KJ Renfrey Nominees Pty Limited (Trustee), in the matter of OneSteel Manufacturing Proprietary Limited v OneSteel Manufacturing Proprietary Limited

(Delivered ex tempore, revised from the transcript)

INTRODUCTION 1 By an Originating Process filed on 27 November 2023, AMAL Trustees Proprietary Limited (AMAL) in its capacity as the trustee for the Longreach Direct Lending Fund (the Fund) makes an application under s 588FM of the Corporations Act 2001 (Cth) (the Corporations Act) fixing a later time for the purpose of s 588FL(2)(b)(iv) for the registration of certain security interests granted by certain entities described collectively as the Top Shelf Group. 2 The matter was listed for hearing on 29 November 2023 before me as the Commercial and Corporations Duty Judge of the Court. AMAL pressed for the relief it sought on an ex parte basis. I will return later to AMAL's reasons for doing so. In support of the relief claimed, AMAL read the affidavit affirmed by Mitchell Taylor dated 23 November 2023. Mr Taylor is a co-founder and current member of the Investment and Portfolio Construction Committee of Longreach Credit Investors Pty Limited, which is the entity that manages the Fund. 3 After hearing argument, I decided to grant the relief sought by AMAL subject to certain conditions set out in the orders that I made. These reasons are an edited version of those I gave ex tempore for making the orders that I made on 29 November 2023.

BACKGROUND 4 The background facts may be shortly stated. 5 The Fund is a trust that provides finance to commercial entities. Unusually, or perhaps not so unusually in light of its obligations to pay tax, the Fund has an Australian Business Number (ABN). 6 AMAL is the trustee of the Fund. It provides independent trustee services. AMAL is not related to or controlled by any persons associated with or related to the Fund or its managers. 7 The Top Shelf Group is a collection of companies of which Top Shelf International Holdings Limited (TSIH) is the ultimate holding company. TSIH is a public company that is listed on the ASX and wholly owns the other companies of the Group which include Top Shelf International Proprietary Limited (TSI), Top Shelf International Brands Proprietary Limited (TSIB) and Top Shelf International Packaging Proprietary Limited (TSIP). 8 The Top Shelf Group's business is primarily in the liquor industry. The operations include a brewhouse, a distillery, canning and bottling lines, and other operations at a facility located in Victoria. 9 On 16 August 2018, AMAL entered into an agreement with certain entities within the Top Shelf Group whereby the Fund loaned $3 million to TSIH (2018 Loan Agreement). In return, the Top Shelf Group agreed to provide security over "all present and after-acquired property" of the entities within the Group as documented in the General Securities Deed 2018 (2018 GSA). The interests granted through the 2018 GSA were registered (2018 Registrations) on the Personal Property Securities Register (PPSR) on 14 August 2018 as follows: (a) PPSR Registration Number 201808140036182 in respect of TSIH; (b) PPSR Registration Number 201808140036605 in respect of TSIP; (c) PPSR Registration Number 201808140036512 in respect of TSIB; and (d) PPSR Registration Number 201808140036410 in respect of TSI. 10 When the 2018 Registrations were lodged, the relevant "financing statement" identified the secured party as "AMAL Trustee Proprietary Limited, ACN 609 737 064". The PPSR has since then (until recently) so recorded the secured party. I will return to the significance of this matter. 11 On 3 December 2020, the 2018 Loan Agreement was replaced by another loan agreement between AMAL and entities within the Top Shelf Group whereby the Fund would now loan $15 million to TSIH (2020 Loan Agreement). The 2020 Loan Agreement provided that the securities granted under the 2018 Loan Agreement and 2018 GSA would secure the moneys advanced under the 2020 Loan Agreement, and, in addition, the entities within the Top Shelf Group agreed to provide additional security over "all present and after-acquired property" as documented in a General Securities Deed (2020 GSA). The interests granted through the 2020 GSA were registered (2020 Registrations) on the PPSR on 7 December 2020 as follows: (a) PPSR Registration Number 202012070067190 in respect of TSIH; (b) PPSR Registration Number 202012070067265 in respect of TSIP; (c) PPSR Registration Number 202012070067249 in respect of TSIB; and (d) PPSR Registration Number 202012070067208 in respect of TSI. 12 As was the case with the 2018 Registrations, the "financing statement" in respect of the 2020 Registrations recorded the secured party as "AMAL Trustee Proprietary Limited, ACN 609 737 064", and this detail was entered on the PPSR. 13 The 2020 Loan Agreements have since been amended on three occasions. The effect of the amendments is that the facility limit has increased from $15 million to $45 million, conditional upon the Top Shelf Group meeting certain revenue forecasts. 14 Since entering into the 2020 Loan Agreement, the Top Shelf Group has engaged or proposed to engage in various transactions to raise capital and reduce its indebtedness to the Trustee and the Fund. 15 I have received evidence that there have been sensitive commercial negotiations between the managers of the Fund and the Top Shelf Group in order to ensure that the relevant loan facilities that remain in place are discharged. It is not necessary for me to outline the nature of these discussions, commercial as they are. It is sufficient for me to note that the negotiations are confidential and commercially sensitive in nature. This is a reason that has been put forward by AMAL for its ex parte application.

DEFECTS IN THE 2018 AND 2020 REGISTRATIONS 16 Recently, AMAL and those associated with the Fund became aware of concerns with the efficacy of the 2018 and 2020 Registrations arising from the securities granted under the 2018 GSA and the 2020 GSA. I referred earlier to the fact that the 2018 and 2020 Registrations both recorded the secured party as AMAL and identified it by reference to its ACN. The concern that has been identified is that the 2018 and 2020 Registrations did not include the ABN of the Fund. 17 AMAL has formed the opinion that where a security is held by or for the benefit of a trust, and it has an ABN, there is an obligation to include that detail in the "financing statement" lodged for the purpose of entry of the security on the PPSR. This comes about because of the following: (a) s 153 of the Personal Property Securities Act 2009 (Cth) (the PPSA) provides that a financing statement with respect to a security interest must, in relation to a secured party, record the details prescribed by the regulations; (b) ss 164 and 165 of the PPSA deal with circumstances in which a registration may be ineffective; (c) specifically, section 164(1)(b) of the PPSA provides that a registration is ineffective where there is a defect mentioned in section 165; (d) in turn, section 165(d) of the PPSA provides that a defect exists where the registration does not record the data prescribed by the regulations; (e) the precise and specific details of a secured party or grantor that need to be included in the financing statement are in part set out in Schedule 1 of the Personal Property Securities Regulations 2010 (Cth) (Schedule 1); (f) relevantly, reg 1.3 of Schedule 1 applies to specify the details that must be included where the secured party is a body corporate, including the ACN of that body corporate; (g) in addition, reg 1.5 of Schedule 1 provides for further details that must be specified where the secured party is a body corporate that is a trustee of a trust that has an ABN in which case the ABN of the trust must also be specified. 18 At the hearing before me, Mr Stack of counsel appeared for AMAL. Mr Stack contended that by operation of reg 1.5 of Schedule 1, as the Fund is a trust that in this case has an ABN, the detail of the Fund's ABN was required to be included in the financing statements in respect of the 2018 and the 2020 Registrations. Mr Stack contended that the absence of the specification of the ABN of the Fund meant that, by operation of ss 164(1)(b) and 165(d) of the PPSA, the 2018 and 2020 Registrations were defective. 19 Having examined the provisions of ss 153, 164 and 165 of the PPSA and regs 1.3 and 1.5 of Schedule 1, I agree with the contentions advanced by Mr Stack. The combination of regs 1.3 and 1.5 of Schedule 1 required the financing statement to include specification of both the ACN of AMAL as the trustee and the ABN of the Fund as it was a trust that had an ABN. 20 Since the time that the concern was identified, AMAL has lodged revised documentation that include references to both AMAL's ACN and the Fund's ABN. The PPSR now records both details, and has done since 8 November 2023. 21 That is not the end of the matter. The issue that now arises is, given there had been defects in relation to the earlier registrations, whether this Court should fix a later time for when the underlying securities were required to have been registered. I now turn to address that issue.

POWER EXERCISED TO FIX LATER TIME FOR REGISTRATION OF THE SECURITIES 22 Section 588FL of the Corporations Act provides that a "PPSA security interest" (as defined in that Act) vests in the grantor if the grantor is placed into external administration and the interest has not been registered under the PPSR within specified times. The effect of s 588FL has been set out in a number of cases including in Re Appleyard Capital Proprietary Limited [2014] NSWSC 782; (2014) 101 ACSR 626 at [13] per Brereton J (Appleyard). Broadly, the effect of section 588FL(2) is that when a company is being wound up and an administrator is being 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 grantor company for the benefit of creditors generally, and the secured creditor loses the benefit of the security: Re Cardinia Nominees Pty Ltd [2013] NSWSC 32 at [11] per Black J; In the matter of Black Opal IP Pty Ltd [2013] NSWSC 1225 at [6]. 23 Section 588FM of the Corporations Act seeks to, in a way, mitigate the effect of s 588FL. It does this by empowering the Court under s 588FM(1) to make an order effectively extending the time for registration of a security interest. Section 588FM provides as follows: 588FM Extension of time for registration (1) A company, or any person interested, may apply to the Court (within the meaning of s 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. 24 Section 588FM confers on the court a discretion to fix a later time if satisfied any one of the three grounds that are a precondition to the exercise of the court's power exists, namely, 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. The section also permits the court to make the order on terms and conditions. 25 It has been held that mistakes made by lawyers and others in the lodgement of registration documents on the PPSR fall within the scope of section 588FM(2)(a)(i): see Re Eticore SD Pty Limited [2021] NSWSC 110 per Black J at [15]. 26 In the present case, I do not need to get into who made the mistake or why it was made. It is sufficient that I have received evidence that when the 2018 and 2020 Registrations were lodged, there was inadvertence in the sense that no one turned their mind to whether the Fund had an ABN and whether that needed to be specified. I am satisfied that this fact arose due to inadvertence within the meaning of s 588FM(2)(a)(i) of the Corporations Act. I am satisfied that it was due to this inadvertence that the securities were not registered earlier in a manner that did not make them defective. 27 I am also satisfied for the purpose of section 588FM(2)(a)(ii) that the fixing of a later time is not of such nature so as to prejudice the position of creditors or shareholders. As Brereton J held in Appleyard at [30] to [31], the type of prejudice which is relevant is the "prejudice attributable to the delay in registration, rather than the prejudice from making the order (which is inevitable)". In this case, I have received evidence that the Top Shelf Group was aware of the security being granted for the benefit of AMAL and the Fund. That is apparent from the 2018 and 2020 Loan Agreements and the 2018 and 2020 GSAs. 28 Further, the 2018 and 2020 Registrations were recorded in the PPSR. It follows that there was a public record on the register that identified that at least AMAL held an interest by way of a security over all current and after acquired property of members of the Top Shelf Group. Those secured or unsecured creditors, or shareholders, dealing with the Top Shelf Group would have been aware of this fact if they had examined the public register. It may be inferred from this fact that members of the public had the opportunity to deal with the Top Shelf Group armed with the knowledge of the existence of those securities. I do not consider that the non-inclusion of the ABN of the Fund was material to any dealings that actual or potential creditors or shareholders would have had with the Top Shelf Group. As a result, I am satisfied that fixing a later time for the registration of the securities does not prejudice the interests of creditors or shareholders. 29 To the extent it's necessary to do so, I also record that for the same reasons I am satisfied within the meaning of section 588FM(2)(b) that on other grounds, it is just and equitable (in the circumstances to which I have referred) to grant the relief sought by the Trustee: see, generally, KJ Renfrey Nominees Pty Limited (Trustee), in the matter of OneSteel Manufacturing Proprietary Limited v OneSteel Manufacturing Proprietary Limited (2017) FCA 325 at [28] per Davies J. 30 There remains a question as to whether I should make orders on an ex parte basis in the absence of a contradictor and, if so, on what conditions, if any. 31 It has been observed that applications under section 588FM should join, at the very least, the grantor of the security to the proceedings unless some exceptional circumstances are demonstrated: see Appleyard at [34]. What might prove an exception to the rule will depend upon the facts. There is not here, unlike in other cases, any impending prospect of the entities within the Top Shelf Group becoming insolvent. 32 What then was the need for an ex parte application? Mr Stack essentially advanced four reasons. First, he contended that although the entities within the Top Shelf Group were the grantors of the security, on the facts of this case, their interests were unaffected in practical terms. Mr Stack contended that as these entities were the ones that had granted the securities, they were taken to have known about the registrations and therefore were not an essential contradictor in an application to essentially rectify a relatively minor defect affecting a public register. Second, Mr Stack contended that the orders could be made on the basis of a condition that the Top Shelf Group be given notice and liberty to make an application to set the order aside. Third, Mr Stack pointed out that it was necessary to make an order as soon as possible to give effect to the statutory scheme enacted under the PPSR that securities be registered promptly and accurately, and to ensure the integrity and accuracy of information on the public register. Allied with this, Mr Stack contended that his clients would be prejudiced in the unlikely event that the entities in the Top Shelf Group were placed into liquidation. Fourth, Mr Stack submitted that there were commercial sensitivities in the negotiations between those associated with the Fund and the Top Shelf Group. 33 Mr Stack placed considerable emphasis on the last of the reasons, but on reflection I did not find that reason to be persuasive. The better points were the combination of the first three contentions noted above. The combination of those matters led me to be satisfied that I should make the orders on an ex parte basis on the condition that the entities within the Top Shelf Group have a right to be heard. I do not see the prejudice to the Top Shelf Group in taking this approach on the facts of this case, and I do see it as promoting the objects of the PPSA and, in particular, the necessity for there to be an accurate public register of securities. 34 Nothing I have decided in this case should be seen as an encouragement of ex parte applications of this type. It remains highly desirable that the grantor be joined to such applications and have an opportunity to be heard against the making of orders under s 588FM, though that may not always be practical especially in cases of actual or impending insolvency. 35 There is also an issue about notice to creditors. Orders granted and made under section 588FM are often made on the condition that other interested parties such as secured and unsecured creditors, liquidators, administrators and others have a right to seek to set aside or vary such orders if they are adversely affected. These orders have come to be described as "Guardian Securities orders" taking their name from the decision of McLelland J in Re Guardian Securities Ltd [1984] 1 NSWLR 95. At this stage, I am uncertain as to whether such orders should be made. In Re Allied Master Chemists of Australia Limited [2020] NSWSC 291, Rees J at [21]-[22] declined to include orders in the nature of "Guardian Securities orders" because there was comprehensive evidence of solvency and her Honour accepted the submission of the secured party in that case that the imposition of such a condition would give rise to commercial uncertainty. I accept the logic of her Honour's observations and conclusion. Whether that approach should be taken will of course depend upon the circumstances. Whether that approach should be taken in this case is a matter about which I wish to hear from the entities in the Top Shelf Group, if those entities wish to be heard. 36 For present purposes, for the short time I propose to stand over the proceedings for further directions, I do not consider any prejudice will arise from not making a "Guardian Securities order". That is because on the evidence before me, TSIH is a company currently listed on the ASX and its consolidated balance sheet, amongst other things, records that it has assets of $95.2 million and liabilities of $53.1 million, leaving a surplus of $42 million. The quarterly report issued on 23 October 2023 discloses that TSIH suffered a quarterly loss of $3.1 million, but that represented an improvement of 41% from the previous quarter, and also disclosed that it had a closing cash balance of $14.2 million. In these circumstances, I consider the risk of the Top Shelf Group entering insolvency in the next week or so to be low.

DISPOSITION 37 In all of the circumstances, I propose to make the orders sought by AMAL, but on the condition that I will list the matter for further directions before me within the next week to hear from the entities in the Top Shelf Group (if they wish to be heard) after they have been served with all the documents filed in the proceedings to date, as well as these reasons. I will also grant leave to the entities within Top Shelf Group to apply to set aside the orders that I have made within the next two weeks and to make an application for a "Guardian Securities order" to be made. For these reasons, I have made the orders that will be entered today. I certify that the preceding thirty-seven (37) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Shariff.