This week’s TGIF considers the decision in Hussain v CSR Building Products Limited, in the matter of FPJ Group Pty Ltd (In Liq), in which an ROT clause was held to be a “security”, defeating the liquidators’ unfair preference claim.


On 18 July 2014, FPJ Group Pty Ltd (FPJ Group) was wound up in insolvency.

The liquidators of FPJ Group sought to recover monies from CSR Building Products Pty Ltd (CSR) in respect of eighteen alleged preference payments that were made pursuant to a credit agreement between FPJ Group and CSR (Credit Agreement).

The liquidators claimed that FPJ Group was insolvent and unable to pay its debts under the Credit Agreement as at 21 November 2013. It was submitted that 18 payments totalling $153,554 subsequently made following 21 November 2013, constituted voidable transactions as they resulted in unfair preferences under section 588FA of the Corporations Act 2001 (Cth) (Act).

Pursuant to section 588FA of the Act, there will only be a voidable transaction if it results in a creditor receiving from the company, in respect of an unsecured debt that the company owes the creditor, more than the creditor would receive from the company in respect of the debt if the transaction were set aside.

The goods provided by CSR, in respect of the payments the liquidator was seeking to impugn, were subject to a retention of title (ROT)clause, pursuant to which property in the goods would not pass from CSR to FPJ Group until such time as payment for the goods had been made.


Edelman J found that the Credit Agreement’s ROT clause could be considered “security” for the purposes of the unfair preference prohibition, on the following grounds:

  • “unsecured debt” was not defined for the purposes of the Act;
  • previous authorities had, for other purposes, considered that ROT clauses constituted security in respect of payment obligations; and
  • the introduction of a definition of “security interest” in the 2010 amendments to the Act to accommodate the new Personal Property Securities Act 2009 (Cth) (PPSA) regime, which provides that ROT arrangements constitute security interests, supported the interpretation that ROT arrangements are a form of security.

The Court held that the presence of the ROT clause in the Credit Agreement was one ground upon which the liquidators’ preference claim must fail.


Three days prior to the delivery of the Court’s judgment, the Victorian Supreme Court in Blakeley v Yamaha Music Australia Pty Ltd [2016] VSC 231, found that a liquidator had at least an arguable case that pre-PPSA transactions involving ROT arrangements were unsecured. A final determination was not made by the Court, in the context that the liquidator only had to show an arguable case in order to avoid a striking out of its proceedings in the matter.


The recent case of Hussain v CSR Building Products Limited, in the matter of FPJ Group Pty Ltd (In Liq) demonstrates that the Federal Court is willing to accept that traditional ROT arrangements do amount to security in respect of the underlying debt, preventing a payment of that debt being impugned as an unfair preference in the context of insolvency. However, as demonstrated in the also recent case of Blakeley v Yamaha Music Australia Pty Ltd [2016] VSC 231, some doubt remains as to the status of ROT clauses as security in this context, particularly in the case of pre-PPSA arrangements.

Practitioners should be mindful that there may yet be scope for arguing that ROT arrangements are not effectively security for the purposes of the unfair preference prohibition, particularly in the context of pre-PPSA ROT arrangements.