Elimatta Pty Ltd v NT Bullion Pty Ltd, in the matter of NT Bullion Pty Ltd

Introduction 1 On 8 July 2022, on the application of the plaintiff, I made orders pursuant to section 588FM of the Corporations Act 2001 (Cth) fixing "a later time" in respect of five Personal Property Securities Register (PPSR) registrations for the purposes of section 588FL(2)(b)(iv) of the Corporations Act. These are my reasons for doing so.

background 2 The plaintiff is a subsidiary of National Roads and Motorists' Association Limited (NRMA). Prior to 11 April 2022, a senior corporate lawyer within the employ of NRMA (first lawyer) had the carriage of a transaction between the plaintiff and the defendant pursuant to which the plaintiff was to provide financial accommodation to the defendant and receive security over assets of the defendant in return. The transaction was an unusual transaction for the plaintiff in that NRMA and its subsidiaries do not normally enter into such transactions. 3 On or about 11 April 2022, the first lawyer was diagnosed with COVID-19, and a second senior corporate lawyer within the employ of NRMA (second lawyer) took over the carriage of the transaction (as well as other matters that the first lawyer had been managing) while the first lawyer took leave. The second lawyer was generally aware of a requirement for a secured party to register its security interests on the PPSR within a relatively short period of time after taking security, but had not worked on a transaction of this kind during his almost four years of employment with NRMA. 4 On 20 and 21 April 2022, the plaintiff and the defendant entered into various transaction documents giving effect to the transaction, including the provision of security over assets of the defendant. 5 On 22 April 2022, the first lawyer returned from leave and told the second lawyer "I will take everything back". Following this conversation, the second lawyer did no further work concerning the transaction and assumed that the first lawyer would resume carriage of the transaction. 6 On 3 June 2022, the plaintiff's solicitors identified that the plaintiff's security interests created by the transaction documents had not been registered on the PPSR. On that day and the next working day (6 June 2022), the plaintiff lodged the five PPSR registrations the subject of this application.

CONSIDERATION 7 As noted above, the plaintiff seeks orders fixing 6 June 2022 as the time for the plaintiff to lodge the registrations. The orders sought by the plaintiff include a condition pursuant to which liberty is reserved to any liquidator, administrator or deed administrator of the defendant to apply to discharge or vary the principal order if, within six months of 6 June 2022, a winding up occurs; or an administrator is appointed; or a deed of company arrangement is executed. 8 Section 588FL provides, in so far as is presently relevant: (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. … (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) if the company is under administration or is subject to a deed of company arrangement - when, on a day, the event occurs by virtue of which the day is the section 513C day for the company; or (c) if the company is under restructuring or is subject to a restructuring plan - when, on a day, the event occurs by virtue of which the day is the section 513CA day for the company. 9 As Black J noted in In the matter of Cardinia Nominees Pty Ltd [2013] NSWSC 32 at [11]: … Broadly, the effect of s 588FL(2) is that, when a company is being wound up, an administrator is appointed, or a deed of company arrangement is executed, any PPSA security interest which was perfected, registered or enforceable against a third party after the latest of six months before the critical time, or 20 days after the security agreement came into force, or a later time ordered by the Court under s 588FM, vests in that company … 10 Section 588FM of the Corporations Act provides in so far as is presently relevant: 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.

Preconditions to the exercise of the discretion 11 Section 588FM provides that if the Court is satisfied of at least one of the matters prescribed in ss 588FM(2)(a)(i); (2)(a)(ii); or 2(b), it may make an order fixing a later time for the purposes of s 588FL(2)(b)(iv), and may do so subject to terms and conditions. 12 The first of three conditions each of which is sufficient to enliven the Court's discretion is satisfaction that the failure to register the collateral earlier was "accidental or due to inadvertence or some other sufficient cause". 13 Inadvertence, for these purposes, includes being "not properly attentive": Re ACE Funding Ltd [2003] FCA 59; (2003) 44 ACSR 363 at 365 [8] (Conti J). In Re Appleyard Capital Pty Ltd; 123 Sweden AB v Appleyard Capital Pty Ltd [2014] NSWSC 782; (2014) 101 ACSR 629, Brereton J (as his Honour then was) stated at 633 [10]: For the purpose of s 588FM(2)(a)(i), "inadvertence" includes failure to advert to or understand the requirement for registration within the specified period, and innocent error in the sense of failure to register through ignorance of the legal requirement to do so, or of the consequences of not doing so [Sanwa Australia Finance Ltd v Ground-Breakers Pty Ltd (in liq) [1991] 2 Qd R 456; (1990) 2 ACSR 692; Campbell Finance Pty Ltd v Vivstan Packaging (Aust) Pty Ltd (in liq) [1998] 2 VR 340; (1996) 22 ACSR 109; Freightlines Northern Territory Pty Ltd (1999) 32 ACSR 573, 576; In the matter of Cardinia Nominees Pty Ltd [2013] NSWSC 32, [14]-[16]]. 14 In Cardinia Nominees, Black J stated at [14]-[15]: 14. The concept of "inadvertence" has been considered in the case law dealing with s 266 of the Corporations Act. In the present case, there seems to me to have been a least a lack of clarity as to who was responsible for registration of the security interest and, if clause 6.1 of the Secured Convertible Bond Deed was intended to confer that responsibility on Inika, a lack of action by Inika to discharge that responsibility. However, I do not consider that lack of clarity gave rise to an actual misunderstanding as to who was responsible for registration, of the kind considered in Re Kris Cruisers Ltd [1949] 1 Ch 138; [1948] 2 All ER 1105 or Queensland Company Credit Union v Na-Kuraga Ltd [2005] QSC 149; (2005) 55 ACSR 219. The parties appear to have proceeded on the (possibly mistaken) basis that Cardinia should attend to registration of the security interest in the collateral on the PPS Register, albeit that it ultimately did so by giving instructions to Inika's solicitors in that regard. 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: Sanwa Australia Finance Ltd v Ground-Breakers Pty Ltd (in liq) [1991] 2 Qd R 456 at 461; (1990) 2 ACSR 692 at 695; National Australia Bank Limited v Davis & Waddell (Vic) Pty Ltd [2003] VSC 1; (2003) 44 ACSR 296; Metcash Trading Ltd v 8 Nai Investments Pty Ltd [2011] FCA 1400 at [8]. 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: Re Kris Cruisers Ltd above at 142; National Australia Bank v Davis & Waddell above at [67]. ... 15 I am satisfied that the failure to lodge the plaintiff's security interests for registration after execution of the transaction documents was accidental or the product of inadvertence. The two lawyers employed by the plaintiff did not establish during the handover from the second lawyer to the first lawyer whether such lodgement had occurred and if it had not, who was to take responsibility to ensure that it would occur. There is no suggestion that the failure to lodge was in any way deliberate. 16 Thus, s 588FM(2)(a)(i) is satisfied and the discretion to make the order sought is enlivened. Consequently it is not necessary to consider, at least as part of the enlivening of the discretion, the matters in s 588FM(2)(a)(ii) and (2)(b).

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.

CONCLUSION 24 For the reasons set out above, the orders sought were made. I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Goodman.