In the matter of T.T.L. Australia Pty Ltd (recs & mgrs apptd) (in liq) [2023] NSWSC 875

Supreme Court of NSW|2023-07-21|Before: Black J

Solicitors: Tom Howard Legal (Plaintiff) File Number(s): 2023/180404

Nature of the application

By Originating Process filed on 6 June 2023, the Plaintiff, Asset Rental Group (Holdings) Ltd ("ARG"), formerly known as Rentfleet (Operations) Ltd, seeks relief under ss 471B and 588FM of the Corporations Act 2001 (Cth) ("Corporations Act") so as to fix 30 June 2022 as the registration time for a security interest granted by the First Defendant, TTL Australia Pty Ltd (recs and mgrs apptd) (in liq) ("TTL") to ARG, as registered in three registrations on the Personal Property Securities Register ("PPSR") established under the Personal Property Securities Act 2009 (Cth) ("PPSA").
The application raises one complexity, so far as ARG was here aware of the obligation to register a security interest on the PPSR, but did not recognise that it could register that interest at an earlier date, in the particular circumstances of this transaction. I return to that complexity below. Notice of the application has been given to TTL, by its liquidators and receivers and managers, which have not appeared to oppose the relief sought.

Affidavit evidence

ARG relies on the affidavit dated 6 June 2023 of its solicitor, Mr Howard, which refers to the nature of ARG's business, by which it leases out vehicles to clients on a "rent to buy" arrangement. The transaction with TTL which is in issue in this application had that character, with a factual complexity which I note below. Mr Howard notes that ARG had rented out several vehicles to TTL in the course of its business, although only three rental vehicles are in issue in this application. He refers to a Master Lease Agreement between ARG and TTL which was entered into on or about 11 April 2022.
By cl 6.1 of the Master Lease Agreement, TTL acknowledges that it has no right of property in vehicles which are rented under the arrangement but takes those vehicles as bailee from ARG. Clause 6.2, headed "Protection of title" provides that TTL shall take all such steps to safeguard and protect ARG's title and rights to the vehicles, including but not limited to being required to grant a security interest under the PPSA to ARG. That provision plainly recognises the possibility that the arrangement created by the Master Lease Agreement may require registration under the PPSA. The agreement is executed by the parties and dated 11 April 2022, and contains a list of three vehicles, being a Freightliner prime mover, a Hino refrigerated Pantech, and a MaxiTRANS trailer, and in each case records the vehicle identification number. The term of the lease is 260 weeks, or five years, which is significant for the registrability of the arrangement under the PPSA, as I will note below.
Mr Howard also refers to the fact that voluntary administrators were appointed to TTL on 16 November 2022, and that receivers and managers were also appointed to TTL, and he refers to steps taken by ARG from late December 2022 to seek to recover the vehicles leased by ARG to TTL. He notes a claim by the receivers to ownership of the prime mover, and to the explanation provided to him by ARG that it did not register its interest in the prime mover, refrigerated Pantech and MaxiTRANS trailer at the time of the lease because it mistakenly thought it could not register the interest as it did not then own those vehicles. That position arose, as I will note below, because the vehicles were initially purchased by a shareholder in ARG for reasons relating to its financing arrangements, although ARG subsequently paid out the shareholder and, implicitly, then acquired ownership of those vehicles.
Mr Howard in turn refers to the instructions which he received to bring an application for an order under section 588FM of the Corporations Act to extend the time for registration of the security interest in the vehicles, as reflected in this application, and points out that he was instructed to provide a copy of the application to the receivers and the liquidators appointed to TTL, which he has done.
By his affidavit dated 20 July 2023, Mr David Catterall, who is a director of ARG, also refers to ARG's business model which involves leasing vehicles to clients on a rent to buy arrangement, where the client generally first identifies the vehicle which it wishes to have leased to it, and ARG ordinarily then purchases that vehicle so as to lease it to the client. Mr Catterall refers to ARG's dealings with TTL, and notes that ARG would ordinarily have entered into the Master Lease Agreement with TTL and simultaneously or shortly afterwards itself acquired the vehicles to lease to TTL. He notes that here, for reasons relating to its financing, ARG did not take that approach but arranged for Tracom Pty Ltd ("Tracom"), a company controlled by one of ARG's directors and shareholders, to acquire the three vehicles for ARG then to make the vehicles available to TTL. ARG entered into the Master Lease Agreement with TTL, which had the consequence that it agreed to lease the vehicles to TTL. At about the same time, Tracom purchased the three vehicles, and registered a security interest in the three vehicles, to the extent that it had one, on the PPSR. That registration assists TTL in aspects of this application, so far as it would have been clear to any person who inspected the PPSR from 19 April 2022, when that occurred, that a security interest was claimed in respect of the vehicles by Tracom, and TTL now makes essentially the same claim in place of Tracom. Mr Catterall refers to the later steps which were taken to purchase the vehicles from Tracom, and there is evidence of the financial transaction by which that occurred, and Mr Catterall's evidence is that caused ARG's interest in the vehicles to be registered on the PPSR immediately after ARG had paid out Tracom and Tracom had removed its security interest in the vehicles from the PPSR.
Mr Catterall in turn refers to circumstances surrounding the insolvency of TTL, and to claims by the liquidators and the receivers to ownership of the vehicles. Importantly, Mr Catterall explains why ARG had not registered a security interest in the vehicles on the PPSR at the time they were acquired by Tracom and ARG entered the lease with TTL, namely that: "I did not do so because I mistakenly thought that ARG could not register it's interest because it did not own the Vehicles. I thought only Tracom could register its interest because it was the owner of the Vehicles at that time. I would not have allowed TTL to take possession of the Vehicles for its use unless I thought the security interest in the Vehicles was properly registered in the PPSR. Retaining such security over the Vehicles is an important part of the ARG business model...and registering ARG's interests on the PPSR immediately after the execution of a lease is part of my standard operating procedure."
An exhibit to Mr Catterall's affidavit records the initial PPSR registration made by Tracom and the subsequent registration over each vehicle made by ARG, consistent with Mr Catterall's evidence.
By a second affidavit dated 20 July 2023, Mr Howard refers to service of the proceedings on TTL and other defendants. He refers to an email received from the Second and Third Defendants, who are the receivers appointed to TTL, that they intend to take no active part in the proceedings and an email received from the solicitor for TTL and its liquidator that it has filed a submitting appearance. He draws attention to the fact that the Defendants have in fact filed submitting appearances in relation to the application. There was no appearance by the Defendants when the matter was listed today.

Determination

By submissions made on behalf of ARG, Ms Scott draws attention to the operation of s 588FM of the Corporations Act, which permits an extension of the time for ARG to register security interests granted to it in respect of the relevant collateral, and to the factual matters to which I have referred above. She points to Mr Catterall's evidence that he did not cause ARG to register its security interest in the three vehicles at the relevant time because ARG did not then own the vehicles it was leasing to TTL. The owner of the vehicles, Tracom, had registered its interest.
ARG's case is that it inadvertently failed to register its security interest in the three vehicles at an earlier date on the PPSR but registered it later, at the first time that it believed that it was entitled to do so, having obtained ownership of the three vehicles. The significance of that matter in the present case is that, if ARG had inadvertently failed to register the vehicles at an earlier date and can obtain an extension of time in which to do so, it will be able to avoid the vesting of the security interest in TTL under section 588FL of the Corporations Act. By contrast, if it was correct in its earlier view and registered the securities at the earliest date that it was entitled to do so, it would not be entitled to such relief.
Ms Scott has taken me, in submissions, to the legal basis of the error in Mr Catterall's view as to when the security interest was registrable and I accept that he was incorrect in his understanding of that matter. Ms Scott draws attention to s 12(1) of the PPSA which defines a "security interest" as: "an interest in personal property provided for by a transaction that, in substance, secures payment or performance of an obligation (without regard to the form of the transaction or the identity of the person who has title to the property)."
That provision indicates Mr Catterall's error, because the question whether ARG or Tracom owned the three vehicles at the date of entry into the Master Lease Agreement was irrelevant as to whether that agreement would create a security interest for the purposes of s 12 of the PPSA. Mr Catterall's understanding to the contrary, while understandable, was plainly in error.
Ms Scott in turn draws attention to s 12(3) of the PPSA which indicates that a security interest includes, relevantly, "the interest of a lessor or bailor of goods under a PPS lease". Here, it is plain that the Master Lease Agreement characterises ARG's interest as lessor or at least as bailor of the relevant goods. Ms Scott, in turn, draws attention to the definition of "PPS lease", in s 13 of the PPSA as "a lease or bailment of goods for a term of more than 2 years". That requirement is satisfied here, having regard to the term of the Master Lease Agreement for a term of 260 weeks. In these circumstances, I am satisfied that Mr Catterall was in fact in error as to his assumption that it was not possible for ARG to register its security interest arising under the Master Lease Agreement at an earlier date, although the analysis of the relevant provisions of the PPSA set out above has been required to demonstrate that error.
Once that error is recognised, it seems to me that the balance of the application is straightforward. Ms Scott draws attention to the application of s 588FL of the Corporations Act, in dealing with late registration and refers to my decision in Re Cardinia Nominees Pty Ltd [2013] NSWSC 32 in that regard. She refers to the prospect, previously identified by the liquidators here, that the effect of that section would, unless the Court extended the time for registration of the security interest under s 588FM of the Corporations Act, vest that interest in TTL for the benefit of creditors generally and at the expense of ARG as a secured creditor. Ms Scott, in turn, refers to the scope of s 588FM of the Corporations Act and its provision to fix a later time for the purposes of s 588FL(2)(b)(iv) of the Corporations Act if the Court is satisfied that one of the three relevant grounds is established.
Here, it is sufficient to note the first of those grounds, namely that the failure to register the security interest earlier was accidental, which is not applicable here, or was due to inadvertence. Ms Scott recognises, and I accept, that the power to make an order under that s 588FM is available where a company is in liquidation or administration, although that matter will plainly be relevant to the exercise of the Court's discretion whether to make that order: Re 4 in 1 Wyoming Pty Ltd [2017] NSWSC 407 ("4 in 1 Wyoming"). Ms Scott draws attention to the concept of "inadvertence" for the purpose of s 588FM of the Corporations Act and to Brereton J's observation in Re Appleyard Capital Pty Ltd [2014] NSWSC 782 ("Appleyard") at [10] that: "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."
I am satisfied that, here, ARG through Mr Catterall failed to register the security interest by inadvertence, albeit that inadvertence was of a somewhat unusual character. As I noted above, ARG recognised the need to register the security interest, and, indeed, did so as soon as it understood that it was able to do so, but erroneously believed that it could not register that security interest until the later point at which it had acquired ownership of the vehicles, rather than the earlier point at which it entered into the Master Lease Agreement. Once that basis for the extension of time under s 588FM of the Corporations Act is satisfied, then the remaining question is whether the Court should exercise its discretion to extend that time, having regard to relevant factors, including any prejudice to creditors.
I recognise that, here, where TTL has passed into liquidation, unsecured creditors will be affected by the relief granted, so far as they will not obtain the benefit of any vesting that would otherwise follow under s 588FL of the Corporations Act. However, as Brereton J pointed out in Appleyard, that is not sufficient to establish a relevant prejudice, where a relevant prejudice would follow from the delay in granting the registration, rather than from the consequence of making the order which s 588FM of the Corporations Act permits in a proper case: Appleyard at [30]; Re 4 in 1 Wyoming at [46].
Here, it seems to me that there is no prejudice, in the relevant sense, from the making of the order. First, so far as a potential creditor would have inspected the register in the relevant period, it would have been evident at all times that there was a claimed security interest in the vehicle, initially that of Tracom, arising in the circumstances which I noted above, and then that of ARG when Tracom transferred ownership of the vehicles to ARG. Two secured creditors have substantially registered security interests but both did so after ARG had registered its interest and would not be prejudiced by the relief sought. It seems to me that unsecured creditors are not prejudiced in the requisite sense by the grant of relief, although plainly they would be advantaged if the security interest were to vest in TTL. I am satisfied that the basis for granting the relief as sought has been established, having regard to the evidence of inadvertence in ARG's failing to register the security interest for the interests noted above. For these reasons, I will grant the relief that is sought.

Orders

I make orders in accordance with the short minutes of order initialled by me and placed in the file. I also order that the exhibit be returned.

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: 28 July 2023

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