In the recent matter of Hammersley Iron Pty Ltd v Forge Group Power Pty Ltd (in liq) (receivers and managers appointed) [2018] WASCA 163 the Court of Appeal of the Supreme Court of Western Australia held that the attachment of a security interest under the Personal Property Securities Act 2009 does not preclude set-off in insolvency pursuant to section 553C of the Corporations Act 2001 or at general law.


In 2012, Hammersley Iron Pty Ltd (Hammersley) engaged Forge Group Power Pty Ltd (Forge) to undertake building works with respect to the construction of power stations at West Angelas and Cape Lambert in Western Australia.

In 2013, Forge obtained finance from a bank and in exchange, granted the bank security over its personal property.  Accordingly, the bank registered the security on the Personal Property Security Register (PPSR) in July 2013 pursuant to the Personal Property Securities Act 2009 (PPSA).

The bank appointed receivers and managers to Forge in 2014 and Forge subsequently went into liquidation.

Proceeding below

Relying upon contractual rights, equitable set-off and set-off in insolvency pursuant to s553C of the Corporations Act 2001 (CA), Hammersley argued that its claims against Forge exceeded those that Forge had against it, and that it was entitled to rely upon the set-off described above and to prove for the balance in the liquidation of Forge.

In response, the receivers of Forge contended that:

  1. section 553C of the CA provided a code governing set-off in insolvency;
  2. set-off under section 553C did not apply because there was no mutuality as a result of the equitable interest in Forge’s claims against Hammersley subsisting in the bank because of the operation of the PPSA; namely, that the attachment of the security interest in the collateral pursuant to section 19 of the PPSA conferred on the bank a proprietary interest in the collateral at the time of attachment
  3. the ‘Securities Claims’ of Forge against Hammersley were not ‘accounts’ within the meaning of section 10 of the PPSA because they were not “claims for identifiable monetary sums due by ascertainable dates arising from disposing of property or the granting of rights in the ordinary course of business”. The primary judge upheld that contention, finding that the Securities Claims “were ‘claims that arose after the receivers were appointed by reason of the alleged wrongful draw down by Hammersley of securities provided by Forge’”; and
  4. as a result, Hammersley was required to pay what it was due to pay to Forge (for the benefit of the bank) and was left to prove in the winding up of Forge for its own claims pari passu with other creditors.

Tottle J upheld contentions of Forge (by its receivers) in the proceeding below.

The decision on appeal

On appeal, the Court of Appeal of the Supreme Court of Western Australia upheld Hammersley’s appeal.

In a lengthy judgment which incorporated a detailed analysis of the relevant principles and their background, the Court of Appeal delivered a single judgment, finding that:

1. Even assuming that the effect of the attachment of the security interest in the collateral pursuant to section 19 of the PPSA conferred on a secured creditor a proprietary interest in the collateral at the time of attachment, that did not of itself operate to destroy the mutuality required for a set-off to apply.

Rather, an analysis of the terms of the relevant security instrument, together with the relevant terms of the PPSA, is required in order to determine whether mutuality is destroyed on a case-by-case basis.

Here, an analysis of the relevant General Security Agreement, when read with the PPSA, indicated that at the relevant date, Forge retained the right to apply payments received from Hammersley for its own benefit by paying down its indebtedness to the bank and to trade creditors and was not available to the bank.  Accordingly, there were mutual dealings between Hammersley and Forge within the meaning of s553C of the CA sufficient to enliven the operation of the set-off pursuant to that section.

2. Section 553C of the Act was not a code governing all applicable circumstances of set-off in insolvency. Rather, the Court held that “there is nothing in s553C or its purpose or policy which would relieve the chargee of any equities which would otherwise apply to the charged debt.”

As a result, if statutory set-off pursuant to section 553C is not available, then the result is not that the chargee takes its interest in the claims of Forge free of any equities otherwise available under the general law or imposed by other statutory provisions, such as s80(1) of the PPSA.  Rather, any rights taken by a chargee such as the Bank are taken subject to the terms of the contracts between Hammersley and Forge “and any equity, defence, remedy or claim arising in relation to” those contracts.  The foregoing may include the right of set-off.

3. Forge’s ‘Securities Claims’, namely, claims that Hammersley had wrongfully drawn down against securities provided by Forge after the appointment of receivers, were ‘accounts’ within the meaning of section 10 of the PPSA. That was significant because if the Securities Claims were not accounts (the finding by the primary judge), then they were not capable of set-off because they would not be taken to have existed at the time of the appointment of the receivers.  The Court determined that the Securities Claims were ‘accounts’ because they arose from the maintenance of bank guarantees which Forge provided to Hammersley pursuant to terms of the relevant contracts which was an aspect of Forge’s usual business of providing building services.


The decision is of significance because it confirms that attachment of collateral in a security interest in a secured creditor pursuant to section 19 of the PPSA does not, of itself, act to destroy mutuality sufficient to permit set-off to occur in insolvency.

Also significant is the finding that section 553C of the CA is not a code that applies in respect of set-off in insolvency to the exclusion of general law principles.