Re Appleyard Capital Pty Limited; 123 Sweden AB v Appleyard Capital Pty Ltd

JACKMAN J: 1 This proceeding concerns three registrations made on the plaintiffs' behalf on the Personal Property Securities Register (PPSR). The application has been served on the defendant together with the affidavits in support. Earlier this week, the plaintiffs' solicitors received a letter from the solicitors acting for the defendant which referred to a submitting notice, and it appears that the defendant neither consents to nor opposes the relief which is sought, as is often the case in applications of this kind. 2 On or about 12 March 2024, the plaintiffs agreed to sell shares previously owned by them in Hellyer Metals Ltd (Shares) to the defendant. As part of that transaction, the plaintiffs agreed to provide a form of vendor finance whereby the defendant could pay the plaintiffs for the Shares over a period of time. In support of the funding provided by the plaintiffs, the defendant granted the plaintiffs a security interest pursuant to a Vendor General Security Deed dated 12 March 2024 (Vendor GSD). The Vendor GSD provides in cl 2.2 that: The grantor [being the defendant] (a) (general security interest): grants and creates, and agrees to grant and create, a security interest, under PPSA over or in relation to; and (b) (equitable charge): additionally and separably, charges by way of equitable mortgage, The Collateral to and in favour of the Secured Party [being the plaintiffs] as a continuing security for payment of the Secured Moneys, and the performance of any liability comprised in the Secured Moneys, by the grantor to or for the benefit of the secured party ... 3 The term "Collateral" is defined by cl 1.1 of the Vendor GSD as follows: (a) all the present and future assets, and/or present and after-acquired property, of the Grantor of any nature or description, situated anywhere in Australia or overseas; and (b) all the legal and beneficial right, title and interest of the grantor to or in each of those assets at any time. 4 Neither of the plaintiffs is typically in the business of lending money. In those circumstances, neither of the plaintiffs, nor those who control the plaintiffs, are in the practice of lodging registrations on the PPSR, nor are they aware of the benefits of doing so. At all material times, the solicitors acting for the plaintiffs held standing instructions to do all things necessary to protect their respective interests throughout the course of the transaction. 5 No financing statement appears to have been lodged by or on behalf of either of the plaintiffs in respect of the security interest created by the Vendor GSD. This omission appears to have come to light on 21 June 2024 when the plaintiffs' solicitors were responding to a request from the first plaintiffs' accountant regarding documents relating to the transaction. The plaintiffs' solicitors' usual practice is to advise clients of the need to lodge financing statements on the PPSR within the prescribed statutory timeframes. On 21 June 2024, after realising the omission, the plaintiffs' solicitor lodged two registrations on the PPSR. On 30 June 2024, after inquiries were made with the director of the first plaintiff as to the status of the trust for which the first plaintiff acted (and whether it held an ABN), a further registration was lodged on the PPSR. On 3 July 2024, a further registration was lodged on the PPSR for abundant caution for the benefit of the second plaintiff. 6 Subsection 588FL(4) of the Corporations Act 2001 (Cth) (Act) provides that: 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. 7 Subsection 588FL(1)(a) refers to the events which render the section applicable, including the appointment of a voluntary administrator, liquidator or deed administrator. Subsection 588FL(2)(b) provides that in order to avoid the vesting operation of s 588FL(4), a registration must be lodged within 20 business days from the creation of the security agreement, or six months must expire from the date of the registration, or the registering party must obtain a court order under s 588FM. 8 Section 588FM of the Act provides that: (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). 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. 9 As to what constitutes "inadvertence" for the purposes of s 588FM of the Act, it has been held in numerous cases that 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: Re Appleyard Capital Pty Limited; 123 Sweden AB v Appleyard Capital Pty Ltd [2014] NSWSC 782; (2014) 101 ACSR 629 at [10] (Brereton J). 10 In the present case, the accident or inadvertence was on the part of the plaintiffs' solicitors who held standing instructions to attend to the registration of the appropriate financing statements on the PPSR. If the solicitor involved in the transaction had turned his mind to the statutory requirement sooner, the evidence demonstrates that he would have taken steps to register the relevant financing statements or advised the plaintiffs to attend to the registration of the relevant financing statements so as to comply with the timing stipulations provided for by s 588FL of the Act. Inadvertence by solicitors has been the subject of several proceedings, recently PT Limited (trustee), in the matter of Pinelake Ribbon Retail Pty Limited [2024] FCA 355 at [24]-[25] (Halley J) and Tesoriero v Cao Holdings Pty Ltd, in the matter of Cao Holdings Pty Ltd [2024] FCA 623 at [15]-[17] (Sharrif J). The inadvertence on the part of the plaintiffs' solicitors enlivens the court's discretion under s 588FM(2)(a)(i). In my view, the relief sought by the plaintiffs ought to be granted. 11 In any event, the plaintiffs' failure to register collateral earlier is not of such a nature as to prejudice the position of creditors or shareholders within the meaning of s 588FM(2)(a)(ii) of the Act. As Brereton J held in Re Appleyard at [15], orders pursuant to s 588FM of the Act have no effect on the priority of the underlying security interest. In the case of creditors and shareholders, liberty for an external administrator to apply to vary or set aside any order extending time to register is preserved, should there be any such prejudice. This approach to addressing potential prejudice suffered by unsecured creditors and shareholders has been adopted on many occasions. Accordingly, relief pursuant to s 588FM(2)(a)(ii) is also available and the relief which I grant may be viewed as arising under either or both of (i) or (ii). It is not necessary to consider whether on other grounds it is just and equitable to grant relief, however I regard the relief also as satisfying that alternative ground. 12 Accordingly, I will make orders in accordance with the short minutes of order which have been drafted by the plaintiffs. I certify that the preceding twelve (12) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Jackman.