Squadron Resources Pty Ltd v Highlake Resources Pty Ltd, in the matter of Highlake Resources Pty Ltd

[11]

Convertible Note Agreement and security agreements 8 From his review of Squadron Resources' books and records, Mr Hartman became aware that HeadCo and Squadron Resources had entered into a convertible note agreement dated 12 May 2015, which was supplemented by a Supplementary Agreement made 12 May 2015 (collectively, the Convertible Note Agreement). 9 The Convertible Note Agreement was amended by: (a) the Convertible Note Agreement Deed of Amendment, made 28 June 2018, by which certain consideration was provided by Squadron Resources in favour of HeadCo and the defendants; (b) the Convertible Note Agreement Second Deed of Amendment, made 4 July 2018; and (c) the Convertible Note Agreement Third Deed of Amendment, made 11 July 2018. 10 The monies payable under the Convertible Note Agreement are secured by: (a) the General Security Deed and Mining Mortgage provided by HeadCo in favour of Squadron Resources, as security trustee dated 25 June 2015 (HeadCo GSD); and (b) the Maldon Security Deed and Mining Mortgage which is described in the Convertible Note Agreement as a security deed and mining mortgage between HeadCo, the third defendant, the first defendant and Squadron Resources (as security trustee) on substantially the same terms as the HeadCo GSD of the Convertible Note Agreement (Subsidiary GSD). The executed Subsidiary GSD also includes the second defendant as a grantor. 11 The execution of the HeadCo GSD was a condition precedent to the Convertible Note Agreement and the issue of Notes thereunder. 12 From his review of the file, Mr Hartman is aware that: (a) the HeadCo GSD was registered on the PPSR on or about 25 June 2015 (registration number 201506250087762); (b) an interest was registered against mining licence MIN 5294 (of which HeadCo was licensee) in respect of the HeadCo GSD pursuant to s 71 of the Mineral Resources (Sustainable Development) Act 1990 (MRSDA) at 11.55am on 30 June 2015; (c) an interest was registered against mining licence MIN 5146 (of which the third defendant was licensee) in respect of the Subsidiary GSD pursuant to s 71 of the MRSDA at 3.59pm on 21 July 2016; (d) an interest was registered against mining licence MIN 5528 (of which the third defendant was licensee) in respect of the Subsidiary GSD pursuant to s 71 of the MRSDA at 4.06pm on 21 July 2016; and (e) an interest was registered against mining licence MIN 5465 (of which the first defendant was licensee) in respect of the Subsidiary GSD pursuant to s 71 of the MRSDA at 4.13pm on 21 July 2016.

[15]

Other security interests granted by the defendants 20 Mr Hartman was unaware of any other person who has a security interest granted by the first defendant or the second defendant, save for ANZ, which has PPSR registrations concerning term deposits made on 14 October 2016 in relation to the first and second defendants. 21 In relation to security interests granted by the third defendant, it is noted that: (1) Prior to the date of the Subsidiary GSD, the third defendant granted a security agreement over all present and after acquired property in favour of ANZ, which was migrated to the PPSR on 30 January 2012 (ANZ Charge). ANZ has registered an all present and after acquired property security interest on the PPSR, which was granted by the third defendant prior to the third defendant granting the Subsidiary GSD in favour of Squadron Resources, and, therefore, has priority over Squadron Resources' security interest under the Subsidiary GSD. (2) The third defendant has granted further security interests since the date of the Subsidiary GSD to: (a) ANZ, which effected a registration on the PPSR in respect of a term deposit on 14 October 2016; (b) Elgas Limited, which effected a registration on the PPSR in respect of a purchase money security interest (PMSI) in relation to: 'All goods now and in future supplied, bailed or otherwise made available by the secured party to grantor including but not limited to all gas, bulk gas facilities, exchange cylinders, equipment, consumables and rental cylinders' on 1 April 2017; (c) Tru Flo Pumping Systems Pty Limited, the Trustee for the Jamb Family Trust, NDE Pty Ltd and QHG Pty Ltd, which effected the following registrations on the PPSR: (i) a PMSI in relation to: 'All motor vehicles (as defined in the Personal Property Securities Act and Regulations) and their associated parts, accessories and equipment - rented, leased, hired, bailed, supplied on consignment, sold subject to a conditional sale agreement including retention of title, or otherwise made available to the grantor by the secured party' on 14 October 2017; (ii) a PMSI in relation to: 'All goods, equipment and/or other tangible property (including any accessions to those goods, equipment and/or property) sold, leased, hired, rented, bailed, supplied on consignment, sold subject to a conditional sale agreement including retention of title or otherwise made available by the secured party to the grantor' on 14 October 2017; (d) Total Plant Hire Pty Ltd, which effected the following registrations on the PPSR: (i) a PMSI in relation to a particular motor vehicle with serial number JALFVZ34PG7000735 on 13 March 2018; (ii) a PMSI in respect of 'All motor vehicles and their associated parts, accessories and equipment (accessions) rented, leased, bailed, hired, or otherwise supplied or made available to the grantor by the secured party on 13 March 2018; (iii) a PMSI in respect of 'All goods, equipment and/or other tangible property (including any accessions to those goods, equipment and/or property) sold, leased, hired, rented, bailed or otherwise made available by the secured party to the grantor on 13 March 2018; (e) Boral Limited (and others) in relation to a PMSI in respect of 'All goods, equipment and/or other tangible property (including any accessions to those goods, equipment and/or property), sold, leased, hired, rented, bailed, supplied on consignment, sold subject to a conditional sale agreement (including retention of title) or otherwise made available by the secured party to the grantor' on 26 April 2018.

[17]

THE APPLICATION 23 The application concerns: (a) a security interest taken over 'all present and after-acquired property' of the first defendant granted by it in favour of Squadron Resources registered on the PPSR on 26 June 2018 (PPSR R1); (b) a security interest taken over 'all present and after-acquired property' of the second defendant granted by it in favour of Squadron Resources registered on the PPSR on 26 June 2018 (PPSR R2); and (c) a security interest taken over 'all present and after-acquired property' of the third defendant granted by it in favour of Squadron Resources registered on the PPSR on 26 June 2018 (PPSR R3), by way of the Subsidiary GSD. 24 The Subsidiary GSD secures the obligations under the Convertible Note Agreement between HeadCo and Squadron Resources. 25 Completion of the Convertible Note Agreement was subject to various conditions precedent, including shareholder approval, to allow HeadCo to meet the funding condition precedent of a share sale agreement with Octagonal Resources Ltd (the Octagonal Transaction). It was also subject to the execution of the HeadCo GSD, under which the Convertible Note Agreement was secured over 'all present and after-acquired property'. This security interest was registered on the PPSR by Squadron Resources' former solicitors on 25 June 2015. 26 By the HeadCo GSD, HeadCo also granted an interest in a mining lease, which was registered pursuant to the MRSDA on 30 June 2015. It appears that the parties agreed that the HeadCo solicitors would effect this registration, and it appears they did so. 27 The Subsidiary GSD was anticipated to be provided in the Convertible Note Agreement, however, it appears this was revised with the Subsidiary GSD to be provided at a later time and after the Octagonal Transaction had occurred. The Subsidiary GSD required further amendments in order to carve out the ANZ Charge and the executed Subsidiary GSD was not exchanged until 22 June 2016. 28 By the Subsidiary GSD, the first defendant and the third defendant were also granted interests in mining tenements held by them in favour of the Squadron Resources.

[19]

THE LEGISLATION AND APPLICABLE PRINCIPLES 33 Section 588FL relevantly provides that: Scope (1) This section applies if: (a) any of the following events occurs: (i) an order is made, or a resolution is passed, for the winding up of a company; (ii) an administrator of a company is appointed under section 436A, 436B or 436C; (iii) a company executes a deed of company arrangement under Part 5.3A; and (b) a PPSA security interest granted by the company in collateral is covered by subsection (2). Note: A security interest granted by a company in relation to which paragraph (a) applies that is unperfected at the critical time may vest in the company under section 267 or 267A of the Personal Property Securities Act 2009. (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. … (emphasis added) 34 Section 588FM of the Corporations 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. (emphasis added) 35 The authorities relating to applications made under s 588FM of the Corporations Act indicate that: (a) generally the principles and authorities in relation to the exercise of the Court's discretion in former s 266(4) of the Corporations Act, have continuing relevance and are of existence in guiding the Court's discretion in s 588FM when considering affixing a later time for the purposes of s 588FL(2)(b): see Re Barclays Bank PLC [2012] NSWSC 1095 per Black J (at [4]); Caason Investments Pty Ltd v Ausroc Metals Ltd [2016] WASC 267 per Master Sanderson (at [15]); see also Re Kaizen Global Investments Ltd (2017) 120 ACSR 220 per Moshinsky J (at [87(c)]); (b) section 588FM(2) confers a broad judicial discretion informed, at least at one level, by what is 'just and equitable'; as such, it is to be read liberally for the purpose intended by the statute in question and is not to be constrained or limited by glosses or implications not found in the relevant statute: Kaizen Global (at [87(b)], citing Hewlett Packard Australia Pty Ltd v GE Capital Finance Pty Ltd (2003) 135 FCR 206 per Whitlam, Branson and Allsop JJ (at [187]); (c) 'inadvertence' for the purposes of s 588FM(2)(a)(i) includes being 'not properly attentive': see Barclays Bank (at [13]); see also Re ACE Funding Ltd (2003) 44 ACSR 363 per Conti J (at [8]), cited in Re Enviro Pallets (NSW) Pty Ltd (in liq) [2013] QSC 220 per Philippides J; (d) Similarly: 'inadvertence' may also be established where a party operates under a mistake as to the consequences of failing to register a security interest ... at least 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. (Re Cardinia Nominees Pty Ltd [2013] NSWSC 32 per Black J (at (15] citations omitted)); (e) once 'inadvertence' has been established for the purposes of s 588FM(2), it remains necessary for the Court to exercise its discretion as to whether to make the order sought and whether such an order should be made on terms and conditions under s 588FM(3) of the Corporations Act; (f) the length of the delay prior to registration of the security interest is a relevant factor in the exercise of the Court's discretion under s 588FM: see Dempsey Resources Pty Ltd v Continental Coal Ltd [2009] FCA 1157 per Gilmour J (at [20]); Barclays Bank (at [14]); Cardinia Nominees (at [18]). In CBFC Ltd v Corporate Consulting (Australia) Pty Ltd [2010] QSC 395 (at [15]-[19]), a 'significant' delay did not prevent the grant of an extension under former s 266 as there was no evidence that any subsequent creditor searched the register at the relevant time; (g) a matter which is 'highly relevant' to the Court's discretion under s 588FM is whether there are any other security interests registered against the grantor: Barclays Bank (at [15]). This matter assists the Court in concluding whether the late registration will (or will not) 'disturb or affect an accrued or accruing rights meriting consideration': Barclays Bank (at [15]); (h) other relevant factors include: whether the secured party would not have advanced funds to the grantor under loan documents without the security interest, and further whether the granter agreed to provide the security interest and executed on the basis that such interests would be registered: Enviro Pallets; and (i) unless an applicant leads evidence of the company's solvency and the likelihood of its solvency being maintained into the foreseeable future, an extension should not be granted unless steps are taken to protect the interest of unsecured creditors: Re Guardian Securities Ltd [1984] 1 NSWLR 95 per McLelland J (at 97). One of the steps that might be taken to achieve this result is to grant an extension of time, whilst reserving a right to the company, any liquidator or administrator appointed to it or any unsecured creditor to apply at a later time to discharge or vary the order: Guardian Securities (at 97-98); Cardinia Nominees (at [24]); Re Apex Gold Pty Ltd [2013] NSWSC 881 per Hammerschlag J.

[21]

Length of delay 39 In the present case, Squadron Resources submits correctly that the 20 business day period envisaged under s 588FL(2)(b)(ii) of the Corporations Act expired on 20 July 2016. Not an insignificant period has elapsed. However, cases such as CBFC Ltd show that a significant period of delay is not the only factor to consider. 40 Relevantly, in Re Appleyard Capital Pty Ltd [2014] NSWSC 782, Justice Brereton explained (at [30]-[31]): 30 Thus, although I accept, as the authorities make clear, that the presence or absence of prejudice to unsecured creditors is a relevant discretionary consideration, relevant prejudice is not necessarily established merely by showing that the dividend to unsecured creditors will be less if the security interest does not vest in the company; the unsecured creditors may well have been in no different a position had the security interest been timely registered. 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 Coat ACLR 225 per Bray CJ; at ACLR 234 per Mitchell J); and by McLelland J in Guardian Securities (at 98). The period of delay in effecting registration is relevant, because the shorter the delay the less likely that the failure to register within time will have had any impact. The significance of the passage of time is mainly related to the possibility of competing interests having arisen, in particular through others having dealt with the company on the footing that the collateral was unencumbered. 31 Accordingly, while the interests of unsecured creditors are relevant, the mere fact that if the extension is granted they will be deprived of the benefit of the security interest vesting in the company, and thus receive a lesser dividend, is no objection to making an order. It would be otherwise if the position of the unsecured creditors was detrimentally affected by the delay in registration, for example if they traded with the company on the faith of a register that showed no security interest. (emphasis added) 41 Further, in Caason Investments, Master Sanderson made orders in similar circumstances where the delay in registration was 18 months and only one other creditor had registered a security interest against the defendant following execution of the GSD but before the plaintiff registered. Master Sanderson noted (at [15]): The period of delay in affecting registration is relevant, because the shorter the delay the less likely that the failure to register within time will have had any impact. The significance of the passage of time is mainly related to the possibility of competing interests having arisen, in particular through others having dealt with a company that the collateral was unencumbered. 42 I note that the 'delay' in this case had exceeded two years by the time the matter came before the Court for final hearing, however, as the delay in registration has not prejudiced secured creditors, I do not consider the delay to be an impediment to the application in these circumstances.

Squadron Resources Pty Ltd v Highlake Resources Pty Ltd, in the matter of Highlake Resources Pty Ltd - [2018] FCA 1292 - FCA 2018 case summary — Zoe

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