Pit N Portal Mining Services Pty Ltd v Aurora Metals Ltd [2023] FCA 762 | Case summary

Pit N Portal Mining Services Pty Ltd v Aurora Metals Ltd [2023] FCA 762 | Case summary | Zoe

[17]

FEUTRILL J 1 The applicant (Pit N Portal) is grantee of a security interest under a General Security Agreement made between the first respondent (Aurora Metals), as grantor, and Pit N Portal, as grantee, dated 28 April 2023. The second respondents (administrators) are the administrators of Aurora Metals. Pit N Portal and the administrators executed an instrument of appointment on 30 June 2023 by which there was a putative appointment of the administrators as joint and several administrators of Aurora Metals under s 436C of the Corporations Act 2001 (Cth). 2 On 30 June 2023, shortly after their putative appointment, the administrators filed an originating process in the Court by which they sought orders, in effect, validating their appointment as administrators under s 447C, alternatively s 447A, of the Act and for orders under s 447A that would have the effect of limiting their liability under a proposed loan facility agreement to be entered into for the purposes of the administration by modification of the manner in which ss 443A, 443D, 443E, 443F and 556 would otherwise operate with respect to their personal liability under that proposed loan facility agreement. Orders were made on that originating process on 30 June 2023 and 4 July 2023. Separate reasons have been delivered for the orders made on that originating process: Tucker, in the matter of Aurora Metals Limited (Administrators Appointed) [2023] FCA 761. 3 The background to Pit N Portal's originating process is set out in Aurora Metals (at [1]-[11]) and need not be repeated. In summary, the administrators applied for orders that would have the effect of validating their appointment under s 436C of the Act because Pit N Portal's security interest under the GSA was not registered under the Personal Property and Securities Act 2009 (Cth) within 20 business days after that agreement was made (28 April 2023). As a consequence, by operation of s 588FL of the Act, Pit N Portal's security interests under the GSA were taken to have vested in Aurora Metals immediately before the administrators' appointment under s 436C of the Act. The administrators consider that the interaction between ss 436C and 588FL, in the circumstances of this case, raises doubt about the validity of their appointment. 4 By its originating process, Pit N Portal sought an order under s 588FM extending the latest time for registration of the security interest in collateral to 22 June 2022 (the date the security interest was registered under the PPSA). If the extension were granted, the security interests under the GSA would not be taken to have vested in Aurora Metals and the doubt about the validity of the administrators' appointment under s 436C would be removed. Pit N Portal would also be a secured creditor and have the benefit of the security interest under the GSA. Unsecured creditors would be disadvantaged to the extent that all present and after acquired property (ALLPAAP) of Aurora Metals is encumbered by a further security interest that would have a priority over the debts of the unsecured creditors. 5 Section 436C of the Act provides: 436C Secured party may appoint administrator (1) A person who is entitled to enforce a security interest in the whole, or substantially the whole, of a company's property may by writing appoint an administrator of the company if the security interest has become, and is still, enforceable. (1A) Subsection (1) applies in relation to a PPSA security interest only if the security interest is perfected within the meaning of the Personal Property Securities Act 2009. … 6 The GSA grants a PPSA security interest over the whole or substantially the whole of Aurora Metals' property. A PPSA security interest, relevantly, is perfected within the meaning of the PPSA when it is registered under the provisions of the PPSA. 7 Section 588FL(1) provides that s 588FL applies if, amongst other things, an administrator of a company is appointed under s 436C and a PPSA security interest granted by the company in collateral is covered by s 588FL(2). 8 Section 588FL(2) provides (notes omitted): 588FL Vesting of PPSA security interests if collateral not registered within time Scope … (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. 9 Section 588FL(4) provides (notes omitted): 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. 10 The 'critical time' in this case was 30 June 2023, the date of appointment of the administrators: ss 588FL(7), 513C of the Act. The GSA met the criteria in s 588FL(2)(a). Section 588FL(2)(b)(ii) applied because the 'latest time' was 20 business days after the GSA was made on 28 April 2023. Section 588FL(2)(b)(i) was not applicable because 6 months before the critical time (30 June 2023) was 31 December 2022 which was significantly earlier than 20 business days after 28 April 2023. Section 588FL(2)(b)(iii) was (self-evidently) not applicable. As the registration date of the collateral was 22 June 2023 and that was more than 20 business days after 28 April 2023, the PPSA security interest was 'covered' by s 588FL(2) and, therefore, s 588FL applied. As a consequence, the PPSA security interest (GSA) vested in Aurora Metals under s 588FL(4)(a) of the Act unless s 588FL(2)(b)(iv) was made applicable by reason of the Court ordering a later time under s 588FM. 11 Section 588FM of the Act provides (notes omitted): 588FM 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). (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. 12 The Court may make an order under s 588FM after the critical time and the 'vesting event': K.J. Renfrey Nominees Pty Ltd v OneSteel Manufacturing Pty Ltd [2017] FCA 325; (2017) 120 ACSR 117 at [27] (although K.J. Renfrey, as authority for the proposition that s 588FL applies to security interests granted after the critical time and the reasoning supporting that proposition is doubtful in light of more recent authorities, see, e.g., Cathro, in the matter of Cubic Interiors NSW Pty Ltd (in liq) [2023] FCA 694 at [10]-[12], [41]-[84] (Cheeseman J), that doubt does not affect this point). Also, orders under s 588FM have regularly been made after an administrator (or liquidator or provisional liquidator) has been appointed to a company: Northern Managed Finance Pty Ltd v 4 in 1 Wyoming Pty Ltd [2017] NSWSC 407; (2017) 120 ACSR 167 at [55]; Re Quality Blended Liquor Pty Ltd [2014] QSC 234; [2015] 2 Qd R 381 at [83]; Re Carpenter International Pty Ltd [2016] VSC 118; (2016) 51 VR 190 at [217]; Re Enviro Pallets (NSW) Pty Ltd (in liq) [2013] QSC 220; Re Southern Engineering Services Pty Ltd (in liq) [2014] NSWSC 1882. Therefore, the Court may make orders that have the effect of preventing a PPSA security interest from vesting in a company even if, by operation of s 588FL before the order is made, the PPSA security interest would, otherwise, be taken to have vested in the company in administration. 13 The affidavit of Ms Penelope Louise Young affirmed 3 July 2023 was filed and read in support of the originating process. An affidavit of Ms Carmen Anne Leah Boothman affirmed 4 July 2023 was also read. Certain of the facts deposed in Ms Young's affidavit were based on information and belief. Statements of that nature are not normally admissible on applications for final relief, however, to the extent the affidavit contains such statements these are by way of background and are not central to facts relating to registration of the PPSA security interest. The facts deposed on that matter were not based on information and belief. 14 The substance of the facts deposed in Ms Young's affidavit were to the effect that she is general counsel and company secretary of Emeco Holdings Limited and its subsidiaries which include Pit N Portal. Another company Emeco International Pty Ltd is related to Pit N Portal and is part of a group of companies of which Emeco is the parent and Pit N Portal and Emeco International are subsidiaries. Within the Emeco group there is a position known as the 'PPSR and Contracts Administrator' who has responsibility for registering financing statements on the Personal Property Security Register in respect of security interests granted in favour of Pit N Portal. Ms Young took steps to have the PPSR and Contracts Administrator register the GSA on the PPSR on 28 April 2023. For an unexplained reason, the registration on 28 April 2023 identified Emeco International and not Pit N Portal as the 'secured party' for the security interest. I infer from the facts deposed that a person or persons responsible for registering the GSA on the PPSR mistakenly identified the secured party as Emeco International and not Pit N Portal on 28 April 2023. 15 Ms Young became aware of the incorrect registration on or about 22 June 2023 and took steps to have another registration made correctly naming Pit N Portal as the secured party. Ms Young deposed that an application was not immediately made under s 588FM because between 22 and 30 June 2023 there were continuing negotiations involving Pit N Portal and Aurora Metals that had a prospect of resulting in a mutually acceptable commercial arrangement that would have avoided the necessity to appoint administrators. Those negotiations ultimately failed and a decision was then taken to appoint the administrators on 30 June 2023. 16 Ms Young deposed that there are a number of other creditors which have registered ALLPAAP security interests under the provisions of the PPSA. These are: (a) CRLC (Australia) Pty Ltd, with: (i) registration number 201805010051840 registered on 1 May 2018; (ii) registration number 202003190023370 registered on 19 March 2020; and (iii) registration number 20230613008597 4 registered on 13 June 2023; (b) Mt Garnet Mineral Finance Pty Ltd, with registration number 202203290086410 registered on 29 March 2022; and (c) China Railway Materials (Australia) Pty Ltd, with: (iv) registration number 202305290003861, registered on 29 May 2023; and (v) registration number 202306130086065 registered on 13 June 2023. 17 Ms Young also deposed to facts and exhibited correspondence to the effect that the administrators gave written consent to Pit N Portal commencing the proceedings under s 440D of the Act. Therefore, Pit N Portal is able to proceed with the originating process under s 440D(1)(a) of the Act. 18 Ms Boothman's affidavit exhibited email correspondence passing between lawyers of the legal firms Lavan (solicitors for the administrators), HWL Ebsworth (solicitors for Pit N Portal) and Dentons (solicitors for Mt Garnet Mineral Finance). That correspondence indicates that Mt Garnet Mineral Finance appointed Mr Phillip Campbell-Wilson and Mr Said Jahani of Grant Thornton as receivers and managers of ALLPAAP of Aurora Metals and each of the companies of which the administrators were appointed administrators on 30 June 2023. I infer that appointment was made by Mt Garnet Mineral Finance under the instrument referred to earlier. Upon its request, I granted Mt Garnet Mineral Finance leave to appear on Pit N Portal's originating process. 19 Mt Garnet Mineral Finance requested that the hearing of Pit N Portal's originating process be adjourned to provide it with an opportunity to consider the originating process and affidavits in support and form a view on whether or not to oppose the orders sought in the proceedings. I refused the application to adjourn primarily on the ground that the priorities of the secured creditors would not be affected by the orders sought on the originating process. Further, although the appointed receivers and managers had evidently not had an opportunity to consider and appear in proceedings as agents for the company in receivership, their primary function will be to take control of the secured property and exercise their powers for the purpose of enforcing Mt Garnet Mineral Finance's security. Generally, it is not necessary to join other secured creditors as parties to an application under s 588FM because priorities are not affected by an order under that section: Bluewaters Power 1 Pty Ltd v Griffin Coal Mining Company Pty Ltd [2019] WASC 438 at [37] (Vaughan J), citing Re Appleyard Capital Pty Ltd [2014] NSWSC 782; (2014) 101 ACSR 629 at [34]; Re Accolade Wines Australia Ltd [2016] NSWSC 1023 at [6], [9], [46]. Further, there was urgency to determining the orders sought due to the uncertainty of the validity of the administrators' appointment. Additionally, any potential prejudice arising from refusing the application to adjourn could be accommodated by a 'Guardian Securities condition' (making any order subject to a condition that interested parties (including the receivers and managers) have liberty to apply to vary or discharge the orders). 20 Although Pit N Portal submitted that the discretion to make an order under s 588FM was enlivened on each of the grounds in s 588FM(2)(a) and on the ground in s 588FM(2)(b), it is only necessary to consider the ground in s 588FM(2)(a)(i). On the facts deposed in Ms Young's affidavit it is plain that the failure to register the collateral within 20 business days was accidental, if not due to inadvertence or some other sufficient cause. 21 The concept of accidental 'can embrace just the occurrence of a physical act or omission or it could embrace a situation where, although the physical act or omission itself might not be accidental, it was done without any corporate delinquency or knowing disregard of the statutory requirements, although the latter possibility shades into inadvertence': Commonwealth Bank of Australia v HM Aircraft Holdings Pty Ltd [2021] FCA 447; (2021) 152 ACSR 63 at [61]. Otherwise, as Vaughan J said in Bluewaters Power (at [40]-[41]): 'The concept is concerned with human error or oversight [National Australia Bank Ltd v Davis v Waddell (Vic) Pty Ltd [2003] VSC 1; (2003) 44 ACSR 296 at [65]] or being 'not properly attentive' [Re ACE Funding Ltd [2003] FCA 59; (2003) 44 ACSR 363 at [8]].' Inadvertence will readily be found where an error of a secured creditor in not attending to registration of its security within time is innocent and does not result from any disregard of statutory obligations: Accolade Wines at [14]. A bona fide attempt to register securities interests with deficiencies is capable of meeting the description 'inadvertence or some other sufficient cause': In the matter of Transurban CCT Pty Ltd and Transurban CCT Nominees Pty Limited in its own capacity and as Trustee of the Transurban CCT Trust [2014] NSWSC 1909 at [8]. 22 If satisfied of the criterion in s 588FM(2)(a)(i) the Court may make an order under s 588FM. That is satisfaction of one of the criteria in s 588FM(2) is necessary, but not sufficient, for the Court to make an order. Other factors are to be taken into account in the exercise of the discretion. In this respect, a primary factor is the extent to which the order sought would cause prejudice to third parties, in particular, unsecured creditors. As already noted, in general, other secured creditors will not be affected by an order because it will not affect priorities between the secured creditors. 23 Prejudice to unsecured creditors is not necessarily established merely by demonstrating that the return to them in an administration or liquidation of the company would be diminished if the security interest does not vest in the company. The position of the unsecured creditors may have been the same if there had been timely registration. '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).' Put another way, the relevant prejudice is that which flows from the failure to register earlier, not from making the order: Appleyard Capital at [30]. 24 In the circumstances of this case, it is unlikely that the failure to register the security interest under the GSA until 22 June 2023 would have caused any unsecured creditors to deal with Aurora Metals on the assumption that all its ALLPAAP was not encumbered. There were a number of ALLPAAP registrations. Although ineffective, the registration of Emeco International was made on 28 April 2023, within 20 business days, and, therefore, notice of the security interest (albeit of the incorrectly named secured party) was given to unsecured creditors. Brereton J considered factors of this nature to have been 'dominant' and that '[n]o-one could have dealt with the [companies] on the faith of the register believing that the [secured party's] security interests did not exist or had not been made promptly': Transurban CCT at [14]. The absence of any evident prejudice to unsecured creditors arising from the delay in making a valid registration of the security interest is a factor in favour or, at least, not against making the order sought. 25 Nonetheless, the proceedings were not brought in circumstances in which the company was evidently solvent and, therefore, for that reason, there was little, or no, real risk of any prejudice to unsecured creditors as a consequence of the delay in registration. Further, Aurora Metals, as grantor, should be and was joined as a party to the proceedings: Appleyard Capital at [34]. The administrators were also joined as parties to the proceedings. However, due to the apparent appointment of the receivers and managers, the administrators made no submissions on the application as controllers of Aurora Metals. As already mentioned, the receivers and managers, were not able to appear and make submissions as controllers of the property of Aurora Metals and as its agents. The administrators, in their own right, made no submissions on the substantive merits of the orders sought and confined their submissions to the effect that the proposed orders would, or may, have on the validity of their appointment. Therefore, there was an absence of submissions from any person with authority to represent Aurora Metals, as grantor, as to its position on the orders sought in the origination proceedings. There was also an absence of submissions from any person with the function, or duty, of representing the interests of unsecured creditors in the proceedings. 26 In Appleyard Capital Brereton J observed: [28] In practice, … it has been commonplace, even when it appears that the company may be insolvent and liquidation or administration is imminent, to extend time subject to a "Guardian Securities condition" reserving leave to any liquidator or administrator appointed within 6 months to apply to set the order aside. This course, or one similar to it, was taken in Limited Company per Long Innes J, where solvency was dubious; in L H Charles & Co per Clauson J, where liquidation was in contemplation; in Cinema Art Films per Myers CJ; in Guardian Securities per McLelland J, where there was "no evidence whatsoever as to the solvency or otherwise of the company creating the charge" (at 98); and in Bevillesta per Robson J, where the evidence of solvency was inconclusive. In recent times in this court, such orders have been made in Cardinia Nominees per Black J, where again the evidence of solvency was inconclusive; in Re Apex Gold Pty Ltd [2013] NSWSC 881 per Hammerschlag J, where administration was imminent; and in Black Opal IP per Brereton J, where there was some but less than comprehensive evidence of solvency. 27 As noted earlier, orders under s 588FM are regularly made in circumstances in which a company is in administration or liquidation notwithstanding that in those circumstances the orders will affect unsecured creditors. I considered that the likelihood of prejudice to unsecured creditors, or the company in administration (and receivership), resulting from delayed registration was relatively remote. The residual risk of prejudice was able to be accommodated by a 'Guardian Securities condition' and that will also provide the receivers and managers with an opportunity to consider their position and apply for an order to vary or discharge the orders should they consider there to be any relevant prejudice to the interests of the receivers and managers or the company in receivership arising from the delay in registration of Pit N Portal's security interest. It will provide Mr Garnet Mineral Finance with the same opportunity. 28 Therefore, if and to the extent any creditor (secured or unsecured) or other interested party considers, upon receiving notice of the order for extension of the time for registration, that there is or will be resulting prejudice, that creditor or interested party will be able to apply to vary or discharge the order under s 588FM. I accepted that 28 days is a reasonable period of time within which to make any such application. I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Feutrill.

Pit N Portal Mining Services Pty Ltd v Aurora Metals Ltd

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