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

A. INTRODUCTION 1 By an originating process filed on 18 June 2024, the plaintiff, Robinson Grain Trading Co Pty Ltd, seeks orders extending the time to make registrations on the Personal Property Securities Register (PPSR) and to extend the time to perfect purchase money security interests. 2 The orders are sought pursuant to s 588FM of the Corporations Act 2001 (Cth) (Corporations Act) for three registrations and s 293 of the Personal Property Securities Act 2009 (Cth) (PPSA) with respect to two of those registrations. 3 The plaintiff's application is supported by two affidavits of the plaintiff's solicitor with carriage of the matter, Ranjani Sundar Venkatesh and an affidavit of Adam Scott Robinson, the general manager of the plaintiff. 4 Mr Mirzai of counsel, who appeared for the plaintiff, provided detailed written and oral submissions that I have found of significant assistance in preparing these reasons for judgment. 5 The defendants were notified of the hearing of the plaintiff's application, held on 27 June 2024, but did not appear at the hearing. 6 For the following reasons, I am satisfied that orders substantially in the form sought by the plaintiff should be made.

B. DEFENDANTS 7 The first defendant, Rain-AG Shipping Services Pty Ltd, is in the business of, among other things, storing grain. The first defendant is the "grantor" of the security interest to the plaintiff. 8 The second to fourth defendants have each purported to take and hold a security interest which may cover the same collateral as the security interest taken by the plaintiff.

C. FACTUAL BACKGROUND 9 On or about 26 March 2024, the plaintiff and the first defendant entered into an agreement titled "Port Services Agreement" (Agreement). 10 Under the Agreement, the first defendant granted the plaintiff a security interest in "stored grain" being, in effect, all of the grain of the same type and grade stored with the first defendant (plaintiff's security interest). 11 On or about 3 May 2024, the plaintiff lodged a financing statement on the PPSR in respect of the plaintiff's security interest (Initial Registration). Mr Robinson gives evidence that the Initial Registration was made as a matter of priority once he realised that the plaintiff's security interest had not been perfected. 12 The Initial Registration was not made within 20 business days from the date of the security agreement as required by s 588FL(2)(b)(ii) of the Corporations Act, nor was the Initial Registration made within 15 business days of the first defendant coming into possession of said grain as required by s 62(3)(b) of the PPSA. 13 Mr Robinson also gives evidence, that on or about 6 May 2024, he received legal advice to the effect that (a) the Initial Registration did not adequately describe the collateral and additional security interests should be registered to amend the description of the collateral, and (b) because the plaintiff's security interest was perfected by registration more than 20 business days after the Agreement came into force, there would be a potential issue enforcing it if the Company entered into external administration within 6 months of the date of registration. 14 Two further financing statements were lodged on the PPSR on 20 May 2024 (Further Registrations). The first of the Further Registrations notified that the security interest was a purchase money security interest (PMSI) and the second notified that the security interest was not a PMSI. The alternative notification was made for more abundant caution, particularly having regard to s 165(c) of the PPSA.

D.1 Principles 15 Unless a security interest created by a security agreement is registered within 20 business days of the agreement coming into force, the security interest will not prevail over unsecured creditors if the company over which the security interest is taken goes into liquidation or administration within six months after it is registered. In those circumstances, the security interest vests in the company for the benefit of all creditors: ss 588FL(2)(b)(ii) and (4) of the Corporations Act; s 267 of the PPSA; Re Appleyard Capital Pty Ltd; 123 Sweden AB v Appleyard Capital Pty Ltd (2014) 101 ACSR 629; [2014] NSWSC 782 at [13] (Brereton J). 16 Section 588FM of the Corporations Act, however, provides: 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. 17 In summary, the Court may make an order fixing a subsequent date under s 588FM(2) of the Corporations Act if it is satisfied that: (a) the failure to register the collateral earlier was accidental or due to inadvertence or some other sufficient cause; (b) there is no prejudice to the position of creditors or shareholders; or (c) it is otherwise just and equitable to grant relief. 18 The three grounds are not cumulative. It is sufficient if any one of those grounds can be satisfied. 19 An order pursuant to s 588FM of the Corporations Act, fixing a subsequent registration time for a PPSA security interest, avoids the PPSA security interest vesting in the company: s 588FL(2)(b)(iv) of the Corporations Act. 20 As I explained in Gemi 143 Pty Ltd v The Gosford Pty. Limited (Receivers and Managers Appointed), in the matter of The Gosford Pty. Limited [2023] FCA 1375 at [17]: The reference to "inadvertence" in s 588FM(2)(a)(i) can include a failure to advert to or understand the legal requirements for registration: Elimatta Pty Ltd v NT Bullion Pty Ltd, in the matter of NT Bullion Pty Ltd [2021] FCA 1416 at [5] (Yates J). The concept of "inadvertence" encompasses innocent human error, lack of oversight, an active but incorrect consideration of a requirement, a failure to turn one's mind to the requirement or a failure to appreciate the true significance of non-compliance with a requirement, so long as such a failure is not intended to flout, or is recklessly indifferent to proper compliance: Bluewaters Power 1 Pty Ltd v Griffin Coal Mining Company Pty Ltd [2019] WASC 438 at [40] (Vaughan J), citing National Australia Bank Limited v Davis & Waddell (Vic) Pty Ltd [2003] VSC 1 at [65] (Hansen J); ACE Funding Ltd [2003] FCA 59 at [8] (Conti J); Commonwealth Bank of Australia v HM Aircraft Holdings Pty Ltd [2021] FCA 447 at [64] (Beach J). 21 An extension order under s 588FM(2) of the Corporations Act may operate to the detriment of unsecured creditors if the grantor of the security goes into liquidation or administration within six months of the security interest being perfected because the order would prevent the security interest otherwise vesting in the grantor for their benefit: Elimatta Pty Ltd v NT Bullion Pty Ltd, in the matter of NT Bullion Pty Ltd [2021] FCA 1416 at [6] (Yates J).

D.2. Accident or inadvertence 22 On the issue of what constitutes "inadvertence" for the purposes of s 588FM of the Corporations Act, in Appleyard Capital, Brereton J stated at [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. 23 In Re Cardinia Nominees Pty Ltd [2013] NSWSC 32, Black J held at [15] that inadvertence goes beyond ignorance of the requirement to register entirely and: 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 Ltd 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 Ltdabove at 142; National Australia Bank v Davis & Waddell above at [67]. 24 In the present case, the inadvertence was that the plaintiff, through the knowledge of its directors, was not aware of the need to perfect the security interest taken by the plaintiff within 20 business days of the security agreement coming into existence. 25 Had this requirement been realised earlier, I am satisfied that Mr Robinson's evidence demonstrates that those responsible would have attended to this task in the first instance. 26 For the above reasons, I have concluded that relief pursuant to s 588FM(2)(a)(i) should be granted.

D.3. Prejudice 27 I am also satisfied that relief pursuant to s 588FM(2)(a)(ii) of the Corporations Act should be granted because the order sought is not of a kind that would prejudice the position of creditors or shareholders within the meaning of s 588FM(2)(a)(ii). Orders pursuant to s 588FM of the Corporations Act have no effect on the priority of the underlying security interest: Appleyard Capital at [15] (Brereton J). 28 In any event, I am satisfied that in the case of any prejudice to (a) potential competing secured creditors, those parties have been joined to the proceedings as further defendants and been notified of the hearing and have either consented to or not opposed the application or have elected not to appear, (b) any party who has a competing security interest and who has not been joined to the proceedings is to be given liberty to apply to set aside the substantive orders sought by the plaintiff, and (c) unsecured creditors, and shareholders, they are also to be given liberty to apply to the Court to vary or set aside any order extending time to register the plaintiff's security interests. 29 Liberty is also to be preserved for an external administrator appointed within six months of the dates extended pursuant to s 588FM to apply to vary or set aside any order extending time to register the plaintiff's security interests. 30 These measures address any potential prejudice suffered by unsecured creditors and shareholders consistently with the approach taken in other authorities, see, for example: Re Psyche Holdings Pty Ltd [2018] NSWSC 1254 (Ward CJ in Eq); Re David Brown Gear Industries Pty Ltd [2017] NSWSC 907 (Black J); Re Transurban CCT Pty Ltd (in its own capacity and as trustee of the Transurban CCT Trust) [2014] NSWSC 1909 (Brereton J); In the matter of Apex Gold Pty Ltd ACN 124 893 778 [2013] NSWSC 881 (Hammerschlag J); In the matter of Cardinia Nominees Pty Ltd [2013] NSWSC 32 (Black J).

D.4. Just and equitable 31 Ultimately, the failure of the plaintiff to obtain the orders sought may render its security interest ineffective against an external administrator or competing creditor with an interest in the same collateral. 32 In those circumstances, it is otherwise just and equitable to grant the relief sought pursuant to s 588FM(2)(b) of the Corporations Act as (a) the delay in making the Initial Registration was very minor, they were made 25 business days rather than 20 business days after the creation of the security interest, and (b) a competing creditor would have likely taken notice of the plaintiff's security interest in the 11 business day period between the Initial Registration and the Further Registration notwithstanding the inclusion of a potentially erroneous particular in identifying it on each relevant financing statement.

E.1. Statutory provisions and principles 33 Separately to s 588FM of the Corporations Act, although in a similar way, the failure to lodge a registration on the PPSR in respect of the plaintiff's security interest within 15 business days from the first defendant obtaining possession of the grain disentitles the plaintiff to the "super priority" otherwise afforded to a PMSI where the secured party complies with s 62 of the PPSA, as all personal property security leases are PMSIs by definition: s 14(1)(c) of the PPSA. 34 Under the PPSA, a PMSI holder ordinarily has the benefit of this "super priority" as against competing perfected security interests in the same collateral, in accordance with s 62(1) of the PPSA, irrespective of a competing security interest holder's awareness, consent or otherwise in respect of the grant of the PMSI, provided that s 62(2) or s 62(3) of the PPSA, as the case may be, has been complied with. 35 Section 62(1) of the PPSA relevantly provides: Scope (1) This section sets out when a perfected purchase money security interest that is granted by a grantor in collateral or its proceeds has priority over a perfected security interest that is granted by the same grantor in the same collateral, but that is not a purchase money security interest. 36 Section 62(3) of the PPSA includes a 15 business day timing requirement unless extended by an order of the Court pursuant to s 293(1)(a) of the PPSA. 37 If the plaintiff is unable to obtain the benefit of s 62 of the PPSA, then even if its Initial Registration or Further Registrations were to survive the operation of s 588FL of the Corporations Act, it could only rely on s 55 of the PPSA on the question of priorities. 38 In this regard, s 55(4) and s 55(5) of the PPSA provide: Priority for perfection in other ways (4) Priority between 2 or more security interests in collateral that are currently perfected is to be determined by the order in which the priority time (see subsection (5)) for each security interest occurs. (5) For the purposes of subsection (4), the priority time for a security interest in collateral is, subject to subsection (6), the earliest of the following times to occur in relation to the security interest: (a) the registration time for the collateral; (b) the time the secured party, or another person on behalf of the secured party, first perfects the security interest by taking possession or control of the collateral; (c) the time the security interest is temporarily perfected, or otherwise perfected, by force of this Act. 39 In considering whether or not to grant relief under s 293(1)(a) of the PPSA, the Court must take into account the following matters in accordance with s 293(3): (a) whether the need to extend the period arises as a result of an accident, inadvertence or some other sufficient cause; (b) whether extending the period would prejudice the position of any other secured parties or other creditors; and (c) whether any person has acted, or not acted, in reliance on the period having ended.

E.2. Accident or inadvertence 40 In determining what constitutes "accident" or "inadvertence" for the purposes of s 293(3)(a) of the PPSA, the Court has recognised that the concept of accident or inadvertence for the purposes of s 588FM of the Corporations Act is the same as that for the purposes of s 293(3)(a) of the PPSA: Re Accolade Wines Australia Ltd [2016] NSWSC 1023 at [26] (Brereton J); Re Duke Contracting Australia Pty Ltd [2017] NSWSC 767 at [12] (Brereton J); In the matter of 4 in 1 Wyoming Pty Ltd [2017] NSWSC 407 at [63] (Gleeson JA). 41 Given my conclusion at [26] above with respect to "accident" or "inadvertence" for the purposes of s 588FM of the Corporations Act, it therefore follows that the requirement in s 293(3)(a) of the PPSA for the need to extend the period to arise because of an accident or inadvertence is also satisfied.

E.3. Prejudice and reliance 42 I am also satisfied that the plaintiff has established the no prejudice or adverse reliance limbs of s 293(3) of the PPSA. 43 The prejudice referred to in s 293(3)(b) is prejudice arising from "extending the period". As Brereton J stated in Re Accolade at [27]: This directs attention not to the impact on other secured parties or creditors of the delay in registration, but to the impact of making an order extending the period; to evaluate prejudice for that purpose, one compares the position of creditors if an extension is granted, with their position if no extension is granted, and usually there will be a difference because priorities will be disturbed. 44 Further, where potentially competing security interests take the form of an "all present and after-acquired property" (AllPAP) security interest, as Brereton J stated in Re Accolade at [52]: In circumstances where: (1) there was a registration, which was recorded on the PPSR, albeit a defective one because it was against the Grantors' ABN, not ACN; (2) the PMSIs are each in respect only of the specific collateral to which the relevant lease relates; (3) an AllPAP is always liable to be trumped, in respect of specific after-acquired collateral, by a PMSI in respect of that collateral; (4) to the extent that an Earlier AllPAP holder will be prejudiced, it is only by losing a windfall arising from inadvertence; (5) it is very likely that any Later AllPAP holder in fact had notice of the Plaintiffs' PMSI when acquiring its security interest; and in any event, notice that there was an earlier PMSI in respect of specific collateral is unlikely to have been material to its decision to provide financial accommodation and take the AllPAP security. I am satisfied, on the material now before the Court, that it is just and equitable to make an order extending the number of business days in the period specified in paragraph 62(3)(b) for the perfection by registration of the Plaintiffs' PMSIs. Moreover, the case for an extension is sufficiently compelling that it is not unreasonable that the forensic burden of moving the Court to vary or set aside the extension be cast upon any of the AllPAP holders who might wish to contend that they will be unacceptably prejudiced by the extension. 45 In the present proceedings, (a) the delay in registration was again relatively short, only 11 business days, and (b) the second to fourth defendants have been joined to the proceedings to afford them an opportunity to establish the "forensic burden" that they are unacceptably prejudiced. 46 Each of the second to fourth defendants has been made aware of the proceedings but has not appeared at the hearing. No "forensic burden" has therefore been established that might give rise to an impediment to the grant of relief sought. 47 Further, and in any event, orders will be made, consistently with the practice explained at [30] above, giving any liquidator, administrator or deed administrator appointed within six months of the extended dates and any party, other than the defendants, with a competing perfected security interest over the collateral the subject of the plaintiff's security interests, leave to approach the Court to vary or discharge the orders made pursuant to s 293(1)(a) of the PPSA.

F. DISPOSITION 48 For the foregoing reasons, orders will be made substantially in the form sought by the plaintiff in the originating process. I note that in calculating the number of business days for the purposes of s 293(1)(a) of the PPSA for present purposes, it is necessary to take into account the three public holidays falling on Good Friday, Easter Monday and Anzac Day. I certify that the preceding forty-eight (48) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Halley.

SCHEDULE OF PARTIES NSD 780 of 2024 Defendants Fourth Defendant: QUADRA COMMODITIES PTY LTD (ACN 147 853 594)