Commonwealth Consolidated Acts

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Circulating security interest created within 6 months before relation-back day

             (1)  This section applies if:

                     (a)  a company is being wound up in insolvency; and

                     (b)  the company created a circulating security interest in property of the company at a particular time that is at or after 23 June 1993 and:

                              (i)  during the 6 months ending on the relation-back day; or

                             (ii)  after that day but on or before the day when the winding up began.

             (2)  The circulating security interest is void, as against the company's liquidator, except so far as it secures:

                     (a)  an advance paid to the company, or at its direction, at or after that time and as consideration for the circulating security interest; or

                     (b)  interest on such an advance; or

                     (c)  the amount of a liability under a guarantee or other obligation undertaken at or after that time on behalf of, or for the benefit of, the company; or

                     (d)  an amount payable for property or services supplied to the company at or after that time; or

                     (e)  interest on an amount so payable.

             (3)  Subsection (2) does not apply if it is proved that the company was solvent immediately after that time.

             (4)  Paragraphs (2)(a) and (b) do not apply in relation to an advance so far as it was applied to discharge, directly or indirectly, an unsecured debt, whether contingent or otherwise, that the company owed to:

                     (a)  the secured party; or

                     (b)  if the secured party was a body corporate--a related entity of the body.

             (5)  Paragraphs (2)(d) and (e) do not apply in relation to an amount payable as mentioned in paragraph (2)(d) in so far as the amount exceeds the market value of the property or services when supplied to the company.

             (6)  If, during the 6 months ending on the relation-back day, or after that day but on or before the day when the winding up began, a debt secured by the circulating security interest was discharged, out of the company's money or property, to the extent of a particular amount (in this subsection called the realised amount ), the liquidator may, by proceedings in a court of competent jurisdiction, recover from the secured party, as a debt due to the company, the amount worked out in accordance with the formula:

Start formula Unsecured amount minus Realisation costs end formula


"realisation costs" means so much (if any) of the costs and expenses of enforcing the security interest as is attributable to realising the realised amount.

"unsecured amount" means so much of the realised amount as does not exceed so much of the debt as would, if the debt had not been so discharged, have been unsecured, as against the liquidator, because of subsection (2).

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