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Receivers can’t perfect security interest

This week’s TGIF considers the decision of Knauf Plasterboard Pty Ltd v Plasterboard West Pty Ltd (In Liquidation) (Receivers and Managers Appointed) [2017] FCA 866 in which the Federal Court considered whether a security interest could be perfected by the appointment of receivers.


Plasterboard West Pty Ltd (trading as Retroflex) granted a security interest over all of its present and future personal property to Knauf Plasterboard Pty Ltd (Knauf) pursuant to a deed dated in or about June 2014 (Security Deed). Due to an oversight the interest was not registered on the PPSR until 3 February 2016.

Only seven days later, on 10 February 2016 and after Retroflex defaulted under the Security Deed, Knauf appointed receivers and managers (Receivers) to Retroflex pursuant to the terms of the Security Deed. In the days following the Receivers took steps to take control of Retroflex, including attending the company’s premises, engaging a locksmith to change the locks and instructing an IT expert to back up the computer servers.

On 12 February 2016, the members of Retroflex purportedly sought to voluntarily wind it up pursuant to section 491 of the Corporations Act. The liquidator sought to challenge the appointment of the Receivers and the enforceability of Knauf’s security interest.


Seeking to enforce its right under the Security Deed, Knauf sought declarations from the Court that:

1) Knauf’s security interest had not vested in Retroflex pursuant to section 588FL of the Corporations Act; and

2) Knauf’s security interest had been perfected under the PPSA upon the appointment of the Receivers.


Section 588FL may result in the vesting of a security interest when the grantor is, amongst other things, wound up or placed into voluntary administration (Critical Time) and the security interest is registered after the latest of either:

  • six months prior to the commencement of the the Critical Time; or

  • the earlier of 20 business days after the security agreement giving rise to the security interest came into force or the time that is the Critical Time).

Court’s consideration

In deciding that section 588FL did not apply and therefore that the security interest did not vest in Retroflex immediately before the resolution to wind the company up was passed, the Court held that:

  • A resolution passed for the winding up of a company must be valid in order for the winding up to be effective - if it is not, section 588FL is not engaged.

  • The special resolution resolving to wind up Retroflex had not been validly passed because Retroflex had not complied with the notice requirements for a meeting of the company’s members.


Although the matter was resolved on the basis that section 588FL did not apply, the Court went on to consider whether, assuming that the resolution to wind Retroflex up was in fact effective, the security interest was perfected by means other than registration.

Section 267 of the Personal Property Securities Act (PPSA) provides that in the case of unperfected security interests, if an order is made, or a resolution is passed, for the winding up of a company, the security interest held by the secured party vests in the grantor immediately before the resolution is passed or the order made.

Section 21 of the PPSA provides that a security interest will be perfected if:

  • the security interest is attached to the collateral (in this case, the assets of Retroflex);

  • the security interest is enforceable against third parties; and

  • the secured party has possession of the collateral, provided the possession is not as result of seizure or repossession.

Court’s consideration

As the Court held that it was clear on the terms of the Security Deed that the security interest attached to the collateral and was enforceable against a third party (due to the fact that value was given by Knauf for the security interest and the Security Deed was in writing), the relevant question was whether Knauf had perfected its interest by taking possession of the collateral other than by seizure or repossession.

Retroflex argued that the Receivers did not obtain actual or apparent possession of its assets by their appointment and even if they had, because they were agents of Retroflex, possession remained with the company.

The Court ultimately decided that Knauf had taken possession of the secured property by seizure. In coming to that decision, the Court made the following findings:

  • The mere appointment of receivers by a secured party is not sufficient to constitute possession of personal property if the property remains in the actual or apparent possession of the grantor or debtor.

  • Seizure is the forcible taking of possession.

  • Seizure and repossession are unacceptable forms of taking possession in order to perfect a security interest because they fail to notify third parties of the secured party’s interest in the personal property.

  • When the Receivers took steps to implement or exercise rights conferred upon them by the Security Deed, this constituted taking possession by way of seizure, notwithstanding that this forcible possession was undertaken pursuant to a consensual agreement.


This decision highlights the importance of adhering to the notice requirements in relation to shareholders meetings and confirms that the appointment of receivers is likely to constitute the forcible taking of possession of secured assets for the purposes of section 21 of the PPSA.


Restructuring and Insolvency

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