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[2017] VSC 637
General information, not legal advice.
Supreme Court of Victoria
2017-09-21
JUDD J
Original judgment source is linked above.
CORPORATIONS - Application to extend time for registration of security interest - Corporations Act 2001 (Cth) ss 588FL, 588FM - Notice - Discretionary considerations.
1 This application came before the Court on 21 September 2017 by Originating Process filed on 19 September by the applicant, Bendigo and Adelaide Bank Limited. The bank made application under ss 588FL(2)(b) and 588FM(1) of the Corporations Act 2001 (Cth) for the following order:
An order pursuant to subsection 588FM(1) of the Act that the time prescribed under subsection 588FL(2)(b)(iv) of the Act for the registration against the Australian Business Number (ABN) of the Tsetis Family Trust of the general and specific security interests granted by Amotran Pty Ltd (ACN 084 411 281) in its own capacity and as trustee for the Tsetis Family trust (ABN 68 480 520 745) on 8 May 2012 in favour of ACN 092 167 907 (BOCA) Pty Ltd (ACN 092 167 907) (formerly Bank of Cyprus Australia Pty Ltd ) (BOCA), of which BABL is successor in law pursuant to the Financial Sector (Business Transfer and Group Restructure) Act 1999 (Cth) (being PPSR registration numbers 201707280005765 and 201707280006164) be extended to 29 July 2017.
2 The application, supported by the affidavit of Arthur Eskitzis, sworn 15 September 2017, and the affidavit of Ariel Currie Borland, declared on 21 September 2017, was made without notice. The following orders were made on 21 September 2017:
3 Brief oral reasons were given, to be elaborated in writing at a later date. Following are the reasons for granting the application.
4 Mr Eskitzis is the applicant's manager of asset management. He deposed to the essential facts supporting the application. Amotran Pty Ltd carried on business in its own capacity and is trustee of the Tsetis Family Trust (ABN 68 480 520 745). It was engaged in the business of leasing metropolitan taxi licences. It assigned the rights to drive taxis within Victoria in consideration for fees.
5 On about 8 May 2012 Amotran secured a business loan from a lender formerly known as the Bank of Cyprus Australia Pty Ltd. The terms were set out in a letter dated 8 May 2012. Under the terms of the loan, security was to be given by Amotran 'in its own right and as trustee for the Tsetis Family Trust' over certain taxi licences. Pursuant to the loan terms, a General Security Agreement and a Specific Security Agreement were executed by Amotran on 18 July 2012. Under the security agreements Amotran, in its own capacity and as trustee of the trust, granted security to the bank over certain metropolitan licences, and 'all moneys payable and to become payable in respect of' the licences, 'and all benefits and advantages now or later arising out of' the licences.
6 On 16 July 2012 the applicant became successor in law to the Bank of Cyprus, pursuant to the provisions of the Financial Sector (Business Transfer and Group Restructure) Act 1999 (Cth) and presently holds the benefit of any security granted to the Bank of Cyprus.
7 The loan made by the Bank of Cyprus was subsequently refinanced by Delphi Bank, under loan terms executed on 19 October 2015. Delphi Bank is a business division of the applicant. The securities remained in place.
8 The facility has been in default since 10 October 2016. Since that date Amotran has failed to make any payments of principal or interest. By notice dated 16 May 2017, the applicant demanded payment of all moneys owing.
9 The business carried on by Amotran has been adversely affected by changes to the taxi industry, reflected in the Commercial Passenger Vehicle Industry Act 2017 (Vic), which received royal assent on 10 August 2017. As a result of that legislation, the licences held by Amotran will be revoked and cancelled by the Victorian government. Having regard to the apparent difficulty confronting Amotran, as a result of the changes, the applicant has not taken steps to enforce its securities, and Mr Eskitzis deposed that it does not have any present intention of doing so.
10 The applicant is aware that certain payments are to be made to Amotran by the Victorian government as compensation, and reasonably expects that these payments will be applied in reduction of the outstanding debt.
11 In February 2017 the bank became aware that the security given over the licences, registered on the Personal Property and Securities Register on 19 July 2012, were only registered against the ACN of Amotran, and not against the ABN of the Tsetis Family Trust, as prescribed by sub-s 153(1) of the Personal Property Securities Act 2009 (Cth) and sch 1 of the Personal Property Security Regulations 2009 (Cth). Thus, while security was given by both entities over the licences, the registration is defective because it fails to record the security interests granted by the trust.
12 On 28 July 2017 the bank registered a financing statement disclosing its security interest over Amotran in its capacity as trustee of the trust on the Register against the ABN of the trust. There are no other registrations on the Register against the ABN of the trust.
13 Mr Eskitzis deposed that he could not explain why the applicant had failed to register its security interest against the ABN of the trust other than an error or oversight made by the solicitors then acting for the Bank of Cyprus. He produced correspondence explaining the role of the solicitors, who were responsible for conducting PPSR searches in relation to Amotran and the trust, conducting a security review, and registering the securities. From enquiries made by Mr Eskitzis it would appear that the solicitors purported to complete the security registrations.
14 Mr Eskitzis outlined the relevant banking policies and procedures, applicable at the time, in relation to the registration of securities. It is to be noted that the registrations were made three days after the succession date, and were effected in accordance with the policy and procedures of the Bank of Cyprus, not those of the applicant. It would appear that until 2014 the Bank of Cyprus had a policy of only registering security interests against the ACN of a corporate guarantor, notwithstanding the capacity in which that guarantor was acting. These policies and procedures were later changed to ensure that, where security was given on behalf of a trust, there was a registration for both trustee and trust. It was not until September 2016 that the Delphi Bank policy was brought into line with the applicant's policies and procedures.
15 The evidence before the Court revealed a misunderstanding by the party registering the securities, through its solicitors, concerning the need to have a registration for the trust as well as for the trustee. Such a misunderstanding may be explained in part by the fact that a trust is not a separate legal entity, although it is given an identity through an ABN and name. Trusts are now more commonly treated as an entity for various purposes in Commonwealth and State legislation. Doing the best he could, Mr Eskitzis explained the error that occurred by reference to the advice and role of the solicitors engaged by the Bank of Cyprus, and its defective policy that did not expressly require duplicate registrations.
16 Mr Eskitzis has been in communication with Mr Tsetis, the person in control of Amotran and the trust, and has undertaken some investigation of the financial affairs of Amotran and the trust. The applicant has, of course, Amotran's banking history available to it, which provides some insight into its income and expenditure. As a result of his investigations Mr Eskitzis deposed that Amotran did not appear to be conducting any business other than collecting income from the assignment of taxi licences. There is no record of any secured creditors of Amotran or the trust other than the applicant. Mr Eskitzis deposed that on 5 June 2015 the Australian Taxation Office had approved a payment plan under which Amotran was required to pay $1,400 per month until 18 May 2016, and then a final payment of $651.30 on 18 June 2016. The payment plan appears to have been completed. Mr Eskitzis has also been advised that, as at 4 April 2017, the trust was entitled to a credit of $16,520.42 due from the ATO. From banking records, the trust receives approximately $1,738 per month for a taxi lease. Mr Eskitzis has no knowledge of any other income, expenses, assets or liabilities of Amotran or the trust.
17 Under s 588FL of the Corporations Act, in the event of an order or resolution for the winding up of a company, the appointment of an administrator or the execution of a deed of company arrangement, any PPSR security interest not registered before the latest of the time periods set out in sub-s (2) will vest in the company. To avoid vesting, a grantee of a security interest must register the interest more than six months prior to the 'critical time' as defined, within 20 business days of the date the interest is created, or at a later time as ordered by the court. Under s 588FM, the court may extend the time period for registration of a security interest for the purpose of s 588FL. Such an order may be made if the court is satisfied that the failure to register the interest was accidental, or due to inadvertence or some other sufficient cause, or is not of such a nature as to prejudice the position of creditors or shareholders, or if it is just inequitable to grant relief.
18 The applicant relied on inadvertence. Consideration was given to the meaning of inadvertence in a number of cases summarised by Brereton J in Re Accolade Wines Australia Ltd:[1]
For the purpose of s 588FM(2)(a)(i), "inadvertence" includes failure to advert to or understand the requirement for registration within the specified period, and innocent error in the sense of failure to register through ignorance of the legal requirement to do so, or of the consequences of not doing so.[19] 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 its statutory obligations. In Transurban CCT, the secured party became aware that the financing statements initially lodged contained potential defects, in that while they were properly registered against the ACN of each relevant corporate entity (as required), they were not registered against the ABN of the trust of which one of the defendants was a trustee (as required by PPS Regulations Schedule 1, cl 1.5). When this potential defect was discovered (more than 20 business days after the security interest was created), the secured party lodged a further financing statement referring to the ABN of the trust, and applied for an extension of time pursuant to CORPA, s 588FM. In granting that application, the Court held:
For the purposes of s 588FM(2)(a)(i), "inadvertence" has been interpreted to include failure to advert to or understand the requirement for registration within the specified period, an innocent error in the sense of failure to register through ignorance of the legal requirement to do so, or of the consequences of not doing so [Appleyard Capital, and the cases there cited]. In this case, it is apparent that a bona fide attempt to register the security interests was made on 4 July 2014 and that the potential deficiencies - which, as I have said, are not clearly deficiencies - came to notice of the plaintiff's solicitors on about 13 August 2014 when the consultant who had carriage of the matter learnt of his firm's preferred practices in respect of such registrations.
19 While the basis upon which an order may be made under s 588FM(2) is framed in the alternative, the applicant also addressed the question of prejudice to others, including unsecured creditors, secured creditors, the company itself and its shareholders. There is no record of any other secured creditor in relation to the collateral. The company is controlled by Mr Tsetis, who actively participated in the grant of the security by the company in its own right and by the trust. As to the likely effect on unsecured creditors, the applicant is not aware of any, notwithstanding enquiries made of the company and Mr Tsetis. The responses to those enquiries have not always been satisfactory. Accordingly, it is not possible to conclude that there are no unsecured creditors.
20 The applicant also relied on the 'just and equitable' ground for relief, drawing attention to the summary of relevant considerations in the judgment of Robson j in Re Imagine UN Ltd:[2]
The relevant authorities establish the following general principles:
(1) The Court must have regard to the interests of all those who might be affected by a grant of relief and not just to the interests of the chargee: Hewlett Packard v GE Capital Finance per Branson J.[3]
(2) All those that might be affected include creditors and shareholders as referred to in s 266(4) itself: The Commercial Banking Company of Sydney Ltd v George Hudson Pty Ltd;[4] Re Flinders Trading Co Pty Ltd.[5]
(3) The discretion must be exercised judiciously and not arbitrarily or capriciously: Hewlett Packard per Branson J.[6]
(4) Any rule of practice or guide to the exercise of the discretion that has evolved over the years should not be lightly disregarded: Hewlett Packard per Branson J.[7]
(5) An extension of time will almost invariably be refused after the commencement of a winding up and will only be granted in exceptional circumstances: Hewlett Packard per Branson J;[8] Douglas-Brown v Standard Chartered Finance Ltd per Malcolm CJ and Rowland J with whom Wallwork J agreed;[9] Re Flinders Trading Co Pty Ltd per Mitchell J with whom Walters J agreed;[10] Re Lloyd Anthony Furniture per Branson J;[11] and Campbell Finance v Vivstan Packaging (Aust) per Batt J.[12]
(6) Even where it is mere inadvertence which leads to the failure to lodge notice of a charge within the prescribed period, the claim of the mortgagee that an extension merely puts the mortgagee in the position in which it would have been had there been no inadvertence, should not prevail over the claims of unsecured creditors where there is a danger that the claims will not be met in full owing to the insolvency or likely insolvency of the company: Re Flinders Trading Co Pty Ltd.[13]
(7) The Court should give consideration to the financial position of the company chargor at the time of the application: Re Flinders Trading Co Pty Ltd;[14] Re Guardian Securities Ltd per McLelland J;[15] Re Ace Funding Ltd per Conti J[16] and Hewlett Packard.[17]
(8) If the company is financially secure, then as it is unlikely that a "critical day" is likely to rise in the foreseeable future, the grant of relief would be unlikely to affect any person adversely: Hewlett Packard per Branson J.[18]
(9) If the liquidation or an administration is imminent, then the risk that the unsecured creditors could be adversely affected would be high: Hewlett Packard per Branson J.[19]
(10) Imminent includes if a winding up application has already been presented and appears likely to be pursued and likely to succeed: Re Flinders Trading Co Pty Ltd.[20]
(11) An applicant for an extension should bring forth evidence of the solvency of the company and the likelihood of its solvency being maintained into the foreseeable future: In re L.H. Charles & Co Ltd[21] and Re Guardian Securities Ltd per McLelland J.[22]
(12) In the absence of such evidence, an extension should not be granted unless steps are taken to protect the interest of unsecured creditors: Re Guardian Securities Ltd per McLelland J.[23]
(13) If insufficient or no evidence of solvency is adduced, then either:
(i) one or more unsecured creditors might be joined as representative parties;
(ii) directions might be given as to notification of unsecured creditors of the application with a view to their being heard in opposition to it, if they so desired; or
(iii) the extension of time might be granted reserving, however, a right to the company or any unsecured creditor or any person representing the interests of unsecured creditors to apply at a later stage to discharge or vary the order: In re Cinema Art Films Ltd;[24] In re LH Charles & Co Ltd;[25] and Re Guardian Securities Ltd.[26]
21 While the discretion to make an order may be enlivened by facts establishing one or more of the prescribed grounds under s 588FM, it must be exercised having regard to relevant considerations. In the present case, these include delay, the adequacy of material concerning the financial position of the grantor company, and the position of creditors. This application was made ex parte. There are instances where ex parte applications have been made and approved.[29] Thus, there was a question whether notice ought to be given to any person or entity.
22 The relevance of delay reflects the possibility that competing interests may have arisen during the period of delay, and there may have been dealings with the company on the footing that the collateral was unencumbered.[30] That said, delay of itself is not an impediment to an order extending time.[31] There is no evidence of any relevant competing interest, or dealing, although the evidence of the financial position of Amotran and its dealings was incomplete.
23 The applicant is not aware of any unsecured creditors. The Register does not disclose any other registered interest granted by Amotran. The only possible creditors, to the knowledge of the applicant, may be the ATO (although on the information presently available to the applicant, Amotran is probably a creditor of the ATO) and the Taxi Licensing Board. Bank statements reveal that licensing fees have been regularly paid, and the ATO debt appears to be discharged. Thus, it was argued, the only party to whom notice might reasonably be given is Amotran.
24 The applicant argued against giving notice to Amotran because to do so may invite a capricious act to undermine the value of the security to the applicant, or to place an additional impediment in the path of the applicant, by a resolution to wind up Amotran or for the appointment of an administrator.
25 The risk of a capricious act by Amotran, according to the applicant, was to be inferred from the duration of Amotran's default (since October 2016) and the fact that it has not cooperated in providing information and has been unresponsive to the applicant's attempts to negotiate a formal agreement in relation to the debt. Further, the business now carried on by Amotran is very limited. Following receipt of a compensation payment from the Victorian government, the applicant submitted, the director may be inclined to place Amotran into voluntary liquidation or appoint an administrator. If given knowledge of the defect in registration, the director may be inclined to act quickly in an attempt to diminish the value of the security to the applicant to the advantage of the trust.
26 The right to register the security against the ABN of the trust was expressly granted by Amotran. Amotran is obliged under the security agreements to assist the applicant with registering its security interest. Accordingly, the applicant argued, the only justifiable approach by Amotran, if notified of the application, would be to support it.
27 I accept the applicant's explanation for its failure (or the failure of its solicitors) to properly register its security. I also accept that the application has been brought promptly, once the error was discovered. The uncertainty surrounding the viability of the business carried on by Amotran and the trust make it reasonable for the applicant to be concerned to ensure that its security be properly registered in the event of insolvency, by resolution or otherwise, or the appointment of an administrator. The business is winding down. The remaining asset is very likely to be converted, in the very near future, into cash. There is no evidence of insolvency, although the precise financial position of Amotran and the trust are unknown. That is because the director has not been forthcoming with information sought by the applicant.
28 A reasonable measure of protection for creditors, a liquidator or an administrator may be provided by reserving to them a right to apply to set aside the order within six months. Such an order has become usual. It may be argued that, in the absence of some dealing in reliance on the failure to register the interest against the trust ABN, the position of creditors will be unaffected by the order. Be that as it may, by allowing a reasonable period of time within which an application to set aside the order may be made, all reasonable interests of any party that may be affected are protected.
29 In my opinion this is an appropriate case for an application to be made without notice to Amotran. There is a reasonable apprehension that, if notified, Amotran may act quickly to appoint a liquidator or administrator. In the absence of readily identifiable creditors who may be affected by the order, it is impractical to give an effective notice to such persons. Insofar as there may exist creditors, their interests are protected by an opportunity to apply to set aside the order within the prescribed time.
[1] [2016] NSWSC 1023, [14] (citations omitted).
[2] [2009] VSC 50, [28].
[3] [2003] FCAFC 256; (2003) 135 FCR 206 at 217.
[4] [1973] HCA 50; (1973) 131 CLR 605 at 612 per Menzies J and at 621 per Stephen J.
[5] (1978) 20 SASR 14 at 46-48 per Mitchell J with whom Walter J agreed.
[9] (1990) 2 ACSR 737 at 743.
[10] (1978) 20 SASR 14 ; (1978) 3 ACLR 218 at 232-233.
[11] (1996) 19 ACSR 478 at 481.
[13] (1978) 20 SASR 14 at 49 per Mitchell J with whom Walter J agreed; (1978) 3 ACLR 218 at 233.
[15] [1984] 1 NSWLR 95 at 97.
[16] [2003] FCA 59; (2003) 44 ACSR 363 at 365-366.
[20] (1977) 20 SASR 14 at 30 per Sangster J.
[22] [1984] 1 NSWLR 95 at 97.
[24] [1930] NZGazLawRp 48; [1930] NZLR 500 at 502-503 per Myers CJ.
[25] (1935) WN (Eng) 15 at 16 per Clauson J.
[26] [1984] 1 NSWLR 95 at 97-98 per McLelland J.
[27] (1990) 2 ACSR 737 at 740.
[29] Re Appleyard Capital Pty Ltd [2014] NSWSC 782 at [34] per Brereton J; Re Accolade Wines Australia Limited [2016] NSWSC 1023 per Brereton J.
[30] Re Appleyard Capital Pty Ltd [2014] NSWSC 782, [30].
[31] In Re Appleyard Capital Pty Ltd, the delay was 12 months, and in Northern Managed Finance Pty Ltd v 4in1 Wyoming Pty Ltd [2017] NSWSC 407, the delay was 15 months.
(2003) 135 FCR 206
(1973) 131 CLR 605
(1978) 20 SASR 14
(1977) 20 SASR 14