Bloodstock Air Services of Australia Pty Ltd (in liq) v Roadrunner Equipment Pty Ltd

Judgment - EX TEMPORE 1By Originating Process filed on 24 August 2012, the Plaintiff, Barclays Bank plc ("Barclays") seeks an order under s 588FM of the Corporations Act 2001 (Cth) fixing 9 August 2012 as the registration time for security interests granted to Barclays in specified circumstances. 2By way of background, s 588FL of the Corporations Act provides for the vesting of PPSA security interests (as defined) if specified events occur, namely, a company being placed in winding up, the appointment of an administrator or an execution of a deed of company arrangement, where the company has granted a PPSA security interest in collateral within the scope of 588FL(2). Section 588FL(2) in turn applies that section to a PPSA security interest which, relevantly, is registered after the latest of specified times, including the time that is the end of 20 business days after the security agreement that gave rise to the security interests that came into force, or a later time ordered by the court under s 588FM. 3Section 588FM allows the company, or an interested person, to apply to the court for the fixing of that later time on specified grounds. Section 588FM(2) provides that the court may make such an order if it is satisfied that the failure to register the collateral earlier was accidental or due to inadvertence or some other sufficient cause; or was not of a nature to prejudice the position of creditors or shareholders; or that it is just and equitable to grant relief on other grounds. The court may make the orders sought on terms and conditions under s 588FM(3). 4Sections 588FL and 588FM of the Corporations Act were introduced by the Personal Property Securities (Corporations and Other Amendments) Act 2010 (Cth). The terms of s 588FM are broadly similar to the circumstances in which the court could previously extend the time for lodgement of notice of a charge under s 266(4) of the Corporations Act, and the authorities as to that section will assist in guiding the exercise of the court's discretion under s 588FM. 5In the present case, Barclays provided a UK £8 million term loan facility to a UK publicly listed company, Sportingbet plc, in January 2012. The facility agreement contemplated that companies within the Sportingbet group, including the Australian company now known as Centrebet International Pty Ltd ("Centrebet"), would accede to the facility agreement and grant additional security by 24 April 2012. 6Barclays retained UK legal advisers and, through them, Australian legal advisers, Minter Ellison, in respect of the transaction. Centrebet executed a General Security Deed on 24 April 2012 and the Australian firm provided a legal opinion in respect of the enforceability of the General Security Deed on that date. That legal opinion relevantly stated that: "... in order to perfect the security interest created under the deed in respect of the collateral to which it attaches (to the extent that the perfection has not been achieved by possession or control for the purposes of the PPSA (Personal Property Securities Act) a financing statement should be registered (and maintained) in respect of the collateral in compliance with the PPSA within 20 business days of the day the deed comes into force..." 7Notwithstanding the recognition of the registration requirement in that opinion, a financing statement was not registered until 9 August 2012, in circumstances to which I will refer below. 8There was discussion between Barclays and the relevant firm as to fees for registration, but Barclays (or at least its Manager - Transaction Management) did not become aware of the implications of a failure to register within the 20 day period until somewhat later. 9The solicitor with carriage of the relevant transaction, who is an associate in the Australian firm's London office, gave affidavit evidence in the application before me. She had limited experience in finance transactions prior to joining the firm in 2010 and, for a period in early 2012, sought assistance from the finance partners in the firm's Sydney and Melbourne offices and the corporate partners in the firm's London office in respect to financing transactions. She received training in the PPSA regime but her evidence is she did not become aware of the timeframe for registration of security interests under that regime until July 2012, and the relevant transaction was the first transaction in which she had prepared a General Security Deed for registration, although she had previously prepared fixed and floating charges for registration. 10I accept her evidence that she overlooked the reference to the 20 business day period in the opinion letter dated 24 April 2012 which she had prepared from a precedent. It would be fair to note that she could, perhaps, have reacted more promptly to references to that period in correspondence from the firm's Australian office concerning registration from July 2012, although her evidence is that she did not then appreciate the potentially serious consequences of non-registration within the 20 business day period. 11Errors of this kind will no doubt occur, from time to time, in matters which had previously given rise to applications for extension of time under s 266 of the Corporations Act and will now give rise to similar applications under s 588FM of the Corporations Act. In particular, it will not be surprising if such errors occur during the transition to the Personal Property Securities Act 2001 (Cth) regime. 12There is evidence before me that Sportingbet plc and Centrebet do not oppose this application. The court has also been provided with financial information relating to Centrebet for the period between 23 May 2012 (the end of the 20 business day registration period) to 9 August 2012 (the date of registration of the relevant security interests) ("relevant period"). A letter from a director of Centrebet indicates that, during the relevant period, there has been no material change in Centrebet's financial position; Centrebet has not granted any security to any other creditor other than security that may have arisen by statute or law as a result of its normal business operations; and Centrebet has not incurred any debt of a material amount. The financial information in evidence indicates that Centrebet has been significantly profitable over the 11 months to 31 July 2012 and has significant positive assets. 13I am satisfied that the failure to register the relevant security interests in this case was due to inadvertence, which includes being not properly attentive, or failing, in this case, to understand the requirement to lodge notice of a security interest within the specified period and the consequences of failure to do so; see the cases cited, in respect of s 266 of the Corporations Act in Austin & Black's Annotations to the Corporations Act at [2K.266] and particularly National Australia Bank Ltd v Davis & Waddell (Vic) Pty Ltd (2003) 44 ACSR 296 at 308; Dempsey Resources Pty Ltd v Continental Coal Ltd [2009] FCA 1157 at [24]; Re Perpetual Trustee Company Limited [2010] FCA 357; Metcash Trading Ltd v 8 Nai Investments Pty Ltd [2011] FCA 1400. 14The length of the delay prior to registration of the security interest is a relevant factor in the exercise of the court's discretion under s 588FM: Dempsey Resources Pty Ltd v Continental Coal Ltd above. Here I consider that the delay of some two months between the last day of the 20 business day period and the date of registration is not a particularly long period, and note that Gilmour J took a similar view in Dempsey Resources above. 15The fact of demonstrated solvency of Centrebet and that no other security interests were registered, and the absence of any indication of any risk of winding up or administration in respect of Centrebet, are also highly relevant matters, and assist the court to conclude that late registration "will not disturb or affect an accrued or accruing rights meriting consideration" and support the making of the relevant order: Re Investa Properties Ltd [2001] NSWSC 1089; (2001) 40 ACSR 124 at 31; Dempsey Resources above at [22]. 16I am satisfied that it would be a proper exercise of the court's discretion in these circumstances to make an order under s 588FM fixing a later time for registration of the security interests in this case, relevantly the date of registration of the security interests on 9 August 2012, having regard to the circumstances in which the error occurred, the evidence as to Centrebet's strong financial position and the fact that the risk of prejudice to other creditors from such an order is remote. 17As I noted above, the court has power to make such an order on conditions. A condition reserving liberty to a liquidator, administrator or deed administrator to apply to discharge or vary the order if insolvency events occur within six months of registration of the charge was commonly imposed under s 266 of the Corporations Act, if evidence as to the company's financial position was not available: Metcash Trading above. I do not consider such a condition is necessary or appropriate in this case given the evidence as to Centrebet's financial position. 18An extension of time may also be granted on terms that it is without prejudice to the rights of any person who has, between the date the security interest was granted and the date of registration, obtained any security over the assets subject to the security interest: see, in relation to s 266 of the Corporations Act, Bloodstock Air Services of Australia Pty Ltd (in liq) v Roadrunner Equipment Pty Ltd (1985) 10 ACLR 36. I also do not consider that such a condition is necessary or appropriate in this case, given the evidence of Centrebet's financial position and that it has not granted a security interest other than arising by operation of law in the ordinary course of business in the relevant period. In my view, it is a proper case to make the orders sought unconditionally as was done, for example, in Dempsey Resources above. 19Accordingly, I make the following orders: