Craig Mostyn & Co Pty Ltd (ACN 000 047 745) v Old Valley Pty Ltd

REASONS FOR JUDGMENT Introduction 1 As part of a transaction providing for settlement of a dispute between a company and one of its substantial shareholders, the shareholder effectively advanced $1 million to the company to improve its working capital position. The advance was secured by a charge over the company's property. Because of delays associated with obtaining approval with respect to the charge from prior charge holders and because of inadvertence on the part of the chargee's solicitors, the charge was registered with the Australian Securities and Investments Commission ('ASIC') seven days later than the 45 day period for which the Corporations Act 2001 ('the Act') provides. Since that time the company has gone into liquidation. The charge, having been lodged out of time, is void against the liquidator. The chargee company, Craig Mostyn & Co Pty Ltd ('Craig Mostyn') now applies to this Court for an extension of the 'relevant period' for the lodgment of notice of the charge to the date upon which it was actually registered. The effect of that application, if successful, is to put Craig Mostyn in the position of a secured creditor in the winding up of the company. 2 For the reasons below, I am satisfied that the case is one in which it is appropriate to grant the extension which is sought. The extension is made upon conditions protective of the interests of creditors who may have advanced funds or given credit to the company on the strength of the Register during the seven day period of delay. Factual History Leading up to the Creation of the Charge 3 Craig Mostyn is a merchant importer and exporter. Old Valley Pty Ltd ('OVPL'), of which it is a 15% shareholder, was formed in Western Australia on 29 February 2000 as an unlisted public company. According to a report to creditors by its former administrators, now liquidators, it was created to develop an integrated Western Australian fruit and vegetable based agribusiness involved in sourcing, packing, processing and marketing fruit and vegetable products. The company's majority shareholder is Old Valley Holdings Pty Ltd ('OVH') which was formed out of an association of fruit growers in the South West of Western Australia and was incorporated in 1996. 4 In November 2002, Craig Mostyn became a shareholder of OVPL as part of the creation of an alliance of shareholders in the company each contributing different expertise. OVH was to contribute its expertise as a grower and packer of product. Benson Chase Limited ('Benson Chase') was to provide management and strategic planning services. Craig Mostyn was to operate as the company's exporter and Mr J Morris as entrepreneur/adviser. Pursuant to that arrangement, Craig Mostyn entered into an Export Agency Agreement dated 8 November 2002 with OVPL. At the same time it acquired 1,000,050 of the issued shares of OVPL for a total consideration of $1,213,156. This represented a 15% shareholding. 5 Recitals to the Export Agency Agreement stated that, under the terms of an Asset Purchase Agreement, OVPL was to acquire the assets of Westcorp QA which carried on the business of co-ordination and support of growers of fresh produce, packing, processing and marketing of fresh fruit and vegetables and packaged fruit and vegetable-based foods and beverages. Prior to the commencement date of the Export Agency Agreement, Westcorp QA had been responsible for the export of its fresh and packaged fruit and vegetable. Under the Agreement Craig Mostyn was to be exclusively responsible for those exports. 6 Under cl 9 of the Agreement, OVPL authorised Craig Mostyn to receive payments on its behalf arising out of the sales of produce in export markets. The money so received was to be paid into an account nominated by OVPL. Craig Mostyn was entitled to claim from OVPL marketing and export expenses and a marketing fee. The marketing fee was defined in cl 1.1 as 1.65% of the value in Australian dollars of the produce sold in Export Markets inclusive of certain costs. 7 In January 2003, OVPL was in need of working capital. According to the administrator's report the company had a history of trading losses. To 30 June 2003, it showed a net loss of $322,660. There was a deficiency in working capital, as at 31 July 2003, of $2,017,813. This reflected current assets of $3,801,960 and current liabilities of $5,819,773. 8 On 14 July 2003, Mr Des McDermott of Craig Mostyn had discussions with Mr Alan Hancock of OVPL about the possibility of Craig Mostyn providing working capital to OVPL. Those discussions led to a Stock Agreement under which quantities of juice concentrate held in stock by OVPL would be sold to Craig Mostyn at a discounted price to take account of financing costs involved in holding the stock. When OVPL required stock to be delivered to one of its customers Craig Mostyn would sell the stock back to OVPL. The agreement was set out in an email dated 14 July 2003 from Alan Hancock which also referred to an advance of $219,294.02 by Benson Chase to provide working capital. The implementation and substance of the Stock Agreement, as described in the email, was as follows: 1. Representatives of Craig Mostyn and OVPL would meet to review concentrate stocks held at OVPL's Canning Vale premises and to work out the best way of isolating current stock. 2. Following agreement about the volume of stock involved, which was said to be approximately 340,000 litres of concentrate, one invoice would be raised on Craig Mostyn for the concentrate at 15% under OVPL's normal selling price. The produce would be included in Craig Mostyn's stock take. OVPL customers placing an order with OVPL would receive product despatched and invoiced in the normal manner. However upon OVPL raising an invoice against its customer, Craig Mostyn would be notified of the volume despatched and they would raise an invoice to OVPL and retransfer the stock back to it. 3. OVPL warranted to Craig Mostyn that the stock would at all times meet customer specifications and be saleable and would remain responsible for the security of the stock, insurance, storage costs, sale and despatch. Pursuant to this arrangement, OVPL raised two invoices to Craig Mostyn for stock totalling $667,950.92 which Craig Mostyn paid on 15 July 2003. At all times the stock owned by Craig Mostyn remained in the possession of OVPL. There was a question raised late in the hearing whether the arrangement itself amounted to a charge over the relevant stock. It was proposed in written submissions filed today that I should further adjourn the application in order to receive submissions relevant to the character of that arrangement as a discretionary factor in favour of the grant of the extension sought. On the view that I have taken, the nature of the arrangement is a factor, albeit a minor one, weighing in favour of the grant of extension and no adjournment is necessary. 9 A dispute arose between Craig Mostyn and OVPL concerning the implementation of the Stock Agreement. Between July and November 2003, stocktakes were undertaken by Craig Mostyn's employees and invoices rendered to OVPL for stock which had been sold. The invoices totalled $468,964.50. It appears that the stock had been sold without OVPL first reacquiring it from Craig Mostyn. As at 17 November 2003 OVPL retained in its possession stock owned by Craig Mostyn the value of which was represented by the difference between the sum of $667,950.92 and the sum of $468,964.50, that difference being $198,986.42. About $109,000 of the $468,964.50 which was invoiced was due from OVPL at 17 November 2003. Craig Mostyn continued during this period to be responsible, under the Export Agency Agreement, for the export and marketing of fresh and packaged fruit and vegetables produced by OVPL. Because there were outstanding invoices under the Stock Agreement, Mr Southall, the Chief Financial Officer for Craig Mostyn, arranged for money, due to be paid by Craig Mostyn to OVPL under the terms of the Export Agency Agreement, to be withheld. The sum of $109,000 due as at 17 November 2003 was retained in this way. It appears that apart from that issue a dispute had arisen between Craig Mostyn and OVPL concerning the performance of the Export Agency Agreement. 10 In November 2003, the Chief Executive of Craig Mostyn and Mr Southall negotiated a settlement with OVPL of all their disputes. Minter Ellison, the solicitors for Craig Mostyn, were instructed to prepare the necessary documents. Craig Mostyn and OVPL executed a Deed of Settlement and a Fixed and Floating Charge on 17 November 2003. As summarised by Mr Southall the Deed of Settlement provided that Craig Mostyn would convert its claims for the stock, $708,137.72, into an advance to OVPL and advance a further sum of $291,862.28, thus making a total loan of $1 million to be repaid on 17 November 2004. The cash balance of $291,862.28 was paid to OVPL by Craig Mostyn on or about 18 November 2003. The Deed terminated the Export Agency Agreement and provided for the grant, by Craig Mostyn, of an option to OVPL to purchase its shares in OVPL. 11 The loan arrangement was set out in cl 5 of the Deed. It was in the following terms: '5.1 Loan Craig Mostyn agrees to lend $1,000,000 to OVPL comprising: (a) $708,137.72 being the outstanding value of the Juice Concentrate plus accrued interest on this outstanding amount (accrued at a rate of 18% per annum) as at the Execution Date; (b) costs, being equal to fifty percent of the total value of reasonable legal costs required to reimburse Craig Mostyn, for the costs it has incurred in providing this loan to OVPL; and (c) the balance in cash, payable by bank cheque on execution of this Agreement and the Security Documents. 5.2 Interest The amount of $1,000,000 attracts interest at the Interest Rate. Interest is to be calculated and charged monthly in arrears commencing on the day which is one calendar month after the Execution Date. 5.3 Term and Repayment (a) The term of the Loan is for a period of 12 months. (b) The principal of $1,000,000 and all accrued interest incurred to that date on amounts outstanding are to be paid in full on the date that is 12 months after the Execution Date (Expiry Date). (c) OVPL may repay the Loan before the Expiry Date without penalty on payment of the outstanding principal and all interest charged and accrued to that date. 5.4 Juice Concentrate Title to the Juice Concentrate will pass from Craig Mostyn to OVPL on payment of the cash amount referred to in clause 5.3(c), in return for which Craig Mostyn agrees to release OVPL from any claims it may have for amounts invoiced by Craig Mostyn but unpaid at the Execution Date.' 12 The term 'Juice Concentrate' was defined in cl 1.2 of the Deed of Settlement as follows: 'Juice Concentrate means the juice concentrate that has been provided by Craig Mostyn to OVPL for OVPL to sell to third parties under an arrangement by which Craig Mostyn would invoice OVPL for its value after such sale.' The term 'Security Documents' was also defined thus: '(a) a fixed and floating charge to be held by Craig Mostyn over the assets of OVPL; and (b) guarantees to be provided by each of the current directors of OVPL in favour of Craig Mostyn.' 13 A deed entitled 'Fixed and Floating Charge' was executed on 17 November by OVPL as Chargor and Craig Mostyn as Financier. The Charged Property was defined as: '... all the present and future property of the Chargor wherever situated, including all property (if any) held by the Chargor as trustee.' The term 'Secured Money' was defined as: '... all money (in whatever currency) that the Chargor (whether alone or with any other person) is or may at any time be liable (actually, prospectively or contingently) to pay to the Financier (whether alone or with any other person) on any account or in any way whatever. It also includes money which the Chargor would be liable to pay but for its Insolvency.' Clause 2 created the charge as a Fixed Charge over various listed assets of OVPL and as a Floating Charge over the balance of the Charged Property. 14 In addition to the Charge, a Guarantee and Indemnity was executed in favour of Craig Mostyn by the directors of OVPL, Mr FJ Atherton, Mr J Martella, Mr TM Fogliani, Mr JA Morris, Mr PN Wood and Mr AR Hancock. 15 The working capital position of OVPL as at November 2003, according to the Administrators' report to creditors, showed a deficiency of $566,473. In December 2003, following the advance from Craig Mostyn, it stood at a positive $54,801. By January 2004, it had slipped back to a deficiency of $537,360. The figures for February and March showed deficiencies of $619,996 and $602,349. By way of explanation of these figures the administrators' report said: 'In the months of November 2003 and December 2003 loans of approximately $2,000,000 were made to the Company by two shareholders or their related companies. This transaction resulted in a reduction of the trade creditor position and a temporary positive working capital position of $54,801 in the month of December 2003. However, at that time it appears the Company had creditor cheques on hold of approximately $1,600,000, the Company's overdraft facility was at its maximum limit and trade creditors of approximately $538,000 were outstanding for 60 days or more (excluding any cheques held). Accordingly, these loans did little to satisfy the ongoing working capital requirements of the Company. Instead despite increased sales in the month of January 2004 the working capital position began to deteriorate shortly thereafter.' The Preparation and Registration of the Charge 16 Mr Southall dealt with Mr Shervington and Mr Renkema at Minter Ellison in connection with the preparation of the Deed of Settlement and the Fixed and Floating Charge. Mr Southall was aware at all material times that notice of the charge had to be lodged with ASIC. He was not aware that this had to occur within 45 days of its creation. He said he had conversations with Mr Shervington and Mr Renkema in late November or early December to the effect that care had to be taken in lodging the charge as Westpac, which held a prior security, had to give its formal approval. If the charge were lodged without that approval then OVPL would be in breach of its covenant with Westpac. Mr Southall instructed Minter Ellison to obtain the necessary approval and to lodge the charge. An extract of the OVPL company records held by ASIC shows that there were only two prior charge holders. One was Westpac Banking Corporation ('Westpac') and the other was the Minister for State Development. The Westpac charge secured a Commercial Bill facility of $3,100,000. 17 Mr Shervington said that he received instructions from Mr Southall and Mr David Lock on 29 October 2003 to prepare the documentation for the settlement between Craig Mostyn and OVPL. Mr Renkema, a solicitor employed by Minter Ellison in its Corporate and Commercial Division, and subject to Mr Shervington's supervision, was to prepare the documents and to keep Mr Shervington informed of progress. 18 Mr Southall, Mr Lock, Mr Shervington and Mr Renkema met on 30 October 2003 with representatives of Deacons who were the solicitors acting for OVPL. The meeting was held to discuss the details of the settlement. Following the meeting, Mr Renkema drafted the Deed of Settlement and arranged for Mr Bull, a solicitor in Minter Ellison's Banking and Finance Division, to prepare the Fixed and Floating Charge. Mr Shervington was aware that this was being done by Mr Bull. Mr Shervington said in his affidavit that Mr Renkema told him he was aware that the Charge would have to be registered with ASIC but that he was not aware of the 45 day time limit. Mr Renkema evidently acted on the basis that the Banking and Finance Division of Minter Ellison would handle the registration. 19 On 13 November 2003, Mr Bull gave Mr Renkema a draft of the Fixed and Floating Charge. A copy was given to Mr Shervington by email. A draft was sent to Deacons on 14 November. Mr Shervington had a discussion with Mr Bull about the Charge on 17 November. Mr Bull told him that there were prior charge holders whose consent would be required to the creation of the Charge and who would probably require a Deed of Priority. One of the prior charge holders was the Minister for State Development. Finalising a Deed of Priority with the Minister would take some time. Despite this difficulty, the Deed of Settlement and the Fixed and Floating Charge were executed on that day. 20 When the Deed and Charge were executed, Mr Shervington was aware of the need to obtain a Deed of Priority and to lodge the notice of the charge with ASIC. He said in his affidavit: 'However, I was not then aware of the 45 day period in which the notice had to be registered. My focus was on finalising a deed of priority between the plaintiff, the defendant and the prior charge-holders.' Mr Shervington attended the execution of the documents with Ms Leyland, a solicitor from the Corporate and Commercial Division at Minter Ellison. Mr Bull was also present. Mr Leyland took the file after settlement and attended to stamping of the documents and the preparation of a Deed of Priority. 21 It appears that Mr Bull was aware of the 45 day time limit. He informed Mr Shervington that he believed he told Ms Leyland about the need to have the form lodged within 45 days but could not recall whether this had occurred or not. Ms Leyland did not speak to Mr Shervington about any 45 day requirement. The only inference I can draw from that evidence is that Mr Bull knew of the 45 day time limit. I cannot infer that he passed that on to Ms Leyland. 22 Ms Leyland awaited payment of the stamp duty from Deacons before lodging the Charge for registration and acted on the basis that Mr Shervington had made an arrangement not to register the Charge until the Deed of Priority was finalised. Mr Shervington had discussed the Deed of Priority with Deacons and had made an arrangement with them that the Deed of Priority would be put in place before registration so as not to affect a breach of the prior charges. 23 Mr Shervington said it is not usual for security documents to be prepared by him or by solicitors in the Corporate and Commercial Division at Minter Ellison. Those activities are undertaken by the Banking and Finance Division. He was not aware that Mr Bull had left matters relating to registration of the Charge to Ms Leyland. 24 On 15 December 2003, Mr Southall sent an email to Mr Renkema asking for advice on the progress of the Charge. He said: 'Can you please advise on progress in finalising the security aspects of the "Fixed and Floating Charge" with both Westpac and the WA Govt. Can you also confirm that CM has been charged for all the costs associated with these securities?' In his response to that email, Mr Renkema said that Ms Leyland was finalising the preparation and review of the Deed of Priority from Craig Mostyn's perspective. Mr Shervington went on leave between 25 December 2003 and 5 January 2004. Ms Leyland was on leave from 2 January until 16 January 2004. 25 On 7 January 2004, Mr Southall telephoned Mr Renkema. Mr Southall asked Mr Renkema whether notice of the charge had been registered with ASIC. Mr Southall sent an email to Mr Lock following that telephone conversation reporting that Mr Renkema and Minter Ellison were close to finalising the Deed of Priority with both Westpac and the State Government. He asked Mr Renkema not to take too long given recent market feedback and rumours about OVPL's lack of cashflow. 26 Mr Shervington spoke with Mr Renkema on 7 January 2004. In the course of that conversation Mr Renkema asked Mr Shervington why notice of the charge had not been registered. Mr Shervington said it was for the reason proposed by Mr Bull. He discussed with Mr Renkema the arrangement about putting the priority agreement in place before registration so as not to affect a breach of prior charges. Notice of the charge was lodged for registration with ASIC on 8 January 2004. According to Mr Shervington, it was registered on a provisional basis as stamp duty was yet to be paid on it. A cheque for the amount of the stamp duty was sent to his office by Deacons on 27 January 2004. The Appointment of Administrators and the Winding Up of the Company 27 On 30 April 2004, Vincent Smith and Brian Hughes were appointed as administrators of OVPL pursuant to a resolution of its directors. Mr Southall first became aware of the appointment upon receiving a letter from Messrs. Smith and Hughes dated 3 May 2004 advising of their appointment. On 19 May 2004, the administrators distributed their report to creditors. Mr Southall received a copy of the report about that time. 28 On 27 May 2004, OVPL's creditors resolved to have it wound up and Messrs Smith and Hughes were appointed liquidators. Mr Southall became aware of the liquidation as Gary Dienhoff, an employee of Craig Mostyn, attended at the meeting of creditors. On that day Mr Southall rang Mr Shervington to tell him that the liquidators had advised that there was an issue, under s 266 of the Act, arising out of the need to lodge the Charge within 45 days of its creation. This, according to Mr Shervington, was the first time that he had become aware of the period within which the Charge had to be lodged. 29 Mr Southall said in his affidavit that at all times he proceeded on the basis that Craig Mostyn required security for the moneys advanced to OVPL. He said that Craig Mostyn would not have authorised advances to OVPL without security. For that reason they required security in the form of the Charge as part of the Deed of Settlement which allowed the balance of the stock, the subject of the invoices to Craig Mostyn, to be sold by OVPL. The Application to Extend Time for Registration 30 On 1 June 2004, Craig Mostyn filed an application under s 266(4) of the Act seeking to extend the time for lodging with ASIC notice of the Fixed and Floating Charge. The orders sought in the application are in the following terms: '1. The period for lodging with the Australian Securities and Investments Commission a notice of charge in respect of a charge dated 17 November 2003 granted by the defendant to the plaintiff be extended to 8 January 2004. 2. Liberty be reserved to the liquidators or any creditor of the defendant to apply to discharge or vary the order in paragraph 1 if a creditor of the defendant has advanced funds, or given credit, to the defendant in reliance of (sic) the register not disclosing the charge (as listed in paragraph 1) to be registered. 3. The order in paragraph 1 be without prejudice to the rights of any person in consequence of any dealings by that person with any property the subject of the charge referred to in paragraph 1 between 2 January 2004 and 8 January 2004. 4. There be no order as to costs. 5. Such further or other orders as may be just or necessary.' Procedural History 31 On 15 June 2004, the liquidators sent a circular to the creditors of OVPL. The circular of 15 June 2004 referred to a report to creditors dated 19 May 2004 which had foreshadowed the application by Craig Mostyn to extend the time for registration of the charge. The liquidators advised that Craig Mostyn was yet to file a substantive affidavit in support of the application detailing the reasons for delay. They said: 'The orders sought by Mostyn in the application allow the Liquidators or a creditor of the Company to discharge or vary the order sought by Mostyn if a creditor of the Company has provided funds, or given credit, to the Company on the basis that the Company's records held at the Australian Securities and Investment Commission did not disclose the Charge between 2 January 2004 and 8 January 2004. Further, the extension order will not affect the rights of any person who had any dealings with any property the subject of the Charge between the period 2 January 2004 to 8 January 2004.' The circular referred to the directions hearing to be held on 18 June 2004 and advised that, in the event that a creditor or shareholder of the company wished to be heard at the hearing of the application, that person should advise Craig Mostyn's solicitors. The liquidators invited any queries to be directed to their office. 32 The application came on for a directions hearing on 18 June 2004. The liquidators of OVPL appeared by counsel. Directions were given requiring the filing and service of affidavits in support of the application on or before 2 July 2004. 33 A further circular dated 13 July 2004 was sent to creditors and to each of the directors of OVPL and the members of the OVPL Committee of Creditors. In it the liquidators advised that the application would be heard on 30 July 2004. They pointed out that at the date of the circular Craig Mostyn had not filed any substantive affidavit material so that the liquidators did not know the exact grounds of the application. The liquidators advised creditors that they had limited funds available to them, other than those subject to the Fixed and Floating Charges registered against the company, which could be used to fund the cost of taking any active part in the proceedings. The liquidators also informed creditors of an established body of case law allowing that in certain circumstances an extension of time could be applied for even though an administrator or liquidator has already been appointed to a company. Based on that case law the liquidators advised creditors that their appointment would not of itself prevent Craig Mostyn from obtaining an extension of time. 34 The liquidators referred to the recent decision of the Full Court in Hewlett Packard Australia Pty Ltd v GE Capital Finance Pty Ltd (2003) 203 ALR 51 which was then, and still is, the subject of an application for special leave to the High Court. They advised that the Hewlett Packard case might substantially alter the law relating to applications of this kind. They informed creditors that, at the application for special leave, the applicants in the Hewlett Packard case would probably argue that s 266 of the Act meant that an extension of time to register a charge should not be granted where an external administrator, such as a voluntary administrator or liquidator, had been appointed to the relevant company prior to the filing of the notice. 35 The liquidators posed the rhetorical question 'What can the creditors do?' They said that creditors might wish to preserve OVPL's position in relation to the Craig Mostyn application until the High Court had decided the Hewlett Packard case. They could do this in two ways. One was to oppose the Craig Mostyn application. This would involve a creditor opposing the application before this Court. If the application were successful the creditor might need to appeal the decision to the Full Court. Alternatively, creditors could fund the liquidators to take those steps. Any creditor funding the liquidator might be required to provide an indemnity for adverse costs orders against the liquidator if the opposition to (or any subsequent appeal of) the Craig Mostyn application were unsuccessful. The liquidators pointed out that if the Craig Mostyn application were unsuccessful funds otherwise subject to the Charge could become available for distribution to the company's unsecured creditors. Any creditors interested in opposing the Craig Mostyn application was advised to obtain their own independent legal advice. 36 The hearing of the application commenced on 30 July 2004. Affidavit evidence in relation to the application and submissions were received on that day and the hearing adjourned to 19 August 2004. Directions were made in the following terms: '1. The hearing of the application is adjourned to 19 August at 2.15. 2. The [plaintiff] is to place an advertisement in the West Australian Newspaper and Financial Review within 7 days giving notice of the adjourned hearing and the nature of the application and inviting any interested creditors to appear and be heard. The terms of the advertisement to be agreed with the liquidator and approved by the Court. 3. Any creditors wishing to appear and be heard to have access to the affidavits in these proceedings or transcript of argument and written submissions filed in court. 4. Any creditor wishing to appear and be heard at the adjourned hearing is to file a notice of intention to appear on or before 16 August 2004. 5. Liberty to apply.' 37 At the hearing the liquidators were represented and informed the Court that they neither consented to, nor opposed, the application. The Court was informed by counsel for the liquidators that some oral responses had been received from creditors in relation to the application. However, no creditor had come forward either with funding for the liquidator to oppose the action or to take any other steps in relation to it, nor had any creditor indicated that it wished to oppose the application itself. 38 Following the publication of the newspaper advertisement pursuant to the directions given on 30 July, no creditor filed an appearance in these proceedings. Mr Scovell, a solicitor employed by Phillips Fox, who represents the liquidators, said he was telephoned by two creditors after the advertisements were published. Neither expressed any interest in individually funding the liquidator to oppose the application or appearing in their own right to oppose it. Statutory Framework 39 Charges over the property of corporations are dealt with in Ch 2K of the Act. Part 2K.1, comprising s 261, deals with interpretation and application of the Chapter. Part 2K.2, comprising ss 262 to 277, deals with registration of charges. 40 Section 262 sets out the categories of charges which attract the application of the provisions of Ch 2K about the giving of notice in relation to, the registration of, and the priorities of, charges on property of a company. Relevantly for present purposes these include floating charges on the whole or a part of the property, business or undertaking of the company (s 262(1)(a)) and charges on other classes of property most of which are reflected in the classes of property listed in cl 2.2 of the Fixed and Floating Charge Deed in this case. It is clear that the relevant provisions of Ch 2K apply to the Fixed and Floating Charge in this case. It may be noted, however, that the requirement for registration does not apply to charges on land (s 262(8)). 41 Section 262(11) provides: 'A charge on property of a company is not invalid merely because of the failure to lodge with ASIC, or give to the company or another person, a notice or other document that is required by this Part to be so lodged or given.' 42 Section 263 of the Act provides that where a company creates a charge it must ensure that there is lodged, within 45 days after the creation of the charge, a notice in the prescribed form setting out the particulars of the charge which are listed in s 263(1)(a). The section also requires lodgment of the instrument or a verified copy (s 263(1)(c)). Where a notice in respect of a charge required by s 263 is lodged, whether before or after the period within which it was required to be lodged, and contains all requisite particulars, ASIC is required as soon as practicable to enter into the Australian Register of Company Charges the time and date of lodgment and specified particulars in relation to the charge (s 265(2)). The obligation to keep the Register is imposed upon ASIC by s 265(1). Section 265 provides for provisional registration where stamp duty has not been paid and, in effect, for registration to take effect from the date of lodgment when the provisional designation is removed (s 265(4), 265(7) and 265(9)). 43 Section 266(1) provides: '(1) Where: (a) an order is made, or a resolution is passed, for the winding up of a company; or (b) an administrator of a company is appointed under section 436A, 436B or 436C; or (ba) a company executes a deed of company arrangement; a registrable charge on property of the company is void as a security on that property as against the liquidator, the administrator of the company, or the deed's administrator, as the case may be, unless: (c) a notice in respect of the charge was lodged under section 263 or 264, as the case requires: (i) within the relevant period; or (ii) at least 6 months before the critical day; or (d) in relation to a charge other than a charge to which subsection 263(3) applies - the period within which a notice in respect of the charge (other than a notice under section 268) is required to be lodged, being the period specified in the relevant section or that period as extended by the Court under subsection (4), has not ended at the start of the critical day and the notice is lodged before the end of that period;...' Subparagraphs (e) or (f) are not material for present purposes. (2) The reference in paragraph (1)(c) to the relevant period is to be construed as a reference to: (a) in relation to a charge to which subsection 263(1) applies - the period of 45 days specified in that subsection, or that period as extended by the Court under subsection (4) of this section;...' Subparagraphs (b) and (c) are not material. (4) 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 this 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.' Whether the Time for Registration Should be Extended 44 Section 266 renders void, as against the liquidator or administrator of a company, a registrable charge on the property of the company unless a notice in respect of the charge was lodged with ASIC within the relevant period or at least six months before the critical day. That is to say, the notice must have been lodged within 45 days of the creation of the charge and, if not, at least six months before the commencement of the winding up. In this case the winding up of OVPL commenced on 27 May 2004 upon the passing of the creditors winding up resolution. A charge registered prior to 27 November 2003 would not be avoided by operation of s 266 notwithstanding that it might have been registered more than 45 days after its creation. In the present case, the 'relevant period' for the purposes of s 266 expired on 1 January 2004. The Charge was registered with effect from 8 January 2004, a delay of seven days. 45 The conditions derived from s 266(4) which must be met before the Court can extend the relevant period in this case are as follows: 1. There has been a failure to lodge a notice in respect of a charge as required by a provision of Pt 2K.2. 2. The company or a person interested has applied to the Court for an order to extend the relevant period. 3. The Court is satisfied that the failure to lodge the notice was accidental or due to inadvertence or some other sufficient cause or 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 power of the Court upon satisfaction of these conditions is a power to extend the period for such further period as the Court specifies on such terms and conditions as seem to the Court just and expedient. 46 It is clear that the first two conditions are met. There was a failure to lodge a notice of the Charge within the time required by s 263 of the Act. The application is brought by Craig Mostyn which is a 'person interested' for the purposes of s 266(4)(b). The question then arises whether one or other of the limbs of the third condition is met. The failure to lodge the notice could be said to be 'accidental'. The dictionary definition of that word, which includes the word 'undesignedly', is broad enough to encompass what occurred. Accident could be interpreted in this context as referring to human error or mistake. On that basis it could be said that the failure to register within time in the present case was accidental. Whether or not that characterisation is correct, it is clear in my opinion that the failure to lodge the notice was also due to inadvertence on the part of Craig Mostyn's solicitors. That inadvertence arose out of a combination of factors including the solicitors' focus on the need to secure the approval of prior charge holders, lack of awareness of the relevant time limits by certain of the practitioners involved and lack of adequate communication between the two sections of the firm responsible for the preparation of the documentation. There has been some debate in the cases about whether lack of awareness of the time limit can constitute or explain inadvertence. Some of those cases were discussed in National Australia Bank Ltd (ACN 004 044 937) v T2 Trading Limited (ACN 009 158 829) [2003] FCA 1477. In this case, and for reasons similar to those I expressed in the T2 case, which I need not repeat here, I am satisfied that inadvertence is made out. There is no need, in this context, to offer gratuitous critical comment. What happened speaks for itself and speaks to all practitioners and firms who may have responsibility for dealing with the registration of company charges. 47 Having regard to the finding of inadvertence it is not necessary to consider whether it could be said that the failure to lodge the notice was attributable to 'some other sufficient cause'. It may be the case that in some circumstances the requirement for approval by prior charge holders could amount to sufficient cause for delay. In this case, however, it was never clear that that prior approval would have related only to registration and not to the creation of the charge itself. 48 It is also unnecessary to consider the third limb of condition 3, namely that the failure to lodge the notice within time is 'not of a nature to prejudice the position of creditors or shareholders'. It is of interest however that the condition is not defeated by a finding that an extension of the relevant period would prejudice the position of creditors or shareholders. The fact that the interests of creditors may be prejudiced by the grant of an extension of time is not a bar to the exercise of the discretion. In particular, the fact that the rights of unsecured creditors in a winding up may be affected by the extension is not a bar to the grant of relief. Nor, in my opinion, is the fact of a winding up order. 49 In the very comprehensive judgment of Allsop J in Hewlett Packard, his Honour came to the conclusion (with which Branson J agreed) that, on the basis of long-standing case law an extension order could be made despite the appointment of an administrator or liquidator. His Honour said that, uninstructed by authority on the predecessor provisions to s 266, he would have taken the view that the extension of time contemplated by s 266(2) is an extension ordered by the Court prior to the 'critical day'. With respect to his careful judgment, I would need some persuasion to come to the view that that limitation emerges from the language of the Act. As his Honour acknowledged the course of authority is to the contrary. And although the unsecured creditors will have attracted specific statutory entitlements upon the commencement of the winding up there is no compelling policy consideration which would militate against a change in their position by reason of an extension of time for registration of a charge provided the change is not unfair in all the circumstances. 50 Once it is accepted that the making of a winding up order is not a bar to the exercise of the Court's power under s 266(4) there is no warrant for grafting onto that discretion the restrictions which emerge from some of the cases such as a requirement for 'exceptional' circumstances to be demonstrated before the extension will be granted after the commencement of the winding up. Those cases were discussed by Allsop J in Hewlett Packard, His Honour said at 104 [196]: 'If a winding up has intervened, the rights of creditors of a statutory and quasi-proprietorial kind have crystallised. Over a century of authority recognises the character and importance of that circumstance. In circumstances of the intervention of a winding up, while the cases have used the phrase "exceptional circumstances", the appropriate way of expressing the matter conformably with the width of the discretion, is to say that it is to be exercised in the recognition of intervening rights of all creditors, the nature of which rights has been described by courts without debate for over a century. These rights arise because of the avoiding effect of s 266. The ex post facto validation of the charge and the consequent destruction of the creditors' rights are possibilities, as they always were; but the circumstances would need to be sufficient to warrant the destruction of crystallised rights in the nature of property over the property the subject of the charge. To say that the intervention of a winding up is but one factor to take into account is apt to deflect attention from these considerations involving the consequences of winding up.' 51 Branson J at 58 [26] put it shortly, in agreeing with Allsop J, when she said: '... I agree with Allsop J that there is no rule of law that constrains the exercise of the broad discretion conferred on the court by s 266(4) to cases in which "exceptional circumstances" can be found.' 52 It is necessary, in my opinion, to take care not to confer upon the 'crystallised rights' of unsecured creditors a status and weight disconnected from the circumstances in which they came into being. In the case in which a chargee has advanced money to a failing company and has accidentally or inadvertently delayed, by a short time beyond the relevant period, to register the charge, the statutory rights of unsecured creditors, upon the commencement of the winding up, may be regarded as inflated by reason of that accident or inadvertence. The diminution by prompt judicial intervention, of what might be regarded as windfall elements of those rights, may be neither unfair nor inconsistent with the general policy of the law governing the winding up of companies and the rights of creditors. 53 Where a discretion is conferred upon the Court it is to be exercised in accordance with the terms and conditions and purposes of the Act conferring the discretion and not constrained by quasi-legislative thresholds. That is not to say that the established practice of the courts and their accumulated experience reflected in the course of many years of decision-making will not provide a guide to a sensible and principled approach to the exercise of the discretion in particular cases. On that established practice the extension of time in the case of an insolvent company or a company in liquidation is not lightly made and then generally upon conditions designed to minimise the risk of any unfair prejudice to any creditor. 54 In the present case the loan agreement in the Deed of Settlement conferred a substantial benefit upon OVPL which was in need of working capital at the time. The delay in effecting registration was due, in no small part, to attempts to ensure that the occasion did not arise under which default action could be taken against OVPL by prior charge holders, Westpac and the Minister for State Development. The delay was short, being a period of some seven days. The application was made promptly following the appointment of the liquidators when the need for an extension came to the notice of Craig Mostyn. The consequences of an extension of the relevant period in respect of Craig Mostyn's charge have been explained by the liquidators to the creditors in two successive circulars. The application has been adjourned to allow advertisements to be placed in a national and State newspaper to give further notice to creditors of these proceedings and of their opportunity to intervene. No creditor has sought to take any part in the proceedings, nor to press the liquidators to oppose the application. 55 I accept that in one sense the effect of extending the relevant period in respect of the Craig Mostyn charge will be to change the position of Craig Mostyn from an unsecured creditor to a secured creditor in the winding up of OVPL. I have regard however, as a relevant consideration although not a decisive one, to the fact that one of the considerations for the grant of the security was the sum of money owing to Craig Mostyn in respect of goods owned by it under the Stock Agreement and nevertheless sold by OVPL. There was a security-like arrangement in respect of the juice concentrate under the Agreement which was supplanted by the Deed of Settlement and the Fixed and Floating Charge. I accept that the extension will diminish the recovery available to other unsecured creditors. But in the circumstances of this case, and having regard to the safeguards contained in the proposed orders, I do not regard that diminution as unfair - Re Application of Guardian Securities Ltd [1984] 1 NSWLR 95. 56 If it be necessary to say so, I would characterise the conjugation of circumstances which led to the delay in this case as unusual. The prejudice suffered by Craig Mostyn if the order is not made will be significant. 57 I have considered whether, in the exercise of my discretion, I should have regard to the possibility that Craig Mostyn may have a cause of action against the directors of OVPL under the Guarantee and Indemnity Deed and against its solicitors for negligence. In the event, I consider these factors to be extraneous to the exercise of the discretion which is concerned with the rights inter se of Craig Mostyn, the liquidators and the unsecured creditors of OVPL. Conclusion 58 For the preceding reasons I will make orders extending the relevant period for registration of the charge to 8 January 2004 subject to the terms and conditions set out in the application. The liquidators seek an order for costs. They contend that they have been put to expense in being brought to Court for the purposes of the application. Counsel for the plaintiff made no submission in opposition to the liquidators' submission. The liquidators' participation in the case was necessary and appropriate. The unsecured creditors should not be out of pocket by reason of that attendance. I will order that the plaintiff pay the company's costs of the application on a solicitor-client basis and any liquidators' fees and disbursements reasonably incurred in connection with the application. I certify that the preceding fifty-eight (58) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice French.