Winding up: perfected security interests registered on the PPSR and funds held post-DOCA termination

Hughes v Pluton Resources Ltd [2017] WASCA 213

This case concerned the application of the Personal Property Securities Act 2009 (Cth) (the PPSA) to funds held by a company in liquidation following the termination of a DOCA. In the course of its decision, the Court considered the meaning of various provisions of the PPSA, including:

• ‘security interest’ in section 12;
• ‘interests to which this Act does not apply’ in section 8; and
• ‘after-acquired property’ in section 18(1).

It was held that where a DOCA is terminated, and the company is wound up, whether a creditor has a security interest in funds held by the liquidators depends on the terms of the relevant security deed.

Background

In April 2013, Pluton borrowed approximately $28.5 million from General Nice Recursos Commercial Offshore De Macau Limitada (GNR). The parties entered a security deed which provided that the security covered ‘all property, rights and undertakings’ of Pluton. Relevantly, the clause covered property of Pluton ‘whether present or future, whether real or personal property, whether tangible or intangible, and no matter where located.’

On 2 May 2013, GNR registered its security interest on the PPSR.

On 8 September 2015, GNR appointed receivers to Pluton pursuant to the terms of the security deed (the Receivers). The Receivers were also appointed as joint and several administrators of Pluton.

On 5 October 2015, Mr Marsden and Mr Vickers replaced the Receivers as joint and several administrators of Pluton (the Liquidators).

On 9 December 2015, at the second meeting of creditors, the creditors resolved to execute a DOCA (which occurred on 4 January 2016). The parties to the DOCA were the Liquidators, World Systems Capital (WSC) (a related entity of GNR) and Watpac Ltd, a creditor.

On 23 May 2016, the creditors approved a variation to the DOCA, subject to an additional $3.5m being paid by WSC. By 26 May 2016, that $3.5m had been paid and, on 20 July 2016, the DOCA as varied was executed.

On 21 July 2016, the DOCA was terminated by the Court. An amount of $835,021.94 remained as property of Pluton (the Fund).

The decision at first instance

The decision at first instance[1] concerned applications by the Liquidators for orders under s 511(1) of the Corporations Act 2001 (Cth) (the Act) regarding the distribution of the Fund (i.e. that it be paid out according to s 556 of the Act).[2] The Receivers opposed that application, claiming that the Fund was subject to GNR’s registered security interest.

The Master upheld the Liquidators’ application, relying on the decision of Dura (Australia) Constructions Pty Ltd (in liq) v Hue Boutique Living Pty Ltd[3] (Dura) to find that the Fund was created by law (namely, it was created pursuant to Part 5.4 of the Act when the DOCA was executed), and, therefore, it was an interest to which the PPSA did not apply (within the meaning of s 8(1)) and was not collateral to which GNR’s security interest attached.[4]

The appeal

The Receivers appealed the Master’s decision, asserting that GNR did have a security interest in the Fund. On 22 November 2017, the Western Australian Court of Appeal (Buss P, Murphy and Beech JJA) found in their favour.

The Court found that:

• the Master had erred in holding that the Fund was created, arose or was provided for under a Commonwealth law, specifically Part 5.4 of the Act: [89];
• the security interest arose as a result of the security deed entered into by GNR and Pluton and was, therefore, a result of a consensual transaction between GNR and Pluton;
• GNR had an interest in Pluton’s personal property, including the Fund as ‘after-acquired property’ within the meaning of s 18(2) of the PPSA: [78]-[79]; and
• accordingly, GNR’s interest was a security interest within the meaning of s 12 of the PPSA, such interest being created pursuant to a transaction, not ‘under a law of the Commonwealth’ within the meaning of s 8(1)(b) of the PPSA: [80].[5]

As to the question of whether the security interest attached to the Fund and could be enforced by GNR against Pluton, the Court held that as Pluton had rights to the Fund, being the relevant collateral, as at the date of termination of the DOCA, GNR’s security attached to the Fund and became enforceable against third parties on, at the latest, 21 July 2016 pursuant to s 20 of the PPSA: [84]-[85]. Having made this finding, the Court held that the registration was perfected within the meaning of s 21(2) of the PPSA.

The Court held that the Dura decision did not provide any assistance as that case dealt with a payment made by a debtor to secure the stay of execution of a judgment debt pending determination of its appeal. The circumstances in Dura gave the judgment creditor an equitable charge over the money paid by operation of law and, thus, it was not a ‘security interest’ within the meaning of s 12(1) of the PPSA: [90].[6]

[1]              Pluton Resources Ltd (Receivers & Managers Appointed) (in liq) [2017] WASC 142 (Sanderson M).

[2]              The Liquidators also sought an order to the effect that they be entitled to pay out of the Fund costs incurred by them in their capacity as administrators of the DOCA. The Master dismissed that application because of clause 21.5(b) of the DOCA, which provided that any property held by Pluton on the termination of the DOCA ‘will not be available to the administrators in respect of [their costs]’.

[3]              [2014] VSCA 326; (2014) 49 VR 86.

[4]              Hughes v Pluton Resources Ltd [2017] WASCA 213 (22 November 2017), [15].

[5]              The registration of GNR’s security interest was not in dispute.

[6]              As the Court decided in favour of the Receivers, it was not necessary to deal with the Liquidators’ appeal.