind’s right of indemnity as trustee was trust property, and so not subject to s433 at all. But even if this were wrong, the trustee’s right of indemnity was not a current asset of the kind listed in s340(5) and was not a circulating asset. In particular, it was not an ‘account’ arising from the provision of trustee services.
- a bank account (the ‘trade account’), into which the bank paid drawdown proceeds that Amerind was then free to spend, was a circulating asset, as Amerind had retained effective control over it, with the bank’s consent, in the ordinary course of business. In so finding, the court said that even if an asset (such as an ADI account) was subject to s340(5) as referred to in s340(1)(a) (‘current assets’), it was also necessary to consider whether it might be a circulating asset under s340(1)(b) (‘in any other case’).
- drawdown proceeds provided by the bank after appointment of receivers were circulating assets. The time to consider characterisation was the date of appointment of receivers; and these drawdown proceeds were the proceeds of stock, and were given the same circulating characterisation as the stock.
- other general receipts were circulating assets.
Amerind had also granted a ROT security interest to Alpine MDF Industries Pty Ltd. The terms of Alpine’s security interest were set out in a master trading agreement. Alpine registered a financing statement before the administration, but more than 20 business days after execution of the master trading agreement. The court held the security interest came into force when the master agreement was signed, not at the later times when orders were placed, and so it vested under Corporations Acts588FL. Aspects of the decision were overturned on appeal in Commonwealth of Australia v Byrnes and Hewitt  VSCA 41.
The summary of the pertinent points in this legal case update has been provided by Steve Pemberton, Lawyer and Consultant, as an extract from his digest of PPSA cases.