Hewlett Packard Australia Pty Ltd v GE Capital Finance Pty Ltd

Affidavit evidence

1. The application is supported by an affidavit of Mr Huo dated 5 August 2022. Mr Huo was cross examined briefly and presented, within that relatively short cross examination, as a credible witness. He is the sole director and shareholder of Noda and he gives evidence of the circumstances in which the loan was made and not repaid. His evidence is that he executed a General Security Agreement on behalf of Noda in January 2016 and advanced a substantial amount to H&H, which was to be advanced by H&H to another company for the purposes of a substantial property development. Mr Huo also gives evidence as to the circumstances in which the General Security Agreement was executed, and that he has no knowledge of Australian law and was relying on his legal representatives in respect of that matter. That is not surprising, where it appears that Mr Huo is resident in Beijing. He gives evidence of the later identification, some six years later, in late March or April 2022, of the fact that the security interest had not been registered on the Personal Property Securities Register ("PPSR"), and of the steps which were then taken to register that interest. That security interest has now been registered for several months, but not for the six months that would prevent it vesting on the appointment of a liquidator.
2. Other documents have been tendered, both by Noda and by the liquidator, and I bear in mind that, at a later point, Mr Huo became a director of H&H, in circumstances which appear to have been directed, albeit unsuccessfully, to protecting Noda's investment. I also bear in mind the evidence led by the liquidator, which identifies at least two creditors of H&H other than Noda, one of which is its recently appointed external accountant and tax agent in the amount of nearly $11,000, and the other is the Australian Taxation Office, which appears to be an involuntary creditor in respect of the non-payment of withholding tax on interest on the loan.

Applicable principles and determination

1. Ms Mee, who appears for Noda, draws attention to the relevant principles and particularly to the decision in Re Appleyard Capital Pty Ltd; 123 Sweden AB v Appleyard Capital Pty Ltd [2014] NSWSC 782 ("Appleyard") which has been applied in many subsequent cases. She draws attention to the commercial circumstances of the loan, which I have broadly addressed above, to the scope of ss 588FL and 588FM of the Corporations Act, and the circumstances in which the Court may make an order extending the time for registration, relevantly, where a failure to register the collateral earlier was accidental or due to inadvertence or some other sufficient cause. Here, it is the inadvertence of the lack of registration which is the critical matter.
2. Ms Mee also refers to the significance of the recognition by Brereton J in Appleyard that, while prejudice to creditors is a relevant factor, the relief sought here is necessarily prejudicial to creditors, at least in the sense that it deprives them of the advantage of a vesting of the security under s 588FL of the Corporations Act, and the existence of prejudice to creditors should not be treated as a bar to an extension of time, lest the provision become inutile. Ms Mee also refers to the observation of Brereton J that the relevant prejudice is not the prejudice that arises from the making of an order of extension of time, but the prejudice which a creditor suffers from providing credit to a company on the basis that it does not have secured borrowings, if in fact it has done so. Ms Mee also draws attention to the treatment in Appleyard of the concept of inadvertence, where Brereton J adopted the same approach as had been adopted in earlier cases.
3. Ms King, who appears for the liquidator, in turn refers to the reference in Appleyard, relevant here, to a rule of practice which had previously existed which limited the granting of an extension of time after the commencement of a winding up to "exceptional circumstances". In Hewlett Packard Australia Pty Ltd v GE Capital Finance Pty Ltd (2003) 135 FCR 206 ("Hewlett Packard"), to which reference was made in Appleyard at [22], the Full Court of the Federal Court noted that "exceptional circumstances" for that purpose are circumstances sufficient to render it just and equitable to grant relief, although it will defeat the rights of unsecured creditors, or at least the benefit which they would obtain from vesting of the security. In Appleyard at [23], Brereton J summarised that matter by noting that an order may be made, even after liquidation, so long as the circumstances are such as to render it just and equitable to grant relief, notwithstanding the grant of relief will defeat rights of unsecured creditors.
4. I am satisfied that the element of inadvertence is established here, having regard to Mr Huo's evidence, which was ultimately not challenged on cross examination in that respect. It is not to be expected that Mr Huo personally would have knowledge of the requirements of Australian law, although I accept that Noda had the benefit of Australian legal advice, at the time the general security was taken, and subsequently after a change of solicitors. I will assume, without deciding, as Ms King contends, that the knowledge of Noda's solicitors may be attributed to Noda, in respect of the requirements of the PPSA, and I bear in mind that the security itself contemplates compliance with the registration requirement of the PPSA, and that the borrower will pay the costs of that compliance. That does not, however, seem to me to displace the inference of inadvertence here. That inference follows from the fact that the security was not registered, notwithstanding that the General Security Agreement contemplated that it would be, where no other plausible explanation has been identified for the failure to register and, in particular, there was no suggestion that Noda deliberately chose not to register it for some unidentified commercial purpose of its own. It is to be inferred in those circumstances that the solicitors did not advert to the registration requirement, because otherwise the relevant security would have been registered. That is a common circumstance in which relief under s 588FM is granted, as I granted it in a similar situation in Cardinia Nominees Pty Ltd [2013] NSWSC 32, albeit there before a winding up.
5. I am also satisfied that, here, the discretion is properly exercised to extend the time, on the basis recognised by the Full Court in Hewlett Packard, and applied by Brereton J in Appleyard. Of the two unsecured creditors who have been identified, one is a professional services provider, apparently recently appointed, and there is no suggestion that it would not have provided its services, had it known that the company had a secured debt. The other, the Australian Taxation Office, is an involuntary creditor, and had no choice as to whether to become a creditor by reason of non-payment of withholding tax, and its position does not differ because Noda's position as a secured creditor would have been apparent from a search of the PPSR, had its security been registered at an earlier stage. The position might well have differed, as Brereton J noted in Appleyard, had a creditor existed who had provided credit, on the basis of an understanding that H&H Funding had no secured creditors, but there is no suggestion that such a creditor exists. I will, however, as counsel have fairly accepted, reserve the liquidator's position, if evidence later emerges, that such a creditor exists given the short time in which he has been in office.

Orders

1. For these reasons, I am satisfied that the relief sought should be granted, with the qualification I have noted. I make the following orders:
2. Pursuant to s 588FM of the Corporations Act 2001 (Cth), fix 20 April 2022 as the time for the Plaintiff, Noda Development, to lodge personal property securities registration number 2022/04200064354 for the purposes of s 588FL(2)(b)(iv) of the Corporations Act.
3. Reserve liberty to the liquidator of H&H Funding Pty Ltd to apply to discharge or vary this order if further information emerges in respect of transactions involving existing creditors, or as to other creditors, which was not known to the liquidator on the date of hearing of this application.
4. There be no order as to the costs of the application.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 13 October 2022