Panadell Architectural Cladding Systems Pty Limited v Panadell Industries... [2010] FCA 511 | Case summary

a registrable charge on property of the company is void, unless a notice in respect of the charge was lodged under s 263, or s 264, as the case requires, within the relevant period, or at least six months before the critical day. The determination of the relevant period and the critical day is provided for in ss 266(2) and 266(8). However, under s 266(4) the Court may, if it is satisfied relevantly that the failure to lodge a notice in respect of a charge was accidental or due to inadvertence or some other sufficient cause, extend the period for such further period as is specified in the order. 3 The Liquidators were appointed as administrators of Architectural on 19 June 2009. On 23 July 2009, the creditors of Architectural, at a meeting convened in accordance with s 439A of the Corporations Act, resolved that Architectural execute a deed of company arrangement. Under s 444A(3) of the Corporations Act, the Liquidators, as administrators, were then required to prepare an instrument setting out the terms of the proposed deed of company arrangement. Under s 444B(2), where such an instrument is prepared, the company must execute the instrument within 15 days after the end of the meeting of creditors, or such further time as the Court allows. 4 The Liquidators prepared a deed of company arrangement in accordance with s 444A(3). However, Architectural failed to execute the instrument within the time required by s 444B(2). Accordingly, by the operation of s 446A, Architectural was taken to have passed a special resolution, under s 491, that it be wound up voluntarily. Section 491(1) provides that a company may be wound up voluntarily, if the company so resolves, by special resolution. Section 446A(1)(b) provides that s 446A applies if a company under administration contravenes s 444B(2) at a particular time. Under s 446A(2), the company is then taken to have passed, at that time, a special resolution under s 491. 5 Section 499(2)(b) provides that, if s 446A applies in relation to a company because of section 446A(1)(b), the company's creditors are taken to have appointed the administrator of the company to be liquidator for the purpose of winding up the affairs and distributing the property of the company, and the appointment takes effect at the time referred to in section 446A(1)(b). By the operation of those provisions, the Liquidators became liquidators of Architectural on 14 August 2009. 6 The proposed deed of company arrangement contemplated the sale of the business of Architectural, as a going concern, to Industries. On 10 September 2009, the Liquidators and Architectural entered into a deed of sale of assets with Industries (the Assets Deed). The Assets Deed contemplated payment of the price over a period in excess of three months. Under s 477(2B) of the Corporations Act, except with the approval of the Court, or of the committee of inspection, or of a resolution of the creditors, a liquidator of a company must not enter into an agreement on the company's behalf if, relevantly, obligations of a party to the agreement may, in accordance with the terms of the agreement, be discharged by performance more than three months after the agreement is entered into. Thus, it was necessary for the deed of sale to be proved by the Court, by a committee of inspection or by a resolution of creditors. While the Assets Deed was conditional upon getting that approval, the Liquidators arranged for the granting of a charge by Industries to Architectural and the Liquidators, over the assets that were the subject of the Assets Deed to secure the obligations of Industries to pay the price (the First Charge). The First Charge was executed on 10 September 2009. 7 The Liquidators, by notice of 16 October 2009, convened a meeting of the creditors of Architectural, to be held on 2 November 2009, for the purposes of approving the entry by Architectural into the Assets Deed under s 477(2B). At the meeting held on 2 November 2009, the creditors approved the Assets Deed. They also approved the entry into a deed of sale of book debts (the Debtors Deed) by Architectural and the Liquidators to Industries. On that day the Liquidators and Architectural entered into the Debtors Deed. Industries also executed a charge over all its property, undertaking and assets in favour of Architectural and the Liquidators to secure its obligations under the Debtors Deed (the Second Charge). 8 At that stage, no step had been taken to comply with s 263 of the Corporations Act in respect of the First Charge. The reason for non-compliance was a misapprehension on the part of the solicitor who was charged with compliance with the requirements of s 263. At the time of the execution of the Assets Deed and the First Charge, the Liquidators were negotiating with Industries for the sale of the book debts, which would also have required approval under s 477(2B). 9 Mr Stephen Mullette was the solicitor for the Liquidators and Architectural. He knew when the First Charge was executed that particulars had to be lodged with Australian Securities and Investments Commission (the Commission) within 45 days. He was also aware that the Liquidators wished to finalise the sale of the book debts, so that only one meeting of creditors would be required to obtain approvals under s 477(2B). Mr Ben Mackay, an employed solicitor of Mr Mullette, had the day to day carriage of the matter. He did not advert to the requirement to lodge particulars of the charge under s 263. He erroneously believed that the First Charge did not need to be registered until approval had been obtained under s 477(2B). Once approval had been obtained under s 477(2B) at the meeting on 2 November 2009, steps were taken to lodge particulars of the two charges in accordance with s 263 for the Corporations Act. 10 Commission forms 309, which are forms of notification of details of a charge, were prepared in Mr Mullette's office. However, the author of those documents did not give appropriate attention to their preparation. While Mr Mullette signed them, he failed to give appropriate attention to their contents. The two notifications, one for each of the two charges, specified the Liquidators as the chargees. However they specified Architectural as the chargor and not Industries. The two forms were lodged with the Commission on 20 November 2009, but, naturally enough, they were recorded by the Commission as being charges granted by Architectural. No notification was recorded in respect of Industries. 11 The last day for lodgement of notice in respect of the First Charge was 25 October 2009. The last day for lodgement of notice in respect of the Second Charge was 17 December 2009. Thus, the two forms 309 were lodged within the requisite period if Mr Mackay's misapprehension had been the correct state of the law. However, because of two errors, one in the preparation of the forms and the other as to the operation of s 263 and s 477(2B), s 266 would operate to avoid both charges. 12 There has been default under both of the Assets Deed and the Debtors Deed, such that the Liquidators and Architectural wish to be in a position to enforce their security. However, on 7 April 2010 an employee of the Liquidators informed Mr Arnautovic that a search of the Commission in respect of Industries disclosed that there was no record of either of the charges with the Commission. Neither of the Liquidators was aware of that fact until that day. The Liquidators therefore communicated with Mr Mullette and steps were taken to prepare and lodge forms 309, correctly disclosing Industries as the chargor. Those forms were lodged with the Commission on 9 April 2010. This application is for orders that the time for lodging the appropriate notice pursuant to s 263 in respect of the two charges be extended up to and including 9 April 2009. 13 Steps have been taken on behalf of the Liquidators and Architectural to notify both the creditors of Architectural and the creditors of Industries of this application. While response to that notification from some creditors indicated a little confusion, no creditors appeared on the hearing of this application, despite having been notified in writing of the making of the application. Industries was represented by counsel and has indicated that it does not oppose the making of the order. Indeed, to the extent that it is open to it, Industries supports the making of the orders now claimed. 14 There is no evidence before the Court as to the financial position of Industries, other than the fact that it has defaulted in the payment of its obligations under the two deeds. Specifically, there is no evidence as to the total quantum of debt owed to unsecured creditors. However, there is evidence before the Court of the identity of the creditors of both Architectural and Industries. 15 There are 117 creditors of Architectural, including employees. There are 76 creditors of Industries, including employees. Of those creditors, 47 are creditors of both Architectural and Industries. Thus, more than 50% of the creditors of Industries are also creditors of Architectural. While there is no evidence as to the quantum of the debts owed by the two companies to those creditors, it is clear that there could well be some benefit to those creditors in the grant of the making of orders to confirm the validity of the charges. That is to say, insofar as a creditor of Industries is also a creditor of Architectural, it may well be in the interests of that creditor for the charge over Industries to be validated, so as to secure the payment of the purchase price that will be applied in satisfaction of the debts of Architectural. Whether there is in fact a benefit would depend upon the specific amounts owing by the two companies. The fact of the overlap, however, is relevant in considering the present application. 16 The Liquidators and Architectural accept that, if orders are made extending the time for lodging notices under s 263, there should be reserved, to any administrator, creditor or liquidator of Industries, liberty to apply to vary the relevant orders if a creditor of Industries has advanced funds or given credit to Industries in reliance on the fact that the register of charges did not disclose the existence of either the charges before 9 April 2010. The Liquidators and Architectural would also not oppose a direction that the orders extending the time be without prejudice to the rights of any person, in consequence of any dealings by that person, with any property that is the subject of the charges occurring up to 9 April 2010. 17 That last order may not be necessary, except for the fact that counsel for the Liquidators and Architectural has informed the Court that on 4 May 2010 a winding up application was filed in the Federal Court in respect of Industries. The plaintiff is described as the Workers Compensation Nominal Insurer. While there is no creditor by that name disclosed, there is a workers compensation insurer named as a creditor of Industries. That insurer was notified of this application. Further, following the acquisition of knowledge of the winding up proceeding, the solicitors for the Liquidators and Architectural forwarded, to the solicitors for Workers Compensation Nominal Insurer, copies of the originating process and affidavits that have been filed in the present proceeding. 18 As I have said, there has been no appearance for any creditor of Industries. Counsel for Industries indicated to the Court that his instructions are that no winding up application has yet been served. The winding up application is listed for directions on 4 June 2010. If orders are made under s 266 and a winding up order were made, it would be a matter for the liquidator of Industries to apply, pursuant to any leave reserved. 19 In all of the circumstances to which I have referred, I am satisfied that the failure to lodge notices under s 263 in respect of the two charges was due to inadvertence on the part of Mr Mullette and his employed solicitor. I consider, therefore, that it is appropriate to make an order extending the period for lodging notices up to and including 9 April 2010. It is also appropriate that liberty be reserved to any administrator, creditor or liquidator to apply to vary any such order, without prejudice to the rights of any person in consequence of any dealings by that person with any property the subject of the charges. 20 Counsel for the Liquidators and Architectural has indicated that they would consent to an order for costs in favour of Industries in respect of the application. Counsel has also indicated that the creditors of Architectural will not have to bear any of the cost of this application. In all the circumstances, it is appropriate to order the Liquidators and Architectural to pay Industries' costs of the application. I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.

Panadell Architectural Cladding Systems Pty Limited v Panadell Industries Pty Ltd

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