What you need to know
The Court of Appeal –that the existence of a general security interest does not of itself destroy mutuality between a company in liquidation and its creditors and as a consequence section 553C of the Corporations Act 2001 (Cth) (Corporations Act) can apply to allow a creditor to set-off its debts against amounts owed to the company in liquidation.
In a comprehensive unanimous decision, the Court of Appeal confirmed the following propositions:
- Section 553C of the Corporations Act operates to the exclusion of any contractual and equitable rights of set-off held prior to the commencement of liquidation.
- In the alternative, if mutuality is destroyed by the existence of a general security interest in debts or claims, then section 553C does not prevent a party from claiming set-off pursuant to existing contractual or equitable rights.
- In accordance with section 80(1)(a) of the Personal Property Securities Act 2009 (Cth) (PPSA), a financier with a general security interest will take its interest subject to the terms of the contracts and any equity, defence, remedy or claim arising in relation to the contract.