Tamone v How Fast Pty Limited

Tamone.8June99 - 9 June, 1999: Tamone v How Fast Pty Limited (in liquidation) 7 IN THE SUPREME COURT OF NEW SOUTH WALES IN EQUITY

No. 1826/99 In the matter of HOW FAST PTY LIMITED (in liquidation) (ACN 056 912 237) and the Corporations Law MARY TAMONE & FRANK TAMONE Plaintiffs HOW FAST PTY LIMITED (in liquidation) (ACN 056 912 237) Defendant

JUDGMENT - ex tempore 8 June 1999 1 What follow are my reasons for making the orders contained in the Short Minutes of Order. Factual Background 2 The company gave a charge dated 13 November 1998 in favour of Mary Tamone and Frank Tamone. That charge was a fixed and floating charge over the assets of the company and was a charge over the whole of those assets and as such was required to be registered pursuant to s262(1)(a) of the Corporations Law. 3 The requirement of the Law was that it be registered within 45 days of being given. 4 The amount of the advance made under the charge was the sum of $60,000.00 and there appears to be no dispute that the advance was given: see affidavit of Martin Green 19 May 1999 annexure B. 5 The charge, on its face, was prepared by a firm of solicitors and it would appear that it was returned by the company's accountants to the solicitors on or about 23 December 1998. 6 As the charge was given on 13 November, it was required to be registered within 45 days so that it had to be lodged for registration with the Australian Securities & Investment Commission by 28 December 1998. 7 The 28 December 1998 was a public holiday and by virtue of the Interpretation At the last day for the lodgment of the charge was extended until 29 December 1998. 8 It appears from a letter from the solicitors addressed to the plaintiff's accountants that the charge was placed on the desk of the firm's registration clerk who one infers would normally be entrusted with its filing on the afternoon of 23 December which was very shortly before the Christmas break. According to the solicitors their office was closed from 1 pm on 24 December until 4 January. 9 The 29th, 30th and 31st December were days on which the office of the Australian Securities & Investment Commission were open for business. In fact what happened was that the charge was overlooked by the registration clerk and not lodged for registration until 4 January 1999. On this date it was registered and the registration certificate appears as annexure A to the affidavit of Warwick van Ede of 1 May 1999. 10 The 3 January 1999 was a Sunday and a holiday as, of course, was the 1 January. 11 The charge was registered on 4 January 1999. 12 On 6 January 1999 Martin Green was appointed voluntary administrator of the company by resolution of its directors. There is no evidence one way or another as to whether the company ever did anything to register the charge although it is clear from the legislation that it is the company's obligation to do so (s263(1)). However, the Tamones are interested persons. 13 It would appear that no scheme of arrangement was promoted under the voluntary administration and the company went into liquidation on 2 February 1999 and Mr Green was appointed the liquidator. He remains the liquidator. 14 The Tamones are not persons who are related to those who controlled the company. There is no evidence that they are shareholders or directors of it. The evidence would suggest that they simply were investors who invested $60,000. 15 The evidence suggests that the liquidator has realised the assets of the company in a sum of about $70,000. He is owed fees and there are employees' claims which would normally have priority to the claim of the holders of the floating charge. 16 There are unsecured creditors of the company of about $126,000. 17 If the extension of time to register the charge be granted, unsecured creditors it would appear receive nothing although the employees apparently would be paid. 18 If an extension of time to register the charge is not granted, it would appear that the charge would be void as the notice was not filed within the relevant period pursuant to s266(1)(b)(i) of the Law. 19 Reference to the "critical day" has no application as the notice of the charge was simply not registered within the 45 days and that would be the relevant period. 20 The liquidator has taken no steps to seek to avoid the charge and in his first affidavit filed in the proceedings he stated that he neither opposed nor consented to the orders which were sought in the summons. He is, it is submitted, a sufficient representative of the unsecured creditors of the company.

21 I am asked to exercise my discretion pursuant to s266(4) to extend the period of notice by six days in circumstances where: (a) the failure to register was clearly enough accidental and due to inadvertence either of which being sufficient to invoke the discretion, (b) though it is not possible to determine with accuracy the precise quantum of debt incurred during the period from the last day the charge should have been registered (29 December 1998) to the date it was in fact registered on 4 January 1999, it can reasonably be inferred from the make-up of trade creditors (PX2) that over the holiday period in question, little debt would have been incurred as distinct from accruing in the ordinary course, such that the prejudice to those creditors in making the orders sought is unlikely to be significant, whereas the prejudice to the Plaintiff in otherwise having her charge set aside, she being an arm's length creditor, would be substantial, and in any event my orders are without prejudice to the rights of intervening creditors.

22 The cases are at one in acknowledging that when a company goes into liquidation and subsequently an application is made for extension of time to register a charge that it is for the applicant to demonstrate exceptional circumstances justifying the extension being granted and that there is no invariable rule that the discretion is not exercised. There is one decision of a full court or court of appeal, namely that of the Queensland Court of Appeal in Sanwa Australia Finance Limited v Ground-Breakers Pty Limited (in liquidation) (1989-90) 2 ACSR 692. At 699 Kelly SPJ stated that the following principles had emerged: "(a) The fact of winding up is relevant to the exercise of the discretion but does not require that the discretion be exercised in one way. (b) the probable detrimental effect of the making of the order on unsecured creditors is a relevant but not overriding consideration. (c) The discretion is sparingly exercised and if a company is obviously insolvent or already in liquidation it will be exercised only in circumstances which may properly be regarded as exceptional."

Then, taking the summation of relevant factors bearing upon that discretion from the headnote where conveniently stated (S being the chargee and G-B the chargor) and which led to its favourable exercise: "Relevant factors in favour of the exercise of the discretion are: (a) the charges were in each case registered and notices lodged prior to the commencement of the winding up. (b) The time which elapsed between the dates on which the notices should have been lodged and when they were in fact lodged, although significant, was such that it could be said that S remedied its default within a reasonable time. (c) None of the charges was over the whole of G-B's assets. (d) If an order were not made, S, which had given value for its securities, although admittedly in default by reason of the inadvertence of its servants or agents, would be deprived of the benefit of those securities. (e) There was no evidence that any unsecured creditor extended credit or advanced money to G-B after searching the register at a time when it did not but should have disclosed the existence of the charges. (f) S when entering into the transactions, had no reason to have any concern with the solvency of the respondent. Relevant factors which operate against the exercise of the discretion are: (a) It was S as grantee by its then solicitors which was responsible for the failure to lodge the respective notices within due time. (b) There was a delay of some 3 months after the appointment of the provisional liquidator before the application for the extension of time was filed (c) The rights and interests acquired by the unsecured creditors upon the liquidation of G-B would be displaced. (d) The reluctance of the courts to make such an order when a company is in liquidation." 23 As is well settled, a single judge construing uniform legislation such as the Corporations Law should not depart from decisions of a full court or court of appeal unless manifestly wrong; concededly the practical effect of that stricture is reduced where the precedent in question operates in an area of discretion as then, inherently, courts must have regard to the variety of circumstances before them. Thus I consider that, when exercising that discretion, it would be going too far in light of Sanwa to conclude that "an extension of time will almost invariably be refused after the commencement of a winding-up" if Wheeler J's judgment in Morris v Woodings & Anor (1997) 25 ACSR 636 were understood as precluding exceptional circumstances being be made out in a case such as the present. I say that, with respect to the careful reasoning in that case, because its result in not very different circumstances was to deny the extension. 24 In the present case all of the factors favouring the exercise of the discretion in Sanwa save one are present and indeed in one case more strongly. Thus the time which elapsed between the date on which registration should have occurred at the latest and the time in which it in fact occurred was hardly significant in contrast to Sanwa. The liquidator was only subsequently appointed following the voluntary administration of the Defendant and the voluntary administration likewise post-dated the charge's registration. The only respect in which the relevant factors present in Sanwa favouring exercise of discretion were not present was that the charge here is over the whole of the Defendant's assets. But I do not consider anything turns on that.

25 I should add that the authority relied upon by Wheeler J in Morris v Woodings, J J Leonard Properties v Leonard (WA) Pty Ltd (in liq) No. 2 (1988) 13 ACLR 77 involved a very extensive delay of some years in seeking late registration.

26 I adopt what was said by Needham J in Vector Capital Limited v SNS Software Network Systems Pty Limited (1988) 12 NSWLR 1 at 7: "There is no case binding on me which requires me to hold that the insolvency, or commencement of a winding up, or appointment of an official manager or, before the application is heard or made is a factor fatal to an application to extend time pursuant to s205(3). For the reasons I have given my opinion is that the fact of winding up is relevant to the exercise of a discretion but does not require the discretionary exercise in one way. So to hold would be to destroy the discretion. The sub-section envisages five alternative circumstances in which the order might be made. One of those is that the failure to lodge the notice 'is not of a nature to prejudice the position of creditors or shareholders'. It follows, logically, that, in the case of the other four situations the order may be made if that circumstances does not exist. The ambit of the discretion must not, in my opinion, be circumscribed by considerations inconsistent with the legislation."

27 It should be here noted that the liquidator who represents the creditors for this purpose neither consents nor opposes the extension and has not attended the Court, though has provided an affidavit.

28 In all the circumstances, though the inadvertence is to be regretted, I have concluded that the exceptional circumstances warranting the making of orders in what is a liquidation situation are nonetheless made out.

Last Modified: 06/09/1999 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.