Australia: The super priority of Authorised Deposit-taking Institutions (ADIs) under the PPSA regime

This week’s TGIF considers In the matter of O’Keeffe Heneghan Pty Ltd (in liquidation); Aus Life Pty Ltd (in liquidation); Rocky Neill Construction Pty Ltd (in liquidation) trading as KNF Group (a firm) (No 2) [2018] NSWSC 1958, where the New South Wales Supreme Court protected the priority of an ADI’s unregistered security interest perfected by control, over the registered security interest of a secured creditor.


The proceedings concerned three companies in liquidation: O’Keeffe Heneghan Pty Ltd (in liq), Aus Life Pty Ltd (in liq) and Rocky Neill Construction Pty Ltd (in liq) (RNC), (together known as Companies), trading as KNF Group (Partnership).

Prior to the appointment of voluntary administrators to the Companies, the Partnership operated two bank accounts with Commonwealth Bank of Australia (Bank).

On 13 September 2013, each of the Companies granted a general security interest in favour of the Bank which extended to all of the present and after acquired property of each of the Companies and the Partnership. The Bank failed to register its security interest on the PPSR in respect of the Partnership, however this was not in dispute.

In mid-2016, the Partnership entered into an agreement with IFG Network Australia Pty Ltd (IFG) (Facility Agreement). The Facility Agreement was secured by a General Security Deed (IFG Security Deed) on 30 June 2016, which provided that IFG’s debt was secured over all the present and after acquired property of the Partnership, and IFG held security over all receivables of the Partnership. Importantly, IFG perfected its security by registering that security interest on the PPSR on 25 July 2016.

On 12, 13, and 15 March 2017, the Partnership transferred money out of its bank accounts held with the Bank to an account operated by RNC (also held with the Bank). Part of that money was transferred from the RNC account to an offshore bank account held by OzForex Ltd (OzForex), in order to purchase a property in Ireland (OzForex Transfer).

On 16 March 2017, the directors of the Companies resolved to place each of the Companies into voluntary administration and appointed voluntary administrators to each of the Companies.

The OzForex transfer failed and OzForex repaid $224,409 to the administrators of RNC (OzForex Monies). 

On 11 April 2017, IFG appointed receivers over the Partnership assets pursuant to its security.

On 28 April 2017, the Companies went into voluntary liquidation and the administrators became the liquidators.


First, IFG and the receivers sought a declaration that the OzForex Monies received by the liquidators for RNC were a Partnership asset secured by a security in favour of IFG.

Second (and more importantly for the purposes of this article), the receivers sought an order that the liquidators pay the OzForex Monies to the receivers, or alternatively, an order that an amount payable to the liquidators by way of remuneration be set-off against the OzForex Monies. Accordingly, a question of priorities arose. 


The receivers successfully argued that OzForex held the OzForex Monies under a trust for the Partnership and RNC and the liquidators were bound by that trust when the OzForex Monies were returned.

The trust arose over the OzForex Monies because:

  1. the monies were transferred immediately prior to the Companies being placed into voluntary administration;
  2. the transfers were made by the Companies in breach of equitable duties to the Partnership; and
  3. the transfers were made in breach of the Companies’ directors’ fiduciary duties to the Companies.

Given the Companies were likely to become insolvent at that point in time, Black J found neither the Companies or the directors could consent to such a breach in those circumstances.

However, Black J held that the existence of a trust did not answer the question of whether the Bank or IFG had priority as a creditor under the PPSA regime.

The Bank argued that the account held with the Bank was “collateral” to which its security interest attached.

Importantly, the Bank submitted that a bank that is an ADI is able to take a security interest in an ADI account that is held with it, and perfect that security interest by control under section 21(1) of the PPSA.

Under the PPSA, perfection by control for an ADI is automatic in the sense that a secured party has control of an ADI account if the secured party is the ADI.  

It was common ground that under the PPSA regime, if the Bank had an ADI security interest perfected by control, it would have priority over any other security interest in the ADI account.

The receivers argued that because the funds had been transferred out of the ADI account, the Bank could not assert control.

Black J rejected this argument on the basis that the proceeds of a collateral to which a security interest is attached include identifiable or traceable personal property derived from a dealing with the collateral.

In other words, under the PPSA a secured creditor can follow collateral into the hands of a third party.

Therefore, Black J concluded that the Bank, as an ADI, had perfected its security interest by control, and therefore, had priority ahead of IFG as a registered secured creditor.

Black J rationalised the decision on the basis that an ADI’s security would have had priority over IFG’s security had the funds remained in the Partnership’s ADI account. There was no reason why that result should change because those funds were wrongly transferred out.


This decision illustrates the superior position of an ADI against other secured creditors, including secured creditors with an interest perfected by registration on the PPSR.

The decision is an important reminder that registration is not necessarily a guarantee of priority. Under the PPSA regime, the ADI which has perfected its security interest by control, will have super priority in the sense that it will always have priority by virtue of its status as an ADI.

This decision is a reassurance for ADIs in terms of considering the risk of other secured creditors having a higher priority in the event of insolvency.

Non-ADI registered secured creditors should take warning from this decision that their priority will virtually always be secondary when competing against an ADI which has perfected by control, even after registration of their secured interest.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Chambers Asia Pacific Awards 2016 Winner – Australia
Client Service Award
Employer of Choice for Gender Equality (WGEA)

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions