Liebherr-Australia Pty Ltd v LEQ2 Pty Ltd, in the matter of LEQ2 Pty Ltd

INTRODUCTION 1 By an Originating Process filed on 13 December 2024, the Plaintiff makes an application under s 588FM of the Corporations Act 2001 (Cth) (Corporations Act) to fix a later time for the purpose of s 588FL(2)(b)(iv) for the registration of certain security interests. The relevant security interests are those that have presently been registered on the Personal Property Securities Register (PPSR) and bear the registration numbers set out in Schedules 2 and 4 of the Originating Process (Relevant Security Interests). In relation to a subset of the Relevant Security Interests, the applicant seeks orders under s 293 of the Personal Property Securities Act 2009 (Cth) (PPS Act), being those interests identified in Schedules 3 and 5 of the Originating Process. 2 The Plaintiff sought the following substantive orders: (a) an order, pursuant to s 588FM of the Corporations Act, fixing 6 November 2024 as the time for the Plaintiff to lodge new registrations and amended registrations on the PPSR for the purposes of subs 588FL(2)(b)(iv) of the Corporations Act; (b) an order, pursuant to subs 293(1)(a) of the PPS Act, that the number of business days set out in subs 62(3)(b) of the PPS Act be extended by the requisite number of business days for each of the "New PMSI Registration" and "Amended PMSI Registration" so that each such New PMSI Registration made by the Plaintiff falls within the time period prescribed by subs 62(3)(b) of the PPS Act, as extended by the order; (c) an order that liberty be reserved to any liquidator, administrator or deed administrator of the First Defendant to apply to discharge or vary these orders if any winding up of the First Defendant occurs, or an administrator is appointed to the First Defendant under ss 436A, 4368 or 436C of the Corporations Act, or the First Defendant executes a deed of company arrangement within six months of the date that the New Registration was registered on the PPSR. 3 In support of the application, the Plaintiff read: (a) an affidavit of Michael (Qi Jun) Zhou affirmed 12 December 2024 and its Exhibit MZ-1; (b) an affidavit of Adam Robson affirmed 12 December 2024 and its Exhibit AR-1; (c) an affidavit of Cameron Cheetham affirmed 12 December 2024 and its Exhibit CC-1; and (d) a further affidavit of Cameron Cheetham affirmed 17 December 2024 and its Exhibit CC-2. 4 The Plaintiff also tendered a bundle of documents comprising correspondence with the Defendants and company searches further to those exhibited to the above affidavits which I marked as Exhibit 1. 5 On the evidence that was adduced before me, I am satisfied that the fact of this application and it being listed for hearing today before me has been brought to the attention of each of the Defendants. I am also satisfied on that evidence that the relevant documents have been served on each of the Defendants in accordance with the orders made by Needham J on 13 December 2024. 6 For the following reasons, I am satisfied that the orders sought by the Plaintiff should be made.

Parties 7 The First Defendant is the "grantor" of security interests to the Plaintiff. The First Defendant is a trustee of the LEQ2 Unit Trust. 8 The Second to Fifth Defendants, inclusive, have each purported to take and hold an "all present and after-acquired personal property" (AllPAP) security interest (either with or without certain exceptions) which may cover the same collateral as the security interests granted to the Plaintiff.

The Agreements 9 Since 2022, the Plaintiff and the First Defendant have entered seven "Purchase and Lease Agreements". Each Purchase and Lease Agreement is substantively similar as to its terms. 10 Relevantly, cl 2(a) of the Purchase and Lease Agreements provide as follows: Subject to clause 2(b) the Lessor agrees to sell and the Lessee agrees to buy the Equipment for a purchase price equal to the FRV [final residual value] and to complete such sale and purchase on the Expiry Date (Settlement Date) on and subject to the express terms of this Agreement. 11 Clause 2(c) provides the terms and conditions applicable to the sale and purchase, including: (iii) the Lessee as buyer shall pay the applicable purchase price to the Lessor as seller on the applicable Settlement Date in immediately available funds; (iv) failure by the Lessee to pay the applicable purchase price to the Lessor as seller on the applicable Settlement Date shall constitute a repudiation of the S&P by the Lessee as buyer; (v) risk in the Equipment remains with the Lessee at all times; (vi) title to and property in the Equipment passes to the Lessee upon payment in full of the applicable purchase price free of Security Interests granted therein by Lessor 12 Clause 28 of the Purchase and Lease Agreements is headed "Personal Property Securities Act 2009 (Cth) (PPSA)". It contains a series of clauses specific to the operation of the PPS Act including requiring the Lessee to: … do anything (such as obtaining consents, signing and producing documents, procuring documents to be completed and signed and supplying information) reasonably within Lessee's control which the Lessor asks and considers necessary for any one or more of the following purposes: (i) ensuring that the Security Interest is enforceable, perfected and otherwise effective; (ii) enabling the Lessor or any third party nominated by the Lessor to apply for any registration, complete any financing statement (including any financing change statement) or give any notification, in connection with the Security Interest so that the Lessor or any third party nominated by the Lessor has the priority it requires; and (iii) enabling the Lessor or any third party nominated by the Lessor to exercise rights in connection with the Security Interest. 13 Further, and relevant to the present application, subs 28(b) of the Purchase and Lease Agreements provide: If requested by the Lessor, the Lessee shall cause or assist in causing any financing statement (including any financing change statement) within the meaning and for the purposes of the PPSA required in connection with paragraph 28(a) above to be registered on the PPSA register at such times as directed by the Lessor. 14 Separate to the imposition of a purchase term within the Purchase and Lease Agreements, the term "Lease Term" the subject of cl 3 is defined by cl 1.1 as: the period of lease for the Equipment commencing on the Lease Term Commencement Date and ending on the Expiry Date or earlier date provided by this Agreement 15 Regardless of the "Lease Term Commencement Date", importantly, the term "Expiry Date" is defined as: (a) the 5th annual anniversary of the Lease Term Commencement Date; or (b) a date otherwise agreed between the Lessor and Lessee in writing; 16 A lease for a term of five years is, by definition, a PPS lease within the meaning of subs 13(1)(a) of the PPS Act - which is also, by definition, a "purchase money security interest" (PMSI) pursuant to subs 14(1)(c) of the PPS Act. 17 It follows that each of the Purchase and Lease Agreements gives rise to a PMSI. 18 Clause 5 of the Purchase and Lease Agreements then provides, among other things, that: (a) Lessee enters into this Agreement in its capacity as trustee of the Trust and in its own right.

Issues identified in relation to registered security interests 19 Shortly prior to entry into each of the Purchase and Lease Agreements, a responsible person employed by the Plaintiff lodged two registrations on the PPSR in respect of each security interest created under those Agreements. Each of the registrations was the same as to its substance except one indicated that the security interest taken was a PMSI and the other indicated that the security interest taken was not a PMSI. It is presumed that two registrations were lodged in this way to avoid a circumstance where the Plaintiff perceived that it held a PMSI and was seeking to guard against the risk of that not being correct. 20 Each of the registrations made on behalf of the Plaintiff on the PPSR conformed with an internal policy prepared by the Plaintiff (2021 Policy). The 2021 Policy made no reference as to any further or other steps which needed to be taken if the grantor of the security was the trustee of a trust with an Australian Business Number (ABN). 21 The 2021 Policy has since been updated to reflect the need for a secured party to perfect any security interest against the ABN of a trust where the grantor is the trustee of a trust with an ABN. 22 In October 2024, as part of due diligence being conducted, it was discovered that, as the First Defendant was, and is, a trustee of the LEQ2 Unit Trust, there was a lack of any registration being made by reference to the ABN of that Trust to which the First Defendant was trustee. Having identified the lack of any registration being made by reference to the ABN of the LEQ2 Unit Trust, on 6 November 2024, new registrations were lodged and existing registrations were amended to reflect the ABN of the Trust. 23 In accordance with s 160 of the PPS Act, an amendment to a PPSR registration takes effect at the time of the amendment. In those circumstances, both the amended initial registrations and the new registrations on the PPSR occurred outside of: (a) the 20 business days from the date of the security agreement (as referred to by s 588FL(2)(b)(ii) of the Corporations Act); and (b) the 15 business days of the First Defendant coming into possession of said equipment (as referred to by s 62(3)(b) of the PPS Act).

EXTENSION OF TIME APPLICATION 24 Subsection 588FL(4) of the Corporations Act provides that: 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. 25 Subsection 588FL(1)(a) refers to the appointment of a voluntary administrator, liquidator or deed administrator. 26 Subsection 588FL(2)(b) provides that in order to avoid the vesting operation of subs 588FL(4), a registration on the PPSR must be lodged within 20 business days from the creation of the security agreement or 6 months must expire from the date of the registration or the registering party must obtain a Court order under s 588FM. 27 Separately, the failure to perfect a security interest by registration on the PPSR within 15 business days from the First Defendant obtaining possession of the relevant equipment disentitles the Plaintiff to the "super priority" otherwise afforded to "purchase money security interests" where the secured party complies with s 62 of the PPS Act: see also s 14(1)(c). 28 The "super priority" is contained in s 62 of the PPS Act which relevantly provides that: Scope (1) This section sets out when a perfected purchase money security interest that is granted by a grantor in collateral or its proceeds has priority over a perfected security interest that is granted by the same grantor in the same collateral, but that is not a purchase money security interest. 29 Subsection 62(1) only applies where subs 62(3) of the PPS Act is complied with. This includes a 15-business day timing requirement, unless extended by order of the Court pursuant to subs 293(1)(a) of the PPS Act. 30 If the Plaintiff is unable to obtain the benefit of s 62 of the PPS Act then even if its registrations were to survive the operation of s 588FL of the Corporations Act, the Plaintiff could only rely on s 55 of the PPS Act on the question of priorities. Section 55 relevantly provides that: Priority for perfection in other ways (4) Priority between 2 or more security interests in collateral that are currently perfected is to be determined by the order in which the priority time (see subsection (5)) for each security interest occurs. (5) For the purposes of subsection (4), the priority time for a security interest in collateral is, subject to subsection (6), the earliest of the following times to occur in relation to the security interest: (a) the registration time for the collateral; (b) the time the secured party, or another person on behalf of the secured party, first perfects the security interest by taking possession or control of the collateral; (c) the time the security interest is temporarily perfected, or otherwise perfected, by force of this Act. 31 Thus, because the interests of the Second to Fifth Defendants were perfected by registration prior to the amendments to the initial registrations and the new registrations attended to by the Plaintiff, if orders under s 293 of the PPS Act are not made then the Plaintiff cannot assert PMSI priority over such parties.

RELIEF SOUGHT UNDER SECTION 588M 32 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] (Brereton J). Broadly, the effect of s 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 s 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] (Black J); In the matter of Black Opal IP Pty Ltd [2013] NSWSC 1225 at [6] (Brereton J). 33 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. 34 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. 35 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 subs 588FM(2)(a)(i): see Re Eticore SD Pty Limited [2021] NSWSC 110 at [15] (Black J). 36 In the present case, there was clearly an error involved in the lodgement of the relevant registrations due to inadvertence brought about because it was not realised that the registrations would need to identify the ABN of the LEQ2 Unit Trust. I am satisfied that this came about because of the inadequacy of the 2021 Policy in adverting to the necessity for this to occur when the grantor of a security was the trustee of a trust. I am satisfied that this arose due to inadvertence within the meaning of subs 588FM(2)(a)(i) of the Corporations Act. 37 I am further satisfied that the order sought is not of a kind to prejudice the position of creditors or shareholders within the meaning of subs 588FM(2)(a)(ii) of the Corporations Act. This is largely because, as Brereton J held in Re Appleyard at [15], orders pursuant to s 588FM of the Corporations Act have no effect on the priority of the underlying security interest. In any event, in the case of prejudice to potential competing secured creditors, those parties have been joined to these proceedings and have given no indication that they wish to appear or be heard. In the case of unsecured creditors and shareholders, liberty for an external administrator to apply to vary or set aside any order extending time to register has been preserved for a sufficient period of time to address any prejudice that may arise. 38 I am therefore satisfied that relief should be granted as I am satisfied of the matter specified in subs 588FM(2)(a)(i) and I am also satisfied of the matter in subs 588FM(2)(a)(ii). 39 To the extent that it is necessary for me to say so, I am also satisfied that it is otherwise just and equitable to grant the relief sought pursuant to subs 588(2)(b) of the Corporations Act. That is because a competing creditor would have likely taken notice of the Plaintiff's security interest notwithstanding the inclusion of a potentially erroneous particular in identifying it on each relevant financing statement.

RELIEF UNDER SECTION 293 40 When considering whether or not to grant relief pursuant to subs 293(1)(a) of the PPS Act, the Court must take into account the following matters prescribed by subs 293(3): (3) In making an order to extend a period under subsection (1), the court must take into account the following: (a) whether the need to extend the period arises as a result of an accident, inadvertence or some other sufficient cause; (b) whether extending the period would prejudice the position of any other secured parties or other creditors; (c) whether any person has acted, or not acted, in reliance on the period having ended. 41 In respect of what constitutes "accident" or "inadvertence" for the purposes of subs 293(3)(a) of the PPS Act, it has been recognised that the concept of accident or inadvertence for the purposes of s 588FM of the Corporations Act is the same as that for the purposes of subs 293(3)(a) of the PPS Act: see Re Accolade Wines Australia Ltd [2016] NSWSC 1023 at [26] (Brereton J); Re Duke Contracting Australia Pty Ltd [2017] NSWSC 767 at [12] (Brereton J); In the matter of 4 in 1 Wyoming Pty Ltd [2017] NSWSC 407 at [63] (Gleeson JA). 42 Having regard to the findings I have already made, I am also satisfied for the purpose of subs 293(1)(a) that time should be extended on the basis that there has been inadvertence or other sufficient cause. That is because, as noted above, there was inadvertence as to whether the interests should also be registered as against the ABN of the LEQ2 Unit Trust. 43 I am also satisfied that there is no relevant prejudice. Under the PPS Act, a PMSI holder ordinarily has the benefit of priority as against competing perfected security interests in the same collateral, in accordance with subs 62(1), irrespective of a competing security interest holder's awareness, consent or otherwise in respect of the grant of the PMSI, provided that subs 62(2) or subs 62(3), as the case may be, has been complied with. 44 The concept of prejudice was explained in Re Appleyard, in the context of an application pursuant to s 588FM of the Corporations Act, as follows by Brereton J at [30]: … The type of prejudice that is of particular relevance is prejudice attributable to the delay in registration, rather than prejudice from making the order (which is inevitable). This is the type of prejudice contemplated the legislation (see s 588FM(2)(a)(ii), which refers to prejudice from the failure to register earlier, not from making the order), and referred to by Buckley J in Cardiff Workmen's Cottage Co; by Long Innes J in Limited Company (see also Flinders Trading Co at ACLR 225 per Bray CJ; at ACLR 234 per Mitchell J); and by McLelland J in Guardian Securities (at 98). 45 In Re Accolade Wines, Brereton J considered "prejudice" for the purpose of subs 293(3)(b) of the PPS Act and held at [27] that: … the prejudice referred to in s 293(3)(b) is prejudice from "extending the period". This directs attention not to the impact on other secured parties or creditors of the delay in registration, but to the impact of making an order extending the period; to evaluate prejudice for that purpose, one compares the position of creditors if an extension is granted, with their position if no extension is granted, and usually there will be a difference because priorities will be disturbed. 46 In respect of potentially competing security interests taken in the form of an AllPAP security interest, in Re Accolade Wines, Brereton J held as follows at [52]: In circumstances where: (1) there was a registration, which was recorded on the PPSR, albeit a defective one because it was against the Grantors' ABN, not ACN; (2) the PMSIs are each in respect only of the specific collateral to which the relevant lease relates; (3) an AllPAP is always liable to be trumped, in respect of specific after-acquired collateral, by a PMSI in respect of that collateral; (4) to the extent that an Earlier AllPAP holder will be prejudiced, it is only by losing a windfall arising from inadvertence; (5) it is very likely that any Later AllPAP holder in fact had notice of the Plaintiffs' PMSI when acquiring its security interest; and in any event, notice that there was an earlier PMSI in respect of specific collateral is unlikely to have been material to its decision to provide financial accommodation and take the AllPAP security. I am satisfied, on the material now before the Court, that it is just and equitable to make an order extending the number of business days in the period specified in paragraph 62(3)(b) for the perfection by registration of the Plaintiffs' PMSIs. Moreover, the case for an extension is sufficiently compelling that it is not unreasonable that the forensic burden of moving the Court to vary or set aside the extension be cast upon any of the AllPAP holders who might wish to contend that they will be unacceptably prejudiced by the extension. 47 In the present case, the Second to Fifth Defendants have been joined and have had the opportunity to raise and establish any prejudice. They have not done so despite having notice of the application. This being the case, I am satisfied that the "forensic burden" has not been discharged by any of the AllPAP security interest holders and there is no good reason not to grant of relief sought by the Plaintiff. 48 For the above reasons, I am satisfied that the each of the matters set out in subs 293(3) of the PPS Act are satisfied and relief pursuant to subs 293(1)(a) of the PPS Act should be granted.

DISPOSITION 49 I will make the orders that are sought. I certify that the preceding forty-nine (49) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Shariff.

Associate: Dated: 18 December 2024 SCHEDULE OF PARTIES NSD 1807 of 2024 Defendants Fourth Defendant: SWISS RE INTERNATIONAL SE ARBN 138 873 211 Fifth Defendant: DE LAGE LANDEN PTY LIMITED ACN 101 692 040