Exercise of the discretion
17 The exercise of the discretion is informed by the matters that enliven the discretion and by the purpose and effect of the orders sought. In Re Appleyard, Brereton J explained at [13]-[14]:
13. In order to understand what relevant considerations inform the exercise of that discretion - in addition to the matters that enliven the jurisdiction to make an order - it is necessary to appreciate the purpose and effect of an order of this kind. If the collateral is registered within 20 days after the security agreement comes into force, the security interest prevails over the interest of unsecured creditors, even if the company goes into liquidation or administration within six months. However, if it is not registered within that period, and the company goes into liquidation or administration within six months after it is registered, then the security interest vests in the company for the benefit of creditors generally - unless a later time is fixed under s 588FM. In other words, the effect of not registering within 20 days is to expose the secured creditor to the loss of its security if the company goes into liquidation within six months of the actual date of registration, when otherwise the security would have been effective even in the event of liquidation or administration within six months. Essentially, the purpose and effect of an order under s 588FM is to avoid the vesting of the security interest in the company if it goes into liquidation or administration within six months after the actual date of registration, and thereby preserve the secured creditor's security, to the necessary detriment of the unsecured creditors for whose benefit the security interest would otherwise vest in the company. The only utility of such an order is in the event that the company does go into liquidation or administration within six months.
14. Thus in this case, as registration was not effected within the 20-day period, if the company goes into liquidation or administration within six months after the actual date of registration, namely 29 April 2014, 123 Sweden's security interest will vest in the company (for the benefit of creditors generally), unless the order sought is made; however, it does so only in the event of liquidation or administration within that six month period, and will otherwise enure for the benefit of 123 Sweden, notwithstanding that the company goes into liquidation or administration, if it does so more than six months after 29 April 2014. So the purpose of such an order is to protect 123 Sweden from the risk of losing its security if Appleyard Capital goes into liquidation or administration within six months.
18 I am satisfied that the discretion should be exercised so as to make the orders sought for the following reasons.
19 First, as noted above, the failure to lodge was an accident or the product of inadvertence.
20 Secondly, making the orders sought will not affect the interests of secured creditors. As Brereton J explained in Re Appleyard at [15], orders pursuant to section 588FM have no effect on the priority of the security interests.
21 Thirdly, whilst there is no evidence of the financial position of the defendant, the interests of unsecured creditors will be adequately protected by the imposition of the condition proposed by the plaintiff (see [7] above). In Elimatta Pty Ltd v NT Bullion Pty Ltd, in the matter of NT Bullion Pty Ltd [2021] FCA 1416, Yates J explained at [6]-[7]:
6 An extension order under s 588FM can operate to the detriment of unsecured creditors if the grantor goes into liquidation or administration within six months of the security interest being perfected, because it avoids the consequence that the security interest would otherwise vest in the grantor for their benefit. The prejudice to other creditors arises from the delay in registration of the security interest rather than from the making of the order. Thus, the length of delay prior to registration is a relevant factor for the exercise of the Court's discretion under the extension provision.
7. In Cardinia, Black J (at [21]) said that an extension under s 588FM would not generally be granted if there was a danger that the claims of unsecured creditors would not be met owing to insolvency, or the likely insolvency, of the grantor company. To this end, the interest of unsecured creditors can be protected by a "Guardian Securities condition", as explained by Brereton J in Appleyard at [25] and [28]:
[25] The Australian authorities establish that the interests of the unsecured creditors are a relevant consideration, so that the court must have regard to the financial position of the company as at the time of the application for extension. If the company is shown to be financially secure, then it is unlikely that a "critical day" will arise in the foreseeable future and the grant of relief will not likely affect any person adversely [Hewlett Packard, [29]]; indeed, if solvency is established that is likely to be the end of the matter [Investa Properties Pty Ltd v Westpac Property Funds Management Ltd [2001] NSWSC 1089, [31]]. But otherwise, where the Court is not satisfied that there is no risk that unsecured creditors could be adversely affected, the unsecured creditors (or their representative) are entitled to be heard against the making of an order, though this may sufficiently be achieved by suspending the operation of the order, or by imposing a term reserving leave to apply to set it aside in the event of a liquidation or administration ("a Guardian Securities condition") [Re Guardian Securities, 97; see also Re Cinema Art Films [1930] NZLR 500 at 502-3; Re L H Charles & Co Ltd (1935) WN(Eng) 15; Bevillesta v Imagine, 58].
…
[28] In practice, the strictures of Re Flinders Trading Co have not been applied, and it has been commonplace, even when it appears that the company may be insolvent and liquidation or administration is imminent, to extend time subject to a "Guardian Securities condition" reserving leave to any liquidator or administrator appointed within six months to apply to set the order aside. This course, or one similar to it, was taken in Re a Ltd Co (Long Innes J), where solvency was dubious; in Re L H Charles (Clauson J), where liquidation was in contemplation; in Re Cinema Art Films (Myers CJ); in Re Guardian Securities (McLelland J), where there was "no evidence whatsoever as to the solvency or otherwise of the company creating the charge" (at 98); and in Bevillesta (Robson J), where the evidence of solvency was inconclusive. In recent times in this court, such orders have been made in Cardinia Nominees (Black J), where again the evidence of solvency was inconclusive; in In the matter of Apex Gold Pty Ltd [2013] NSWSC 881 (Hammerschlag J), where administration was imminent; and in Black Opal IP (Brereton J), where there was some but less than comprehensive evidence of solvency.
22 Fourthly, the plaintiff acted promptly to register its security interests upon discovery of the oversight and the delay between the execution of the transaction documents and the registration of the security interests was relatively short.
23 Finally, the defendant did not oppose the making of the orders sought.