Commonwealth Bank of Australia v HM Aircraft Holdings Pty Ltd

BEACH J: 1 Commonwealth Bank of Australia seeks to rectify errors which have infected the registration of financing statements in respect of securities granted to CBA over aircraft and aircraft components by the first defendant, HM Aircraft Holdings Pty Ltd. 2 First, CBA seeks an order under s 588FM(1) of the Corporations Act 2001 (Cth) that the dates in respect of a series of registrations of security interests be extended for the purposes of s 588FL(2)(b)(iv). 3 Second, CBA seeks an order under s 293(1)(a) of the Personal Property Securities Act 2009 (Cth) (the PPSA) extending the number of business days for CBA to have lodged a financing statement on the Personal Property Securities Register (the PPSR) so as to come within the period prescribed by s 62(3)(b) of the PPSA, and to protect what is known as its super priority. The PPSR has been described as a real time online noticeboard of security interests that have been recorded by the registration of financing statements. 4 The second defendant, Aero Facilities Pty Ltd, is also a security interest holder concerning HM Aircraft; I will explain its relevance later. 5 Since 2014, CBA has provided finance facilities to HM Aircraft and its related entities. HM Aircraft and its related entities operate a regional Australian airline primarily based in Darwin and Western Australia. 6 Pursuant to a master agreement and various equipment loan schedules, CBA financed the acquisition and refurbishment of aircraft by HM Aircraft. Under the master agreement, which was entered into between CBA as lender and HM Aircraft as borrower, with related entities and persons as guarantors, HM Aircraft could request that CBA fund the acquisition of aircraft, aircraft componentry or other equipment. HM Aircraft did so on various occasions. Each time, an equipment loan schedule was entered into setting out the loan amount, the loan term, the scheduled repayments and the equipment financed. Each equipment loan schedule constituted in substance a separate contract between CBA and HM Aircraft under the umbrella of the master agreement. There are currently 55 schedules with outstanding amounts owing to CBA. 7 Further, HM Aircraft granted various security interests to CBA to secure payment under these arrangements. 8 First, HM Aircraft granted a general security interest in the form of a charge. The general security interest is registered on the PPSR as an all present and after acquired property (no exceptions) security interest (AllPAAP). Definitions relating to an AllPAAP are not contained in the PPSA, but reg 1.6 of the Personal Property Securities Regulations 2010 (Cth) (the PPS Regulations) defines "all present and after-acquired property", unsurprisingly, in the broadest of terms which I do not need to set out. 9 Second, HM Aircraft granted charges over each specific item of equipment financed, most of which gave rise to a purchase money security interest (PMSI). Shortly put, a PMSI includes a security interest taken in collateral to the extent that it secures all or part of its purchase price or, relevantly to the present context, a security interest taken in collateral by a person who gives value for the purpose of enabling the grantor to acquire rights in the collateral (s 14(1)); in some circumstances, PMSIs are given super priority under the PPSA, a matter which I will return to later. It is to be noted that the equipment loan schedule in respect of each item of equipment in effect constituted the security agreement that gave rise to the specific charge or PMSI in favour of CBA. 10 For the following reasons I will grant the orders sought.

Complexity and systems errors 11 It is appropriate to say something about the problems that have occurred and their source. 12 CBA has now identified a number of defects in the registration of its securities. In particular, it has identified that it had potentially made ineffective registrations in respect of collateral consisting of 29 aircraft financed by equipment loan schedules (the relevant aircraft). 13 First, 27 instances were identified where CBA had registered a financing statement pursuant to an equipment loan schedule which were defective concerning serial numbers. They did not describe the collateral by serial number as required by s 153(1), item 4(b) of the PPSA and Sch 1, Pt 2, reg 2.2(1)(a) and (b) of the PPS Regulations, they did not include the manufacturer's number, name and generic model designator as required by s 153(1), item 4(b) of the PPSA and Sch 1, Pt 2, reg 2.2(3)(a) of the PPS Regulations, or they made reference to an incorrect serial number. 14 Second, 25 instances were identified where CBA had registered a financing statement pursuant to an equipment loan schedule, but had registered its security interest in the incorrect collateral class or subclass. 15 Third, 10 instances were identified where CBA had registered a financing statement pursuant to an equipment loan schedule, but had incorrectly marked the PMSI field on the registration form. 16 Fourth, there was a single instance in which CBA had not registered any financing statement in respect of an aircraft financed by way of an equipment loan schedule. 17 It is to be noted that it is the registration of a financing statement that is the usual way to perfect a security interest in property under the PPSA (s 150). To perfect a security interest in personal property, one must obtain registration; in the present context I am not concerned with perfection by possession or by the control of types of collateral. 18 Let me delve further into the detail concerning the source of the present problems. For this purpose, I should set out some evidence from Ms Milka Morris, an asset finance product policy analyst at CBA. 19 Let me begin with CBA's processes and procedures generally. 20 CBA provides funding to its customers for the acquisition of equipment and other assets, which transactions are facilitated through CBA's Asset Finance division. 21 As part of any asset finance transaction, CBA usually requires the borrower to grant a specific security interest (ie, a charge) in the particular asset that it is providing funding for to secure the advance of funds. The Asset Finance division is responsible for registering those security interests on the PPSR. 22 CBA's Asset Finance division uses two information technology systems to assist in managing asset finance transactions with customers, which are: (a) CommSee Commercial Lending (CCL); and (b) ALFA, which is a third party software platform. 23 CCL is CBA's primary customer relationship management platform. The system contains general customer information, but is also the primary system for the management of banking products offered by CBA, including all general commercial lending. All applications for the provision of finance to CBA customers are originated by CBA staff through the CCL platform by inputting the relevant loan application data. 24 ALFA is a specialty asset finance related platform and allows for the management of customer asset finance portfolios. ALFA generates finance documents for and facilitates the settlement of asset finance transactions, including uploading financing statements to the PPSR based on information inputted into ALFA, either via CCL or directly. 25 Both of these systems automate certain aspects of asset financing by CBA, including the lodging of financing statements in respect of the collateral financed by CBA. 26 The process of entering into a new asset finance transaction for an aircraft usually begins when the customer asks CBA to finance a particular aircraft. The customer will generally provide CBA with a copy of a purchase order or sales invoice which sets out the aircraft details. 27 Prior to making a finance offer to the customer, the Asset Finance division may engage a qualified valuer to undertake an independent valuation of the aircraft. A valuation report typically includes information such as the aircraft's make, model, serial number and nationality and registration marks. 28 Once a customer informs CBA that it intends to proceed with the proposed asset finance transaction, the processing team within CBA submits the finance application and enters particular equipment details (such as the equipment make, model, serial number and nationality and registration marks) into a loan application interface within CCL, in order to begin the finance and credit approval process. If a valuation has been completed, the relevant aircraft details are extracted from that report and cross referenced against the purchase order or sales invoice provided by the customer. In circumstances where CBA has not obtained a valuation, the aircraft details are extracted from the purchase order and/or sales invoice. 29 Once a finance transaction is approved and ready to be documented, the transaction particulars, including the finance terms and aircraft details, are automatically migrated from CCL to ALFA. The Asset Finance division then generates the equipment loan schedule from ALFA for provision to and execution by the customer. It is also possible for CBA employees to generate an equipment loan schedule by directly inputting data into ALFA, that is, without relying on a migration of data from CCL. 30 Once the customer has executed the equipment loan schedule and the transaction is ready to settle, the finance agreement is activated in ALFA and the settlements team settles the transaction by paying the funds in accordance with the equipment loan schedule; in the majority of cases, payment is made to the third party vendor supplying the equipment to the borrower. The transfer of funds is effected in the ALFA system itself. 31 Due to the number of PPSR registrations that CBA is required to lodge on a day to day basis, the ALFA system has been developed to interface directly with the PPSR to avoid the need for CBA employees to manually register financing statements. Therefore, once an asset finance loan facility settles through the ALFA system, the system automatically generates a financing statement which is registered on the PPSR. The financing statement is automatically populated based on the asset information originally inputted into CCL and migrated to ALFA, or in some cases inputted into ALFA directly. 32 ALFA determines which PPSR registrations should be made depending on the asset category selected by CBA personnel when data is inputted into CCL or ALFA. Specifically, with respect to the aircraft collateral class, the CCL and ALFA systems operate as follows. 33 CCL and ALFA have eight categories for describing aircraft. Upon selection of one of the eight asset categories, ALFA will display data fields requiring completion by the user. The asset categories in CCL and ALFA do not directly accord with PPSR collateral classes, nor are the required data fields displayed in CCL and ALFA confined to identifiers required by the PPS Regulations. This is because the data inputted into CCL and ALFA is used by CBA for purposes other than the registration of financing statements on the PPSR. Accordingly, upon any of the eight asset classes being selected, ALFA and CCL will always prompt input of the aircraft manufacturer's name, number for the aircraft, model designator and the nationality and registration mark of the aircraft, in accordance with the 1944 Chicago Convention on International Civil Aviation. 34 ALFA generates financing statements based on the asset category selected in CCL and ALFA and the data inputted into the various data fields. 35 First, if either the "Aircraft - General" or "Aircraft - Agri" asset categories are selected, ALFA will generate financing statements (with the serial number as the identifier sourced from data inputted into CCL/ALFA) in the "aircraft engine" and "airframe collateral" subclasses on the basis that the engines of the aircraft meet the definition of an "aircraft engine" under the PPS Regulations. 36 Second, if the "Small Aircraft - General" or "Small Aircraft - Agri" asset categories are selected, ALFA will generate a financing statement in the "small aircraft" collateral subclass (where only the nationality and registration mark are required as identifiers) on the basis that the aircraft does not meet the definition of "aircraft engine", "airframe" or "helicopter" for the purpose of the PPS Regulations. 37 Third, if the "Helicopter - Small Agri" or "Helicopter - Small General" asset categories are selected, ALFA will generate a financing statement in the "small aircraft" collateral subclass (where only the nationality and registration mark are required as identifiers). If a helicopter carries less than five persons or 450 kilograms, it does not meet the definition of "helicopter" in the PPS Regulations and is (by default) characterised as a "small aircraft". 38 Fourth, if the "Helicopter - Large Agri" or "Helicopter - Large General" asset categories are selected, ALFA generates a financing statement in the "helicopter" collateral subclass (against the manufacturer number) on the basis that the helicopter is capable of carrying more than 5 persons or 450 kilograms and therefore, is a "helicopter" for the purposes of the PPS Regulations. 39 This process was, generally speaking, followed concerning the relevant aircraft, with the Asset Finance division responsible for inputting the relevant data into CCL and ALFA for the purpose of effecting lodgement of financing statements on the PPSR in respect of security interests granted by HM Aircraft in favour of CBA over the relevant aircraft. 40 Now Ms Morris reviewed CBA's records in respect of the data concerning the relevant aircraft entered by CBA personnel into CCL and ALFA. That review revealed the following problems. 41 In seven instances, ALFA failed to automatically register the correct financing statements against helicopters and the accompanying engines due to a coding error within the software itself. With respect to the relevant aircraft categorised in CCL and ALFA as "Helicopter - Small Agri" or "Helicopter - Small General", ALFA registered financing statements in the "other goods" collateral class, which does not require a serial number as an identifier. They should have been registered in the "small aircraft" collateral subclass. The consequence of this error was that the financing statements for these relevant aircraft were registered in the incorrect collateral class and were not described by serial number, contrary to the requirements prescribed by the PPS Regulations. 42 In six instances, financing statements were incorrectly registered in the "other goods" collateral class, in circumstances where the collateral financed satisfied the definition of "helicopter" and "aircraft engine" under the PPS Regulations. This appears to have occurred due to a combination of: (a) human error on the part of CBA employees by incorrectly categorising the financed assets as "Helicopter - Small General" in CCL, when they should have been categorised as either "Helicopter - Large Agri" or "Helicopter - Large General" in order for ALFA to automatically generate financing statements in the "helicopter" and "aircraft engine" collateral subclasses; and (b) a coding issue in ALFA, which caused ALFA to generate financing statements for assets categorised in CCL as "Helicopter - Small General" in the "other goods" collateral class, in circumstances where financing statements should actually have been lodged in the "small aircraft" collateral subclass. 43 In ten instances, ALFA incorrectly registered financing statements in the "small aircraft" collateral subclass, in circumstances where the collateral financed satisfied the definition of "airframe" and "aircraft engine" under the PPS Regulations. This appears to have occurred due to a mischaracterisation on the part of CBA employees of the financed asset as a "small aircraft" when inputting asset data into CCL or ALFA. The mischaracterisation resulted in CBA staff selecting "Small Aircraft - General" in CCL, which only prompted the personnel inputting the data to complete the nationality and registration details for the aircraft rather than serial numbers of airframes and aircraft engines. That data was subsequently migrated to ALFA and resulted in ALFA generating incorrect financing statements. 44 In one instance, an inadvertent keystroke error appears to have occurred when the serial number data for an aircraft engine had been inputted into CCL. That resulted in incorrect data being migrated to ALFA, and an incorrect financing statement being registered. 45 In three instances, CBA funded the refurbishment of existing airframes and aircraft engines, rather than the acquisition of new assets from a third party, and was granted a security interest in the refurbished equipment. But CBA personnel have in two instances apparently misunderstood the need to register the security interest in the "aircraft engine" and "airframe" collateral subclasses specifying relevant serial numbers in a refurbishment scenario, and instead registered a singular "other goods" financing statement in respect of the refurbished equipment. Further, in one instance, a staff member inadvertently failed to specify in CCL that a security interest had been granted in the refurbished equipment, which resulted in ALFA not generating a financing statement. 46 In one instance, the relevant CBA staff member inputting the asset data appears to have translated incorrect manufacturer number data into CCL, which then resulted in an incorrect financing statement for the relevant helicopter collateral. 47 In summary, the errors in the financing statement registration process in respect of the relevant aircraft occurred due to the following types of problems. 48 First, the inadvertent mischaracterisation by the employees in the Asset Finance division of the asset class or category specified in CCL or ALFA at the quote and post-valuation stages of the data input process for aircraft transactions, which resulted in the automated generation of incorrect financing statements. 49 Second, a failure of such employees to properly appreciate the requirements in the PPS Regulations for registering security interests over aircraft and the serial numbers that those registrations must be made against, regardless of whether the finance was to fund a new acquisition or a refurbishment of existing equipment. 50 Third, there was a defective software issue with the ALFA system, which caused any aircraft categorised in CCL or ALFA as "Helicopter - Small Agri" or "Helicopter - Small General" to automatically generate a financing statement in the "other goods" collateral class, when those financing statements should have actually been categorised in the "aircraft" collateral class in one or more of the "small aircraft", "helicopter" or "aircraft engine" collateral subclasses. Such a software issue also caused any aircraft categorised in CCL or ALFA as "Helicopter - Large Agri" or "Helicopter - Large General" to automatically generate a financing statement in the "helicopter" collateral subclass, but not in the "aircraft engine" collateral subclass, irrespective of whether the aircraft engine satisfied the definition of an "aircraft engine" for the purposes of the PPS Regulations and therefore required that a separate financing statement be lodged. These issues appear to have been caused by an inadvertent error in the ALFA software development process, potentially due to a lack of appreciation on the part of the software developers and/or the CBA staff instructing the developers of the importance of the collateral class and subclass. 51 The possible consequences of those defects were two-fold. 52 First, the registration of CBA's security interests in the relevant aircraft affected by the serial number issue, collateral class issue or the no registration issue were likely to be ineffective by operation of ss 164(1)(b) and 165(a) of the PPSA. Sections 164(1)(b) and 165(a) provide: 164 Defects in registration - general rule (1) A registration with respect to a security interest that describes particular collateral is ineffective because of a defect in the register if, and only if, there exists: … (b) a defect mentioned in section 165. … 165 Defects in registration - particular defects For the purposes of paragraph 164(1)(b), a defect in a registration that describes particular collateral exists at a particular time if any of the following circumstances exist: (a) in a case in which the collateral is required by the regulations to be described by serial number in the register - no search of the register by reference to that time, and by reference only to the serial number of the collateral, is capable of disclosing the registration; 53 Let me say something more about serial numbers for the purposes of the PPSA. Various classes of collateral must be described by serial number (Sch 1, Pt 2, reg 2.2); in other cases, serial number description is optional. In the present case, the collateral in question required serial number description. If the property or collateral uses an incorrect serial number or omits it and serial number is mandated, then the registration is ineffective. Therefore any such registration will not perfect the underlying security interest. 54 Second, CBA's security interests in the relevant aircraft affected by the PMSI issue would not be afforded the super priority that would otherwise be enjoyed due to the operation of ss 62 and 63 of the PPSA. It is convenient to set out ss 62 and 63 later. 55 Now CBA has taken remedial action to cure those defects by filing fresh registrations in respect of all affected aircraft (the new registrations). But nevertheless orders have been sought from me so as to ensure that its security interests and priorities are not adversely affected. In particular, absent the orders sought, if HM Aircraft was to enter into external administration within six months of the new registrations, CBA's security interests would be vulnerable to vesting under s 588FL of the Corporations Act and s 267 of the PPSA. I should note that under s 267, there is a vesting immediately before a winding up or the appointment of an administrator of an unperfected security interest in a corporate grantor; for the present context I do not need to elaborate further concerning s 267.

Sections 588FL and 588FM of the Corporations Act 56 Section 588FL(2)(b)(ii) requires, in the case of a solvent entity, a PPSA security interest to be registered within 20 business days of the security agreement that gave rise to the security interest coming into force. A later time may be fixed as provided for by s 588FL(2)(b)(iv) if an application is made under s 588FM(1). 57 If the PPSA security interest is registered within that 20 days or such later time as so fixed under s 588FL(2)(b)(iv), it prevails over the interests of unsecured creditors even if the grantor within six months of registration goes into liquidation or administration. But if it is not registered within the 20 business days (or the time as so extended), then the security interest vests in the grantor for the benefit of creditors if the grantor goes into liquidation or administration within six months of registration. 58 Section 588FL provides: 588FL Vesting of PPSA security interests if collateral not registered within time Scope (1) This section applies if: (a) any of the following events occurs: (i) an order is made, or a resolution is passed, for the winding up of a company; (ii) an administrator of a company is appointed under section 436A, 436B or 436C; (iii) a company executes a deed of company arrangement under Part 5.3A; and (b) a PPSA security interest granted by the company in collateral is covered by subsection (2). (2) This subsection covers a PPSA security interest if: (a) at the critical time, or, if the security interest arises after the critical time, when the security interest arises: (i) the security interest is enforceable against third parties under the law of Australia; and (ii) the security interest is perfected by registration, and by no other means; and (b) the registration time for the collateral is after the latest of the following times: (i) 6 months before the critical time; (ii) the time that is the end of 20 business days after the security agreement that gave rise to the security interest came into force, or the time that is the critical time, whichever time is earlier; (iii) if the security agreement giving rise to the security interest came into force under the law of a foreign jurisdiction, but the security interest first became enforceable against third parties under the law of Australia after the time that is 6 months before the critical time - the time that is the end of 56 days after the security interest became so enforceable, or the time that is the critical time, whichever time is earlier; (iv) a later time ordered by the Court under section 588FM. Vesting of security interest in company (4) The PPSA security interest vests in the company at the following time, unless the security interest is unaffected by this section because of section 588FN: (a) if the security interest first becomes enforceable against third parties at or before the critical time - immediately before the event mentioned in paragraph (1)(a); (b) if the security interest first becomes enforceable against third parties after the critical time - at the time it first becomes so enforceable. … (7) In this section: critical time, in relation to a company, means: (a) if the company is being wound up - when, on a day, the event occurs by virtue of which the winding up is taken to have begun or commenced on that day under section 513A or 513B; or (b) in any other case - when, on a day, the event occurs by virtue of which the day is the section 513C day for the company. 59 Section 588FM provides: 588FM Extension of time for registration (1) A company, or any person interested, may apply to the Court (within the meaning of section 58AA) for an order fixing a later time for the purposes of subparagraph 588FL(2)(b)(iv). (2) On an application under this section, the Court may make the order sought if it is satisfied that: (a) the failure to register the collateral earlier: (i) was accidental or due to inadvertence or some other sufficient cause; or (ii) is not of such a nature as to prejudice the position of creditors or shareholders; or (b) on other grounds, it is just and equitable to grant relief. (3) The Court may make the order sought on any terms and conditions that seem just and expedient to the Court. 60 Section 588FM is a remedial provision that has been liberally applied. 61 As to the question of "accidental", the concept can embrace just the occurrence of a physical act or omission or it could embrace a situation where, although the physical act or omission itself might not be accidental, it was done without any corporate delinquency or knowing disregard of the relevant statutory requirements, although that latter possibility shades into inadvertence (see Staninovski, A. J., "Cut me Some Slack: An Analysis into the Extension of Time Provisions for Registering Security Interests under the Corporations Act" (2019) 30 Journal of Banking and Finance Law and Practice 240 at 251 to 253). 62 As to the question of inadvertence, in Re Appleyard Capital Pty Ltd; 123 Sweden AB v Appleyard Capital Pty Ltd (2014) 101 ACSR 629 at [10], Brereton J distilled from the authorities that this concept includes a failure to advert to or understand the requirement for registration within the relevant period or an innocent error in failing to register through ignorance of the requirement, or ignorance of the consequences of not doing so. 63 In Re Cardinia Nominees Pty Ltd [2013] NSWSC 32, Black J also said (at [15]): However, "inadvertence" may also be established where a party operates under a mistake as to the consequences of failing to register a security interest. The approach adopted in the case law of treating a matter of that kind as amounting to inadvertence is consistent with the emphasis placed in the case law upon the benevolent operation of predecessor sections, at least where an error of a secured creditor in not attending to registration of its security within time is innocent and does not result from any disregard of its statutory obligations. … 64 I have little doubt that inadvertence can include an active but incorrect consideration of a requirement, a failure to turn one's mind to the requirement or a failure to appreciate the true significance of non-compliance with a requirement, so long as such a failure is not intended to flout, or is recklessly indifferent to proper compliance (see also In the matter of Eticore SD Pty Ltd [2021] NSWSC 110 at [12] to [15] per Black J and Toll Energy and Marine Logistics Pty Ltd v Conlon Murphy Pty Ltd (2019) 137 ACSR 328 at [38] to [48] per Gleeson J). 65 I accept the submissions of Mr Mark Costello, counsel for CBA, that the identified causes of the registration errors were various data entry errors, inadvertent mischaracterisations of the asset class or asset category, failures by CBA staff to appreciate the requirements in the PPS Regulations in respect of the registration of aircraft and a software error that caused aircraft to be categorised in the wrong collateral class by default. And as he submitted, each of those causes is a failure that was accidental or due to inadvertence. In my view they were brought about by the combination of unnecessary complexity in the applicable legislative regime and, for the most part, systems deficiencies within CBA. I should note here that the problem was not any wholesale ignorance of the legislative regime or any ignorance as to the consequences of non-registration. 66 Given that I have found inadvertence, I do not need another trigger under s 588FM(2) to enliven the power to extend. 67 But if it was necessary to say so, and based upon what I am going to say later concerning s 293 of the PPSA, the extension is not of such a nature as to prejudice the position of creditors. I am here dealing with actual prejudice, not potential prejudice to unsecured creditors if HM Aircraft was to be the subject of an insolvency administration with six month of the new registrations. Clearly though, extending time under s 588FM for the purposes of s 588FL avoids the otherwise vesting of the relevant security interests in the grantor, HM Aircraft, if it goes into liquidation or administration within six months after the date of the new registrations, and thereby preserves CBA's security interests to the detriment of unsecured creditors. 68 Now potential prejudice is something that I can take into account in the exercise of my discretion, which I have. And it is for that reason that I will make an order that if within six months of the dates of the new registrations any winding up or administration of HM Aircraft occurs, then liberty will be reserved to any liquidator or administrator to apply to discharge or vary my s 588FM order. I should note that it is also for that reason that I have not been too troubled into inquiring further into the strength of HM Aircraft's balance sheet, although the information available suggests no difficulty in that regard. 69 For completeness, it should be self-evident that no Joplin condition needs to be made. As any order that I might make in and of itself has no effect on any priority question between security interests, it would be superfluous to stipulate as a condition of any order anything about the security rights of any person acquired after the defective registrations but before the new registrations, assuming there to be any such rights so acquired during that window. 70 Further, strictly, the relevant prejudice to consider is not the prejudice flowing from the making of any order but rather the prejudice flowing from the delay in registration. I have no evidence that anyone traded or took a position on the faith of the PPSR that they would not otherwise have taken. And importantly, it is to be recalled that the PPSR recorded defective registrations for CBA's security interests, not no registrations. 71 Finally, any delay here is not directly relevant. I am not going from the position of no registration to registration. Rather, I am going from the position of an earlier defective registration to a new corrected registration. Further, CBA has not delayed in making the present application once the relevant deficiencies were brought to its attention.

The PMSIs, super priority and s 293 of the PPSA 72 An order is also sought concerning the registration of the financing statements that relate to each PMSI. This is sought to protect what is known as super priority. In summary, the failure to lodge a registration on the PPSR in respect of a PMSI within 15 business days from the grantor obtaining possession of the relevant goods disentitles the secured party to the super priority afforded to the PMSI under the PPSA. 73 The super priority is conferred by ss 62 and 63 of the PPSA which provide: 62 When purchase money security interests take priority over other security interests Scope (1) This section sets out when a perfected purchase money security interest that is granted by a grantor in collateral or its proceeds has priority over a perfected security interest that is granted by the same grantor in the same collateral, but that is not a purchase money security interest. (2) The purchase money security interest has priority if: (a) the purchase money security interest is in inventory or its proceeds; and (b) the purchase money security interest is perfected by registration at the time: (i) for inventory that is goods - the grantor, or another person at the request of the grantor, obtains possession of the inventory; or (ii) for any other kind of inventory - the purchase money security interest attaches to the inventory; and (c) the registration that perfects the purchase money security interest states, in accordance with item 7 of the table in section 153, that the interest is a purchase money security interest. Personal property other than inventory (3) The purchase money security interest has priority if: (a) the interest is in personal property, or its proceeds, other than inventory; and (b) the purchase money security interest is perfected by registration before the end of 15 business days after whichever of the following days applies: (i) for goods - the day the grantor, or another person at the request of the grantor, obtains possession of the property; (ii) for any other property - the day the interest attaches to the property; and (c) the registration that perfects the purchase money security interest states, in accordance with item 7 of the table in section 153, that the interest is a purchase money security interest. 63 Priority between competing purchase money security interests in collateral A perfected purchase money security interest (the priority interest) that is granted by a grantor in collateral or its proceeds to a seller, lessor or consignor of the collateral has priority over any other perfected purchase money security interest that is granted by the same grantor in the same collateral if the priority interest is perfected: (a) if the collateral is inventory that is goods - at the time the grantor, or another person at the request of the grantor, obtains possession of the collateral; or (b) if the collateral is inventory and is not goods - at the time the priority interest attaches to the collateral; or (c) if the collateral is not inventory, and is goods - before the end of 15 business days after the day the grantor, or another person at the request of the grantor, obtains possession of the collateral; or (d) if the collateral is not inventory, and is not goods - before the end of 15 business days after the day the priority interest attaches to the collateral. 74 Now let me just focus for the moment on s 62. 75 Section 62(1) only applies where s 62(3) is complied with, which includes the 15 business days timing requirement (s 62(3)(b)(i)), unless extended pursuant to s 293(1)(a), which applies to the perfection of PMSIs. 76 Under s 62, a PMSI has priority as against competing non-PMSI perfected security interests in the same collateral irrespective of the competing security interest(s) holder's awareness, consent or otherwise regarding the grant of the PMSI, provided that ss 62(2) or 62(3) have been complied with. So, if the grant of a PMSI to a third party constitutes a breach of an earlier AllPAAP security interest holder's agreement with the grantor, then the recourse for the AllPAAP security interest holder is to pursue the grantor for breach of contract. It does not otherwise affect the validity of the PMSI or its priority. So, had CBA correctly lodged a financing statement on the PPSR in respect of the relevant registration number of each aircraft concerning its PMSIs, it would have been able to avail itself of s 62 regardless of any earlier in time AllPAAP security interest. 77 So, in the present case, if CBA is unable to obtain the benefit of s 62 and the super priority concerning PMSIs, it could only seek to rely on the default priority rules in s 55 insofar as any question of priorities as between other secured parties who have taken a security interest over the same collateral was to arise. In this regard, s 55 provides that: 55 Default priority rules (1) This section sets out the priority between security interests in the same collateral if this Act provides no other way of determining that priority. (2) Priority between unperfected security interests in the same collateral is to be determined by the order of attachment of the security interests. (3) A perfected security interest in collateral has priority over an unperfected security interest in the same collateral. (4) Priority between 2 or more security interests in collateral that are currently perfected is to be determined by the order in which the priority time (see subsection (5)) for each security interest occurs. (5) For the purposes of subsection (4), the priority time for a security interest in collateral is, subject to subsection (6), the earliest of the following times to occur in relation to the security interest: (a) the registration time for the collateral; (b) the time the secured party, or another person on behalf of the secured party, first perfects the security interest by taking possession or control of the collateral; (c) the time the security interest is temporarily perfected, or otherwise perfected, by force of this Act. (6) A time is a priority time for a security interest only if, once the security interest is perfected at or after that time, the security interest remains continuously perfected. 78 There are various practical effects flowing from what has occurred concerning the PMSIs if super priority is lost. Let me deal with some of them. Absent an order under s 293(1)(a), any other PMSI taken over any equipment the subject of finance provided to HM Aircraft would take priority over the CBA's interest in that equipment notwithstanding that the acquisition of the relevant equipment was financed by CBA. Further, CBA would also be in a lesser position more generally. 79 Let me turn to s 293. 80 Section 293(1)(a) provides: 293 Timing - applications for extension of time (1) On application, a court may make an order extending the number of business days in a period specified in the following provisions if the court is satisfied that it is just and equitable to do so: (a) paragraphs 62(3)(b) (perfection of purchase money security interests); … 81 When considering whether to grant relief under s 293(1)(a), I am required to have regard to the elements set out at s 293(3), which provides: … (3) In making an order to extend a period under subsection (1), the court must take into account the following: (a) whether the need to extend the period arises as a result of an accident, inadvertence or some other sufficient cause; (b) Whether extending the period would prejudice the position of any other secured parties or other creditors; (c) Whether any person has acted, or not acted, in reliance on the period having ended. 82 As to s 293(3)(a), inadvertence or accident for the purposes of s 293(3)(a) of the PPSA has the same meaning as their cognate forms in s 588FM of the Corporations Act. Accordingly, the same matters as I have already set out in the context of s 588FM are relevant, and I would draw the same conclusions. 83 Let me deal with ss 293(3)(b) and (c). Now I need say little about the concept of s 293(3)(c). It is a self-explanatory factual inquiry. Let me elaborate on s 293(3)(b). 84 The concept of "prejudice" in s 293(3)(b), as compared with prejudice under s 588FM(2)(a)(ii) of the Corporations Act, was contrasted in Re Accolade Wines Australia Limited [2016] NSWSC 1023 by Brereton J (at [27]) in the following terms: As explained in Appleyard Capital, in s 588FM(2)(a)(ii), the prejudice referred to is prejudice to the position of creditors or shareholders from "the failure to register the collateral earlier" - in other words, prejudice attributable to not making a timely registration. That means that, to evaluate prejudice for the purposes of s 588FM, one compares the position of the creditors if an extension is granted, with their position if there had been an effective timely registration; often there will be no difference. However, the prejudice referred to in s 293(3)(b) is prejudice from "extending the period". This directs attention not to the impact on other secured parties or creditors of the delay in registration, but to the impact of making an order extending the period; to evaluate prejudice for that purpose, one compares the position of creditors if an extension is granted, with their position if no extension is granted, and usually there will be a difference because priorities will be disturbed. 85 His Honour went on to say (at [28] and [29]): … If an order is made under s 293(1) extending the period for registration of the Plaintiffs' PMSIs, the AllPAP holders will lose that priority in respect of the particular collateral which is the subject of the Plaintiffs' PMSIs. It follows that they will be prejudiced by extending the period. However, such prejudice, while not irrelevant, is not conclusive. Appleyard Capital explained that in the context of s 588FM, prejudice to other creditors could not be conclusive because otherwise an order would never be made in any case in which it mattered: in any case where an extension was of utility, there would inevitably be prejudice by removing the collateral from the pool available to satisfy unsecured creditors generally, and enabling that result was the fundamental purpose of the provision. The same applies here: the essential purpose of granting an extension is to reinstate the priority to which a PMSI would otherwise be entitled over prior AllPAPs (as it will in any event have priority over later AllPAPs), and thus in any case in which the remedy is of any practical utility, there will be prejudice to a prior AllPAP holder. 86 Like Gleeson JA in Northern Managed Finance Pty Ltd v 4 in 1 Wyoming Pty Ltd (2017) 120 ASCR 167 at [64] to [68], I will adopt that approach. 87 So, in order to obtain relief under s 293 it is neither necessary, nor would it be possible in most cases, for the security interest holder to demonstrate that there is no prejudice to other secured parties at all as a consequence of the grant of the relief sought. 88 Instead, because of the factors that weigh in favour of the making of the orders, an AllPAAP holder bears a forensic burden of demonstrating why they would be unfairly prejudiced (in the relevant sense) due to their reliance on what appeared on the PPSR at the time they took their relevant security interest (see Re Accolade Wines at [52]). 89 The circumstances of the case before me demonstrate an absence of prejudice and also an absence of reliance. 90 In respect of the relevant aircraft, no other secured party has a registered financing statement on the PPSR over the relevant serial numbers, save for one helicopter (registration number [x]), which I will discuss in a moment. 91 Further there is one subsequent AllPAAP (with exceptions) registered in respect of HM Aircraft, as well as a number of financing statements in other collateral classes. 92 In relation to the helicopter with registration number [x], no prejudice arises from the conflicting serial number registration. In short, the National Australia Bank registered an interest in a helicopter owned by Landour Pastoral Company in respect of a Robinson R44 Helicopter with that registration number whereas CBA's registration was in respect of a Bell 206B-3 Helicopter owned by HM Aircraft. So, CBA's registration was made in respect of a different aircraft coincidentally bearing the same registration number. 93 Let me say something about the subsequent registrations. 94 Four secured parties have subsequently registered a security interest in HM Aircraft: Sanctuary Aircraft, Aero Facilities, Capital Finance and BOQ Equipment. But each relevant security interest is limited to specific goods over which CBA does not hold a specific security interest. But I need to say something further about Aero Facilities. Up until yesterday its position was unclear concerning its security, and so it was joined as a second defendant. 95 There is a so-called AllPAAP (with exceptions) registered by Aero Facilities. But whilst registered as an AllPAAP with exceptions, the true nature of the security is limited to an identified Cessna aircraft. So, the otherwise universality of an AllPAAP has excluded all objects therein bar one. How it could sensibly have been described as an AllPAAP, albeit with exceptions, is puzzling. And there is more. Shortly before the hearing yesterday, an affidavit was filed describing the true nature of Aero Facilities' interest to be under a finance lease. In any event, I am satisfied that Aero Facilities has no security interest in any collateral other than the Cessna aircraft, which has nothing to do with the collateral the subject of CBA's security interests. Clearly, Aero Facilities is not prejudiced by the orders that I propose to make.

Conclusion 96 For the foregoing reasons I will make the orders sought. 97 Further, I propose to make an order that if within six months of the dates of the new registrations, any winding up of HM Aircraft occurs, or an administrator is appointed to HM Aircraft under ss 436A, 436B or 436C of the Corporations Act, or HM Aircraft executes a deed of company arrangement, then liberty is reserved to any liquidator, administrator or deed administrator appointed to HM Aircraft to apply to discharge or vary my orders (see Eticore SD at [16] per Black J where an analogous order was made). This will afford additional protection to HM Aircraft's creditors if needed. 98 Further, I note that both defendants have been served with the papers and given notice of the hearing. Both defendants have indicated that they do not oppose the application. 99 Finally, during the hearing yesterday, counsel indicated that CBA may want to seek relevant orders concerning other financing statements not yet identified relating to other collateral concerning HM Aircraft. In the circumstances, rather than finally disposing of the originating motion I will adjourn it sine die and grant liberty to apply. I certify that the preceding ninety-nine (99) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Beach.