Investa Properties Pty Limited v Westpac Property Funds Management Limited

Judgment (Ex TemporE) 1HIS HONOUR: By originating process filed on 8 July 2013, the first plaintiff Mark Cooper in his capacity as deed administrator of the second plaintiff Black Opal IP Pty Ltd claim an order pursuant to (Cth) Corporations Act 2001, s 588FM(1), fixing 28 June 2013 as the registration date for security interests granted to the first plaintiff in certain collateral, being present and after acquired property referred to in registration number 201306280118649 in the register established under the (Cth) Personal Property Securities Act 2009. 2Mr Cooper is the administrator of a deed of company arrangement dated 8 June 2012 in respect of Black Opal. Under the DOCA, a deed fund was to be established into which was to be paid moneys falling due for payment under an asset sale agreement between Black Opal and Mr Cooper as vendors and the defendant Integra Foods Pty Limited as purchaser. On 22 June 2012, Mr Cooper, Black Opal and Integra entered into an asset sale deed, by which Integra was obliged to pay $44,000 to Black Opal on 29 June 2012, followed by a number of monthly instalments, with property to pass until the purchase price was paid in full and Integra's other obligations as purchaser complied with. 3Integra was required to execute a general security agreement to secure its obligations to Mr Cooper. Pursuant to that obligation, Integra, also on 22 June 2012, granted Mr Cooper a security interest in all its present and after acquired property pursuant to a "general security agreement". However, Mr Cooper's solicitor, although instructed to take all steps to ensure that the general security agreement was registered and enforceable, did not do so. The evidence establishes that this was by inadvertence. Ultimately, once the failure to register the general security agreement was discovered, it was registered on 28 June 2013. 4Corporations Act, s 588FL, relevantly provides as follows: Vesting of PPSA security interests if collateral not registered within time (1) This section applies if: (a) any of the following events occurs: (i) an order is made, or a resolution is passed, for the winding up of a company; (ii) an administrator of a company is appointed under section 436A, 436B or 436C; (iii) a company executes a deed of company arrangement under Part 5.3A; and (b) a PPSA security interest granted by the company in collateral is covered by subsection (2). Note: A security interest granted by a company in relation to which paragraph (a) applies that is unperfected at the critical time may vest in the company under section 267 or 267A of the Personal Property Securities Act 2009 . (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. Note 1: For the meaning of critical time, see subsection (7). Note 2: For when a security interest is enforceable against third parties under the law of Australia, see section 20 of the Personal Property Securities Act 2009. Note 3: A security interest may become perfected at a particular time by a registration that is made earlier than that time, if the security interest attaches to the collateral at the later time (after registration). See section 21 of the Personal Property Securities Act 2009. Note 4: The Personal Property Securities Act 2009 provides for perfection by registration, possession or control, or by force of that Act (see section 21 of that Act). ... Vesting of security interest in company (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. Note: For the meaning of critical time, see subsection (7). ... (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) in any other case--when, on a day, the event occurs by virtue of which the day is the section 513C day for the company. 5Section 588FM provides as follows: 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). Note: If an insolvency-related event occurs in relation to a company, paragraph 588FL(2)(b) fixes a time by which a PPSA security interest granted by the company must be registered under the Personal Property Securities Act 2009, failing which the security interest may vest in the company. (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. 6Broadly, the effect of s 588FL(2) is that when a company is being wound up, an administrator has been appointed or a deed of company arrangement 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 such later time as the Court may fix under section 588FM, vests in the company [see Explanatory Memorandum at 6.5; see also In the Matter of Cardinia Nominees Pty Ltd [2013] NSWSC 32, [11]]. 7Provision for fixing such a later time is made by s 588FM, set out above. That section confers on the Court a discretion to fix a later time if satisfied that the failure to register the collateral earlier was accidental, or was not of such a nature to prejudice the position of creditors or shareholders, or that on other grounds it is just and equitable to do so. Accordingly, the section contemplates three grounds on which an order may be made. The section also permits the Court to make the order on terms and conditions. 8As I have said, in this case the evidence establishes, at least, that the failure to register the collateral earlier was due to inadvertence. Accordingly, jurisdiction to make the order sought is enlivened. As to discretionary considerations, it is, no doubt, a relatively long time that this interest remained unregistered. However, the significance of the passage of time is mainly related to the possibility of competing interests having arisen. 9The circumstance that the grantor of the security interest consents to the relief sought is a relevant, but far from decisive, consideration. The grantor's director deposes to arrangements by which the assets acquired under the asset sale agreement and the subject of the security interest have been "licensed" to a third party. It is conceivable, although unnecessary to decide on this application, that the effect of that is to create a PPS lease. However, it seems to me that whether the security interest the subject of the present application has been afforded the priority it would have in the case of liquidation or administration does not significantly bear on the status of the licensee's interest. In any event, the position of the licensee can be preserved by imposition of the type of condition that Black J imposed in Cardinia. 10There is evidence that the grantor is solvent and is likely to remain solvent, although that evidence falls far short of comprehensively establishing solvency in the manner the Court would require if it were to make the order sought unconditionally. As Black J observed in Re Barclays Bank PLC [2012] NSWSC 1095, the fact of demonstrated solvency and that no other security interests have been registered, coupled with the absence of any risk of winding-up or administration are of considerable significance in establishing that late registration will not disturb or adversely affect accrued or accruing rights meriting consideration. Similarly, in Investa Properties Pty Limited v Westpac Property Funds Management Limited [2001] NSWSC 1089, Barrett J, as his Honour then was, observed (at [31]) that if there is no hint of any possibility of winding up or administration and if it is shown that there exists no other chargee occupying a position actually or potentially adversely affected by the system of priorities, under Corporations Act Part 2K.3, it is open to the Court to conclude that late lodgement will not disturb or affect accrued or accruing rights meriting consideration, and in such a case that will normally be the end of the matter. 11I have been somewhat troubled by the possibility that the licensee or lessee of the subject assets could, as a party in possession of goods under a PPS, lease have itself created security interests in third parties, but in the absence of any such security interest having been registered by any party, I think I need not be further troubled on that account. In any event, reserving leave to apply to set aside the order should there be an insolvency event within six months covers any such risk. 12I make orders in accordance with the document entitled "Draft Order", initialled by me, dated this day and placed with the papers. That includes a direction that these orders be entered forthwith.