Easy as BCA: the operation of s 561 of the Corporations Act examined

Re BCA National Training Group Pty Ltd (in liq) [2023] NSWSC 366


The liquidator of BCA National Training Group (Company) sought directions regarding the interaction of ss 561 and 556 of the Corporations Act 2001 (Cth).

The Commonwealth (as subrogated by operation of the Fair Entitlements Guarantee scheme to the position of the Company’s former employees who were creditors for employee entitlements) was contradictor.


The Company had a loan facility with Westpac, which was secured by a validly registered ‘AllPAP’ security interest over all present and after-acquired property (AllPAP) of the Company.

The Company entered liquidation and creditor claims totalled ~$1.99million: a secured claim by Westpac of ~$26k, ~$480k related to claims for priority debts under s 556(1)(e), (g) and (h) (Priority Debts) and ~$1.48million related to ordinary unsecured claims.

The liquidator realised ~$719k, comprising ~$168k from non-circulating assets and ~$550k from circulating assets.  In May 2021, Westpac’s secured debt was paid from non‑circulating asset realisations.  Westpac’s AllPAP was then discharged.

From appointment to November 2022, the liquidator had creditor‑approved remuneration of ~$365k, intended to seek creditor or court approval for a further ~$109k of remuneration, and had expenses of ~$95k, totalling ~$570k.

Net of Westpac’s secured debt, the total realisations were ~$692k.  This was insufficient to meet both the liquidator’s claim and the Priority Debts.  Justice Black opined that “the practical problem” of insufficient realisations arose because of the “arguably disproportionate” remuneration approved by creditors including, on some occasions, the Commonwealth.


The central question was how s 561 operated in the circumstances.

The liquidator submitted that the application of the ‘waterfall’ in s 556(1) resolved any ‘priority dispute’ between the liquidator’s claims (paragraphs (de) and (a)) and the Priority Debts (paragraphs (e), (g) and (h)).  The Commonwealth contended that the Priority Debts must be paid out in priority pursuant to s 561.

The liquidator submitted s 561 recognises a distinction between secured assets and assets available for unsecured creditors, but in each case after deduction of the liquidator’s remuneration and expenses.  The Commonwealth accepted this for the purpose of assessing whether the Company’s property was ‘insufficient’ for the purpose of s 561, but submitted that s 561 mandated that the Priority Debts be paid first.

The liquidator submitted further that s 561 operates between a secured party and a preferred creditor to entitle the latter to be paid from circulating asset realisations in priority to the former.

The Commonwealth rejected the submission that s 561 was limited to operation where, due to an insufficiency of those realisations to meet those parties’ respective claims, there was a contest between a secured creditor and a preferred creditor in respect of circulating asset realisations.  Alternatively, it submitted that the contest exists if the secured creditor has any legal right of recourse to circulating asset realisations.

The Commonwealth’s submission ignored, in Black J’s opinion, the ‘economic reality’ of the Company discharging Westpac’s AllPAP and corresponding equity of redemption in realisations which had previously been subject of the AllPAP (to the extent of the Company’s indebtedness to Westpac), by operation of the Personal Property Securities Act 2009 (Cth).

In accepting the liquidator’s submission, Black J followed the decision in Kirman [2019] FCA 372, [75], which identified both the parties and the nature of the security interest with which s 561 was concerned, namely: the preferred creditor and secured creditor in respect of a circulating security asset (and not a liquidator).

As contradictor, the Commonwealth’s primary position was that if the property of the company available for payment of unsecured creditors is insufficient to pay preferred creditors and a secured creditor with a circulating security interest is owed an amount supported by that security, s 561 requires the claims in the subparagraphs of that section to be paid out of circulating asset realisations.

The Commonwealth advanced nine contentions in support of its primary position.  Of the nine contentions, Black J determined that the second, third and sixth were not necessary to decide the application.  The first, fifth and seventh contentions were, in Black J’s opinion, essential to the Commonwealth’s position.

The first contention: s 561 applied throughout the liquidation and overrode s 556 if a secured creditor has a circulating security interest at the commencement of the liquidation and an ‘insufficiency’ in relation to preferred creditor claims arises later.  Justice Black did not accept this contention, because it ignored the amount secured and whether it could equally be paid from non-circulating assets.

The fourth contention: the word ‘claim’ in s 561 described a secured creditor’s right of recourse to circulating asset realisations to recover a secured debt.  To the extent that this submission sought to include in the word ‘claim’ claims that would never be made (despite a hypothetical entitlement) by a secured creditor against circulating assets, Black J rejected this contention.

The fifth contention: for the purpose of assessing whether the property is ‘available’ for the purpose of s 561 (and consequently determining whether there is an insufficiency), any ‘surplus assets’ that, following recourse to them to discharge the secured debt, ‘may become available’ is not available for the purposes of s 561.  Similarly to the first contention, the fifth contention was not accepted by Black J because it did not recognise that the Company’s equity of redemption in formerly secured assets was available such that no contest (by reason of an ‘insufficiency’) arose.  The seventh contention overlapped substantially with the fifth and was also not accepted by Black J.

The eighth contention: s 561 should operate consistently with s 433 (a cognate provision for receivership) such that it has an ongoing operation, Black J considered that this submission assisted the Commonwealth, given that the application concerned the operation of s 561.

The ninth contention: in the absence of any recoveries that would not be subject to a circulating security interest, s 561 required payment of preferred creditor claims from circulating asset realisations.  This contention was also not accepted by Black J as it was consequential on the earlier, essential contentions (the first, fifth and seventh) that his Honour also did not accept.

Ultimately, in accepting the liquidator’s submission set out earlier, Black J held that in the circumstances “there wasno application of circulating assets to meet any claim of Westpacin a manner inconsistent with s 561”.

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