Hamilton v Property Investments Ltd

REASONS FOR JUDGMENT 1 ACE Funding Limited ("AFL"), an unlisted public company limited by shares and incorporated in the Australian Capital Territory on 25 February 1999, has made application pursuant to s 264(4) of the Corporations Act 2001 ("the Act") for an order that the time within which AFL should have lodged a notice in respect of a registrable charge bearing the date of 20 September 2002 over the property of AFL in favour of S G Australia Custodian Company Pty Limited ("SGA"), namely the period of 45 days ended 4 November 2002, be extended to 5:00pm on 7 November 2002. In that regard, s 264(4) envisages the grant of relief having retroactive as well as proactive operation. By s 263(1) of the Act, it is stipulated of course that where a company creates a charge, the company must ensure that there is lodged with the Australian Securities and Investments Commission ("ASIC") within 45 days after the creation of the charge a notice in the prescribed form setting out certain particulars of the charge. 2 By clause 2.1 of AFL's Constitution, restrictions of present significance are placed upon AFL's business activities in the following terms: "2.1 Notwithstanding any provision contained in this constitution, the Company shall only engage in the following activities: (a) raising funds directly or indirectly via the issuance by the Company or any wholly owned subsidiary of the Company of Debt Securities denominated in an Optional Currency provided that: (i) in the case of Debt Securities which are, or are to be, rated by a Designated Rating Agency, those Debt Securities are rated not lower than the relevant Designated Rating by that Designated Rating agency at the time of issue; and (ii) in the case of Debt Securities which are not to be rated by a Designated Rating Agency, the Company has received confirmation from each Designated Rating Agency that the issue of those Debt Securities will not adversely affect the rating of any rated Debt Securities; (b) granting security for the benefit of holders of the Debt Securities referred to in 2.1(a) above; (c) using the funds referred to in 2.1(a) above to acquire debt or equity instruments or obligations; (d) engaging in such other activities as are confirmed by each Designated Rating Agency not to adversely affect the rating of any rated Debt Securities; (e) entering into, performing its obligations under and exercising its rights under all Transactions Documents which will enable the Company to engage in the activities set out in 2.1(a), (b), (c) and (d) above; and (f) doing all things which the directors consider necessary or appropriate to enable or facilitate the activities set out in 2.1(a), (b), (c), (d) and (e) above." 3 Consequently, AFL may be described as a special purpose company established as a vehicle for the provision of debt securities or notes (being "debentures" within the meaning of that term as defined in s 9 of the Act) to investors seeking involvement in international and domestic capital markets by way of debt or equity instruments or obligations. AFL generates profitable returns by placing the funds so raised in national and international money markets productive of higher returns than the cost of raising the same from its investors. 4 That commercial function of AFL has been described in money market terminology as a repackaging conduit. This involves the raising of funds by way of the issuing of notes to acquire securities, the rate of interest payable on the funds which AFL so raises being below the rate of interest which AFL is able to derive from the securities which AFL in turn acquires by means of such funding. The payments of interest and principal which AFL receives in respect of those note securities are applied from time to time to satisfy AFL's obligations to pay interest in respect thereof, and to repay the principal the subject thereof, to the noteholders. The "Structured Finance" report of FitchRatings issued on 6 September 2002 provides the following explanation specifically to the present regime: "The issuer, ACE Funding, is a special purpose company incorporated… for the purpose of raising funds through the issuance of, amongst other instruments, floating-rate notes, to fund various debt or equity obligations. The [Euro medium-term note] programme is multi-currency subject to compliance with applicable laws and regulatory restrictions. The ACE Funding HBS MBS notes are a discrete series of notes, and the assets supporting such notes are segregated from any other assets of the issuer." 5 On 30 September 2002, AFL issued notes to the value of Euros 334,000,000 known as the "ACE Funding Limited Series 2002 - 1 HBS MBS Notes" ("the Series 2002-1 Notes"), which are listed on the Luxembourg Stock Exchange, and which have been ascribed a preliminary "AAA" rating by the international credit ratings agency Standard & Poor's. This is the highest available credit rating categorised by Standard & Poor's which is a well known finance agency. 6 The funds so raised from the issue of the Series 2002-1 Notes were invested by AFL by way of increasing AFL's subscription for a unit ("Series Investor Unit") in the Series 2002-1 Master Trust, whereof S G Australia Transaction Management Pty Ltd ("S G Management") is the trustee (it being of course a different entity to SGA), pursuant to a so-called master trust deed dated 20 September 2002. AFL's obligations to repay the principal and interest outstanding on the Series 2002-1 Notes are secured by a deed of charge also dated 20 September 2002 granted by AFL in favour of SGA, the benefit whereof is held by SGA on trust for the noteholders holding the Series 20020-1 Notes, that being the registrable charge referred to in [1] above. By that deed of charge, AFL granted a first ranking fixed charge in favour of SGA over AFL's interest in what has been also described as the Series Investor Unit and other property relating to the Series 2002-1 Notes. 7 As a consequence merely of inadvertence, the deed of charge of 20 September 2002 over the property of AFL in favour of SGA was not lodged with the ASIC until 6 November 2002, that is to say, merely 2 days out of time. The oversight causative of the lodgment of that deed of charge out of time was only recently detected by AFL's solicitor who was engaged from the outset in the documentation of the arrangements above described, such detection having occurred in the context of preparation of subsequent but unrelated charges in favour of AFL (post). 8 The evidence before me discloses that the omission was merely inadvertent, and that it is just and equitable to grant the relief sought. I use the description "inadvertent" in the sense adopted by the Full Court of the Supreme Court of Western Australia in Hamilton v Property Investments Ltd (1983) 7 ACLR 932 at 935, namely "not properly attentive", something to be distinguished from an intention to refrain from action. Moreover the evidence discloses that for me to grant the relief sought would not prejudice the position of creditors or shareholders of AFL in any relevantly conceivable sense. In that regard, s 266(4) of the Act provides as follows: "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." It will be seen incidentally that paragraphs (a) and (b) are not cumulative requirements, and that it will be enough if there is some other ground or grounds sounding in justice and equity. 9 Barrett J of the Supreme Court of New South Wales in Re Investa Properties Ltd (2001) 40 ACSR 124 exemplified the kind of typical circumstances where the statutory test may be satisfied: "If there is no hint of any possibility of winding up or administration and it is shown that there exists no other chargee occupying a position actually or potentially adversely affected by the system of priorities under Pt 2K.3, it is open to the Court to conclude that late lodgement (that is, lodgment outside 45 days) will not disturb accrued or accruing rights meriting consideration. And that, in such a case, will normally be the end of the matter." As I will explain below, that dictum reflects also the circumstances of this case. 10 AFL has not subsequently granted any charges over the property, or choses, or any part thereof, purportedly secured by the subject charge in favour of SGA. There can accordingly be no suggestion that a subsequent chargee may be prejudiced by a late registration of the subject charge being rendered effective by an order of the Court. Whilst AFL has created two equitable charges subsequent in point of time to the subject charge containing similar rights and obligations, the evidence discloses that in each of those two cases, the charges related to different property and choses to that purportedly charged in favour of SGA. The chargees involved in those two cases could have no recourse to property secured by the subject charge. No question of priority can therefore arise under Part 2K.2 of the Act by virtue of my granting the relief here sought by AFL. Nor is there any likelihood of prejudice to other creditors or obligees of AFL by granting the relief now sought by AFL. 11 The evidence additionally discloses that there is no present or foreseeable possibility of the winding up of AFL, or the grant of administration of AFL, upon any grounds involving insolvency. On the contrary, the evidence demonstrates that AFL is able to meet its liabilities and financial obligations, as and when the same fall due and payable, without impinging upon any of its creditors or other obligees generally. I observe further in that regard that AFL's auditors Messrs Ernst & Young have provided on 25 September 2002 an unqualified opinion to the members of AFL in relation to its financial accounts for the last preceding financial year ending 30 June 2002. The Ernst & Young report expresses the normal extent of audit satisfaction appertaining to solvency at the time of issue of those accounts. As counsel for AFL rightly submitted, the very structure of AFL's operations (see again [4] above) renders it unlikely that AFL might become insolvent in the reasonably foreseeable future. Its present creditors and other obligees have rights and entitlements that are limited in recourse (see again in that regard AFL's constituent provisions extracted in [2] above) and cannot enforce those rights and other obligations by applying to wind up AFL or appointing an administrator thereto. 12 I accordingly order that the time within which AFL must lodge a notice pursuant to s 263(1) of the Act in respect of the charge granted to SGA and dated 20 September 2002 be extended to 5:00pm on 7 November 2002. I certify that the preceding twelve (12) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Conti.