Interpretation of s 588FL
56 DLL submitted that, because each of the PPSA security interests was granted to DLL by a company which had previously entered external administration, and therefore had a "critical time" within the meaning of s 588FL of the Corporations Act, there is a risk that s 588FL applies to those security interests absent an order of the Court pursuant to s 588FM.
57 As explained below, I do not accept the premise of the DLL's argument that there is a "critical time" within the meaning of s 588FL in respect of any of the grantors, by reason of their previous external administrations, which have ended. Section 588FL presently has no relevant application.
58 DLL referred to KJ Renfrey Nominees Pty Ltd (Trustee), in the matter of OneSteel Manufacturing Pty Ltd v OneSteel Manufacturing Pty Ltd [2017] FCA 325; 120 ACSR 117 (KJ Renfrey) where the Court held that it was necessary for a party who had taken a PPSA security interest to obtain relief under s 588FM. In that case, Onesteel Manufacturing had gone into administration on 7 April 2016, and entered into a DoCA on 4 November 2016. The plaintiff, Renfrey, fell into dispute with the administrators over whether a security interest had been properly registered on the PPSR as the relevant registration had identified Onesteel Manufacturing's parent company as the grantor, instead of Onesteel Manufacturing. The dispute was resolved by the parties' entry into a new agreement under which Renfrey was granted a new security interest. The new PPSA interest was registered on 12 December 2016, being within 20 business days of the security interest arising, and while Onesteel Manufacturing continued to be subject to the DoCA.
59 At [8] of her Honour's reasons, Davies J noted that the application for relief under s 588FM was made in the following context:
Whilst the security interest was registered within 20 business days of the security interest coming into force, it was, nonetheless, registered after the "critical time", namely 7 April 2016, and the parties are concerned that on one possible construction of s 588FL(2)(b)(ii), the fact that the security interest was registered after the "critical time" means that, by reason of s 588FL(4), the security interest automatically vested in OneSteel when it became enforceable. Renfrey applied for an order under s 588FM extending the time for registration of its security interest to 12 December 2016 to avoid the potential operation of s 588FL(4).
60 At [9], her Honour noted that the case was "an appropriate vehicle for grappling with the proper construction of s 588FL in relation to its application to a security interest granted and registered after the relevant event in s 588FL(1)(a) of the Corporations Act".
61 Davies J concluded relevantly:
[15] Section 588FL must be read as a whole and, in my view, read as a whole, it seems clear … that the scope of s 588FL does cover PPSA security interests that are granted after a relevant s 588FL(1)(a) event.
[16] In this case, a s 588FL(1)(a) event occurred in relation to OneSteel, being the appointment of an administrator to OneSteel. Whether s 588FL applies depends on whether the security interest granted by OneSteel "is covered" by s 588FL(2) of the Corporations Act.
…
[18] The words of s 588FL(2)(a) expressly and unambiguously extend the scope of that subsection to cover a PPSA security interest that "arises after the critical time". The "critical time" for that purpose is defined in s 588FL(7), relevantly, by reference to the events prescribed in s 588FL(1)(a) in relation to the grantor company, namely:
(a) in respect of a grantor company that is being wound up, the day when the winding up is taken to have begun or commenced as prescribed by ss 513A and 513B (whichever is relevant);
(b) "in any other case": ie if an administrator is appointed to the grantor company or the grantor company executes a deed of company arrangement, the s 513C day in relation to an administration.
[19] If the grantor company is wound up, a security interest "arises after the critical time" if it arises after the day prescribed in s 513A or s 513B (whichever is relevant) as the day that the winding up is taken to have begun or commenced. Thus, for example, a security interest "arises after the critical time" if, in respect of a grantor company that is being wound up by court order, it arises after the day on which the order was made: s 513A(e) of the Corporations Act. If an administrator is appointed to the grantor company, a security interest "arises after the critical time" if it arises after the day prescribed in s 513C, namely the day on which the administration began: s 513C(b) of the Corporations Act.
[20] The express provision in s 588FL(2) that the subsection covers a security interest "arising after the critical time", being an expression defined by reference to the events prescribed in s 588FL(1)(a), is a powerful textual and contextual reason against OneSteel's construction of s 588FL(1) that the "granting" of that interest must have already occurred at the time of the triggering event under subparagraph (a). A security interest that "arises after the critical time" is congruent to a security interest "granted" by the company after the relevant event prescribed in s 588FL(1)(a) that "is covered" by s 588FL(2). Read in that way, the different tenses in s 588FL(1)(a) and (b) do not connote that it is necessary that the security interest be "granted" by the company before the relevant event "occurs", that is, as a requirement to be satisfied as a past event before the relevant s 588FL(1)(a) event occurs.
62 Cases where relief has been granted pursuant to s 588FM in respect of security interests granted following the external administration of the grantor include Korda, in the matter of Ten Network Holdings Ltd (Administrators Appointed) (Receivers and Managers Appointed) [2017] FCA 1144; Hill (Administrator) in the matter of Flow Systems Pty Ltd (Administrators Appointed) [2019] FCA 35; Dickerson, in the matter of McWilliam's Wines Group Ltd (Administrators Appointed) (No 2) [2020] FCA 417.
63 DLL described KJ Renfrey as authority for the proposition that it is necessary for a secured party who has taken a security interest from a company "which had already been the subject of external administration" to obtain relief under s 588FM. However, KJ Renfrey was concerned with the case of a grantor that was subject to a DoCA: it did not address the case of a grantor that has been, but is no longer, under external administration (including under administration pursuant to Pt 5.3A, or subject to a DoCA pursuant to Pt 5.3A).
64 DLL submitted that, if KJ Renfrey has the broad effect identified above, each and every security interest granted by the grantor companies immediately falls foul of s 588FL and requires relief from the Court pursuant to s 588FM from the time that security interest is first enforceable against their parties. DLL submitted that this cannot be the intended effect of ss 588FL and 588FM. I agree. Further, the proper interpretation of s 588FL does not support such a construction, and KJ Renfrey is not authority for the broad proposition suggested by DLL, either expressly or impliedly.
65 Starting with the text, the scope of s 588FL is identified, first, by reference to the occurrence of specified events that may occur in the external administration of a company, and second, by reference to the fact of a PPSA security interest granted by the company in collateral covered by s 588FL(2). The latter fact requires consideration of the circumstances of the PPSA security interest at or after the "critical time".
66 Each specified event is of a kind that necessarily causes, or occurs in the context of, an external administration of the relevant company. The events specified in s 588FL(1)(a)(ii) and (iii) are directed to the case of a company in respect of which an opinion has been formed by the directors, or a liquidator or provisional liquidator that the company that is insolvent, or is likely to become insolvent, or where a security interest has become, and is still enforceable: ss 436A, 436B, 436C, 439A, 444A. The event specified in s 588FL(1)(a)(i) starts the process of winding up a company.
67 The use of the present tense in s 588FL(1) to identify the events that are pre-conditions to the application of s 588FL indicates that the section is concerned with the effect of those events in the course of an external administration. Accordingly, s 588FL(1)(a) does not cover the case of a company that executed a DoCA which has been terminated, with the result that the company is no longer under external administration. The events of the kind in s 588FL(1)(ii) and (iii) that occurred in the cases of Blayney Crane, MCC and Onesteel are historical matters that did not trigger the operation of s 588FL upon the creation of each of the relevant PPSA security interests.
68 As Davies J observed in KJ Renfrey, at [18], the "critical time" in s 588FL(7) is defined by reference to the events prescribed in s 588FL(1)(a) in relation to the grantor company. Although the phrase "in any other case" in s 588FL(7)(b) is ostensibly broad, in context, it is concerned with cases for which a day can be identified that "is" the s 513C day for the company.
69 Section 513C appears in Pt 5.6 of the Corporations Act, entitled "Winding up generally", Division 1A entitled "When winding up taken to begin". Section 513C provides:
513C Section 513C day in relation to an administration under Part 5.3A
The section 513C day in relation to the administration of a company is:
(a) if, when the administration began, a winding up of the company was in progress - the day on which the winding up is taken because of this Division to have begun; or
(b) otherwise - the day on which the administration began.
70 By s 513C, the identification of s 513C day for a company is made "in relation to the administration of a company".
71 Sections 513A and 513B refer, relevantly, to when a winding up is taken to have begun or commenced. By s 513A(d), if, immediately before a relevant winding up order was made, a DoCA has been executed by the company and has not yet terminated, the relevant time is "on the s 513C day in relation to the administration that ended when the deed was executed". See also ss 513B(c), (d) and (da).
72 These provisions support a conclusion that, if a company is not under administration, it has no s 513C day. By reference to ss 513A and 513B, if the legislature had intended to identify the "critical time" in s 588FL(7) by reference to the s 513C day in relation to an administration that had ended, it would have said so. Accordingly, none of the relevant PPSA security interests is covered by s 588FL(2) for the purposes of s 588FL(1)(b).
73 In KJ Renfrey, Davies J found (at [8] and [18]) that the "critical time" was the date that the administration began. At [16], her Honour noted that a s 588FL(1)(a) event occurred, being the appointment of an administrator to Onesteel Manufacturing. Her Honour did not address whether a second s 588FL(1)(a) event occurred when Onesteel Manufacturing executed a DoCA, which apparently happened in November 2016. Nor did her Honour advert to s 435C(1)(b), by which an administration ends on the execution of DoCA.
74 The interpretation above is in tension with her Honour's reasoning to the extent that it implies that there is no "critical time" within the meaning of s 588FL(7) once an administration has ended on the happening of the execution of a DoCA, in accordance with s 435C(1)(b). Her Honour proceeded on the basis that "any other case" in s 588FL(7) covered the cases of the appointment of an administrator and the execution of a DoCA and that, in each case, it was possible to identify the s 513C day for the company.
75 However, in the context of s 588FL(1) (and s 588FL(5)), it is plainly arguable that "any other case" includes the case of a company that is subject to a DoCA and, in such a case, the critical time is the s 513C day in relation to the administration that ended when the deed was executed. This interpretation would involve reading additional words into s 588FL(7) in order to give effect to the express intention of s 588FL(1) that s 588FL applies if a company executes a DoCA under Pt 5.3A.
76 The context in which s 588FL appears, and its evident purpose, both strongly support the conclusion that s 588FL does not apply to cases where a PPSA security interest is granted by a company to which an administrator has been appointed or which has executed a DoCA, if the company is no longer in external administration.
77 Having regard to its location in Pt 5.7B, the evident concern of s 588FL is the protection of creditors, where a company is under external administration. If s 588FL were to apply after a company had ceased to be in external administration, it would not operate to protect creditors but would instead lead to the vesting of PPSA security interests in the company operating as a going concern.
78 If s 588FL operated in relation to a company to which Pt 5.3A no longer applied, a company which continued in existence following its restoration to corporate health (whether by the ending of a voluntary administration or the termination of a DoCA), would be treated differently from a company that had never been in administration, and would be disadvantaged, for no apparent purpose. Such an interpretation of s 588FL would produce the unnecessary and inconvenient result that, in every case where a company wished to grant a security interest after emerging from external administration, it would be necessary to seek relief under s 588FM in order to avoid the immediate vesting of the security interest in the company. That result would tend to subvert one object of Pt 5.3A, set out in s 435A, which is to provide for the administration of an insolvent company in a way that maximises the chances of the company continuing in existence.
79 In KJ Renfrey, Davies J rejected a submission that s 588FL applies only to interests that had already been granted when the relevant event in s 588FL(1)(a) occurs. DLL sought to put an argument which drew a distinction between security interests that arise or become enforceable after the critical time and security interests that are granted after the critical time. It is unnecessary to address this submission, in the light of my conclusion that s 588FL has no relevant application.