In Re CMI Pty Ltd; Byrnes & Ors v CMI Limited the liquidators of CMI Pty Ltd (the Company) sought directions under section 511(1) of the Corporations Act 2001 (Cth) (the Act) from the Supreme Court of Queensland as to how to treat trading profits generated as a result of the receivers of the Company trading part of the business of the Company following the receiver’s appointment.  The receivers and liquidator sought to have the profits paid to priority creditors under s433 of the Act.

The receivers were appointed by Ford Motor Company (Ford) who held a fixed and floating charge over all of the company’s property.  CMI Limited (the respondent) also held a floating charge over the Company’s property which ranked ahead of Ford’s charge. After their appointment, the receivers continued to carry on the businesses of the Company while options to sell the businesses as going concerns were explored. Ultimately these failed and the Company’s assets were sold.  However, by continuing to trade during their appointment, the receivers purchased new inventory and sold it, generating what was called “the receivers inventory trading profit” (trading profit).

The respondents submitted that the trading profit should be distributed to them in accordance with their first ranking floating charge. The liquidators argued that their ongoing obligation to pay priority creditors under s433 applied to all property “coming into” their hands including after acquired property.

Justice Mullins held at [51] that:

“The priority creditors do not have a statutory entitlement under s433 of the Act to the receivers’ inventory trading profit, as that profit was not an asset identifiable at the date of the appointment of the receivers.”

This confirms that priority creditors are only entitled to be paid from floating charge assets which were identifiable as at the date of the receivers’ appointment.

For more information please contact ERA Legal.