Community Life v Kilmory

Supreme Court of NSW|2007-08-16|Before: Hammerschlag J

Introduction 1 HIS HONOUR: This application concerns a fixed and floating charge ("the charge") which, on 24 October 2006, the plaintiff company took from the first defendant company over that company's property, undertaking and assets. 2 Lodgement of notice of the charge with the Australian Securities and Investments Commission ("ASIC") as required by s 263(1) of the Corporations Act 2001 (Cth) (the "Act") duly occurred and the charge was registered. The charge was entered the Australian Register of Company Charges (the "Register") on 25 October 2006. Under s 265 of the Act, ASIC must keep the Register and cause to be entered in it particulars of charges in respect of which notice is lodged. 3 However, in the circumstances which are described below, on 22 November 2006 the plaintiff lodged a memorandum (or notification) of discharge or release of charge. The memorandum was entered in the Register. 4 By Amended Originating Process dated 30 July 2007 the plaintiff seeks an order that the period within which it may lodge notice of the charge be extended to a future date, or, in the alternative, that the Register be rectified by the charge being re-registered.

5 The application to extend is brought under s 266(4) or alternatively, s 1322(4)(d) of the Act. The rectification order is sought under s 274 or alternatively, s 1322(4)(b) of the Act. The facts 6 Under a loan facility agreement ("the loan") dated 6 June 2006, the plaintiff lent $3M dollars to McLean Property Investments Pty Ltd ("McLean"). It took as security for the loan various securities, including guarantees supported by charges from third parties. 7 In all dealings between the plaintiff, McLean and the other entities which secured McLean's obligations, the plaintiff was represented by Mr Theodore Baker. McLean and those other entities were represented by their attorney (under various powers of attorney), Mr Reddy, or in one important instance, by Mr Clinton Sarina. 8 The loan fell due on 6 August 2006. McLean requested a variation to extend the time for repayment. 9 On 25 August 2006 the plaintiff agreed to vary the loan on terms, including that it would extend the term of the loan, be repaid in part and would agree to the postponement of a first registered mortgage which McLean had given it over a property situated at 10 Mandalong Road, Mosman, New South Wales. 10 The loan as varied fell due on 29 September 2006 whereupon Mr Reddy requested a further variation by again extending the time for repayment. This time the arrangements included provision to the plaintiff by the first defendant, Kilmory Developments Pty Ltd ("Kilmory"), of a guarantee in favour of the plaintiff for McLean's obligations and a charge over Kilmory's assets and undertaking in support of it. 11 The arrangements were embodied in a Deed of Variation made on 24 October 2006. It was pursuant to these arrangements that Kilmory executed the charge. The Deed of Variation contemplated that a company owned by one Suemeshni Kistanna (a director of Kilmory) would purchase a property at Terrigal, New South Wales and that the financier of that purchase would be required to pay $190,000 to the plaintiff on settlement of the purchase. 12 On 20 November 2006 Mr Clinton Sarina, on behalf of Kilmory, requested the plaintiff to release the charge. The request was made in a conversation with Mr Baker and was to the following effect: "If you release the charge over Kilmory Developments Pty Ltd I will provide Community Life Ltd with a second mortgage over a unit owned by Kilmory Developments Pty Ltd at unit 4, 6 Wentworth Street, Point Piper and also pay you $190,000."

13 On the same day Mr Baker had a conversation with Mr Reddy in the following terms: "Reddy: Hunter Connection Investments purchased six shops at Hunter Street, Australia Square and was provided with a higher valuation from the funder so we have surplus funds. The surplus funds of about $100,000 - $120,000 will be used to pay you. Baker: I am not entirely comfortable with just that promise. Reddy: I will deposit $40,000 in your account now and will also give you two cheques but they will be undated as I am not sure of the settlement date. There is no money in the account now but as soon as settlement occurs there will be money in the bank and I will alert you to that fact."

14 On 22 November 2006 Mr Reddy deposited a cheque for $40,000 into the plaintiff's bank account. The cheque was met on presentment. 15 On 24 November 2006 Kilmory granted the plaintiff a mortgage over the Point Piper property and the plaintiff lodged a caveat pending obtaining consent of a prior mortgagee to the registration of that mortgage. It was just after that point that the critical event which necessitates this application occurred. 16 On 27 November 2006 Mr Baker lodged with ASIC notification of the discharge of the charge. It was on the prescribed Form 312. It was signed by Mr Baker as a director of the plaintiff. It reflects the date of discharge or release as 21 November 2006 and the "extent of discharge" as "paid or satisfied in full". 17 Needless to say, the balance of $150,000 was not, and still has not been, paid. 18 The loan fell due on 22 December 2006 and McLean failed to make any payment. 19 McLean has had a liquidator appointed to it and the first mortgagee over the Mandalong Street property has taken possession of it. 20 Since about May 2007 the plaintiff has sought to take enforcement action with respect to its securities. According to Mr Baker, the caveat which had been lodged on the Point Piper property by the plaintiff was withdrawn by withdrawal document purporting to bear signatures on behalf of the plaintiff which signatures Mr Baker says are fraudulent. 21 It is in these circumstances that the plaintiff moves for an extension of time to lodge (or perhaps more accurately to further lodge) the notice of charge or to rectify the Register to reinstate it. The relevant provisions 22 Section 263(1) of the Act provides that where a company creates a charge, it must ensure that there is lodged with ASIC within 45 days of its creation a notice in the prescribed form setting out particulars of the charge and, where appropriate, providing copy of it. 23 The failure to lodge notice has legal consequences affecting the priority of the charge and preventing the creditor from enforcing it against an external administrator. 24 Although s 263 envisages the chargor lodging notice there is nothing to prevent the chargee lodging it. In practice the chargee often does so because it is the chargee's priority rights which are prejudiced if the requirement is not met. 25 Section 266(4) of the Act provides as follows: [Effect of failure to lodge] The Court, if it is satisfied that the failure to lodge a notice in respect of a charge, or in respect of a variation in the terms of a charge, as required by any provision of the Part: (a) was accidental or due to inadvertence or some other sufficient cause; or (b) is not of a nature to prejudice the position of creditors or shareholders; or that on other grounds it is just and equitable to grant relief, may, on the application of the company or any person interested and on such terms and conditions as seem to the Court just and expedient, by order, extend the period for such further period as is specified in the order.

26 Section 269(1) of the Act provides as follows: [Satisfaction of debt] Where, with respect to a charge registered under this Part: (a) the debt or other liability the payment or discharge of which was secured by the charge has been paid or discharged in whole or in part; or (b) the property charged or part of that property is released from the charge; the person who was the holder of the charge at the time when the debt or other liability was so paid or discharged or the property or part of the property was released must, within 14 days after receipt of a request in writing made by the company on whose property the charge exists, give to the company a memorandum in the prescribed form acknowledging that the debt or other liability has been paid or discharged in whole or in part or that the property or that part of it is no longer subject to the charge, as the case may be. 27 Section 274 of the Act provides as follows: Power of Court to rectify Register Where the Court is satisfied: (a) that a particular with respect to a registrable charge on property of a company has been omitted from, or misstated in, the Register or a memorandum referred to in section 269; and (b) that the omission or misstatement: (i) was accidental or due to inadvertence or to some other sufficient cause; or (ii) is not of a nature to prejudice the position of creditors or shareholders; or that on other grounds it is just and equitable to grant relief; the Court may, on the application of the company or any person interested and on such terms and conditions as seem to the Court just and expedient, order that the omission or mis-statement be rectified. 28 Section 1322(4)(b) and (d) provides as follows: [Orders court may make] Subject to the following provisions of this section but without limiting the generality of any other provision of this Act, the Court may, on application by any interested person, make it or any of the following orders, either unconditionally or subject to such conditions as the Court imposes: (a) … (b) an order directing the rectification of any register kept by ASIC under this Act; (c) … (d) an order extending the period for doing any act, matter or thing or instituting or taking any proceeding under this Act or in relation to a corporation (including an order extending a period where the period concerned ended before the application for the order was made) or abridging the period for doing such an act, matter or thing or instituting or taking such a proceeding; and may make such consequential or ancillary orders as the Court thinks fit. 29 Section 1322(6)(c) provides as follows: [Where court may not make order] The Court must not make an order under this section unless it is satisfied: (a) … (b) … (c) in every case - that no substantial injustice has been or is likely to be caused to any person.

30 It is readily apparent that s 266(4) of the Act does not avail the plaintiff in the circumstances of this case. It concerns "the failure to lodge a notice in respect of a charge". 31 There was no failure to lodge a notice in respect of the charge. Notice was duly lodged by 25 October 2006. The situation in which the plaintiff, albeit unfortunately, finds itself is not because of a failure to lodge notice but because of its positive act in lodging the notification of discharge. 32 Turning then to s 1322(4)(d) of the Act. The first issue which arises is whether the section has any operation in relation to an application to extend the time for lodging notice of a charge given the presence in the Act of s 266(4) which deals specifically with that subject. 33 In David Grant & Co v Westpac Banking Corporation (1995) 184 CLR 265 at 276, Gummow J referred to what was said by the High Court in Anthony Hordern & Sons Limited v Amalgamated Clothing and Allied Trades Union of Australia (1932) 47 CLR 1 at 7 to the following effect: "When the Legislature explicitly gives a power by a particular provision which prescribes the mode in which it shall be exercised and the conditions and restrictions which must be observed, it excludes the operation of general expressions in the same instrument which might otherwise have been relied upon for the same power." 34 It is the case, in my view, that Ch 2K of the Act, which deals with charges, is a self-contained code and system for notification and registration of company charges. Although for the reasons set out below it is not necessary to reach a final conclusion on the matter, I consider it doubtful that s 1322(4)(d) is available to be utilised to extend the time within which to notify a charge where s 266(4) does not assist. I proceed, however, on the basis that s 1322(4)(d) would be available if its requirements were met. 35 It has been held that the discretionary power conferred on the Court under s 1322(4) should be interpreted liberally and that the provision confers a wide discretion on the Court, subject to the requirements of s 1322(6). 36 However, it is still necessary for an applicant for relief under the provision to bring itself within its ambit. 37 Section 1322(4)(d) permits the Court to extend the period for doing an act, matter or thing under the Act. 38 It accordingly presupposes that the act, matter or thing has not occurred at all or that it has occurred late. 39 Once again that is not this case. The act, matter or thing here, namely notification of the charge, occurred. No relief is directed to that act. 40 It seems to me that the substance of what is sought is directed not towards late notification of the charge but rather to eradicating the effect of the plaintiff having given notification of discharge. In my view s 1322(4)(d) is not capable of bringing that result about and therefore also not available to the plaintiff. 41 Even if s 1322(4)(d) had been available, it seems to me that the discretion to grant relief sought would not have been granted in favour of the plaintiff in any event, for the reason which follows. 42 The proper characterisation of what occurred between the plaintiff and Kilmory was that Mr Baker agreed to discharge the charge in consideration for a series of promises, some of which were met and some of which were not. 43 The conversations which he had with Mr Reddy and Mr Sarina and his conduct in notifying the discharge of the charge are consistent only with the conclusion that the agreement for discharge was concluded and partly performed by Kilmory (and perhaps fully performed by the plaintiff), but that Kilmory breached its side of the bargain. 44 Leaving aside whether even upon the setting aside of the entire transaction ab initio the discharge would be effective, it certainly is effective now. 45 It seems to me that the requirements of s 1322(6)(c) would not be satisfied in relation to this application. To re-register the charge could not, in my view, be said to be without substantial injustice caused to, or likely to be caused to, any person. Rectification 46 It seems to me that these circumstances also preclude the plaintiff from seeking rectification of the Register. 47 There is a question whether s 1322(4)(b) applies to rectification of the Register given the specific provision contained in s 274. It is not necessary to resolve that question. 48 I am not satisfied, even if either section was available, that it would be just and equitable or that there is an omission or misstatement in the Register. The transaction reflected in the Register is presently recorded according to its tenor. 49 So far as s 1322(4)(b) is concerned, it is not available to the plaintiff for the same reason. 50 In the circumstances and notwithstanding the able submissions of Mr Cullen of counsel, who appeared for the plaintiff, and the unfortunate circumstances of the case, given the non-performance by Kilmory of the obligations which it took upon itself in the conversation between Mr Baker and Mr Sarina, the relief which the plaintiff seeks must be refused. 51

The Amended Originating Process dated 30 July 2007 is dismissed. 52 I reserve the question of costs of the application. 53 I note that I heard submission on costs. I declined to make an order.

31/08/2007 - Introduction changed to lower case - Paragraph(s) Header

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CITATION : Community Life v Kilmory [2007] NSWSC 943 This decision has been amended. Please see the end of the judgment for a list of the amendments.

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