FEDERAL COURT OF AUSTRALIA

QRS Investments Pty Ltd v ACN 635 717 323 Pty Ltd, in the matter of ACN 635 717 323 Pty Ltd [2020] FCA 1032

ORDERS

THE COURT ORDERS THAT:

1.    The Originating Process be made returnable instanter.

2.    Pursuant to rule 1.39 of the Federal Court Rules 2011 (Cth), the time for service of the Origination Process pursuant to rule 2.7 of the Federal Court (Corporations) Rules 2000 be abridged to 15 July 2020.

3.    Pursuant to section 588FM of the Corporations Act 2001 (Cth) (Corporations Act), 24 February 2020 be fixed as the later time for the purposes of subparagraph 588FL(2)(b)(iv) in respect of the collateral being all of the present and after-acquired property of the defendants referred to in registration number 202002240013157 in the Register established under the Personal Property Securities Act 2009 (Cth).

4.    In the event that within 6 months after 24 February 2020 a winding up of any of the defendants commences, or an administrator of a defendant is appointed under the Corporations Act under ss 436A, 436B or 436C, or a defendant executes a deed of company arrangement, the liquidator, administrator, deed administrator and any unsecured creditor of the defendant has liberty to apply to discharge or vary order 3 in respect of that defendant.

5.    These orders be entered forthwith.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

JAGOT J:

1    These reasons for judgment concern an originating application by which the plaintiff seeks an order pursuant to s 588FM of the Corporations Act 2001 (Cth) (the Act), fixing 24 February 2020 as the later time for the purposes of s 588FL(2)(b)(iv) of the Act, in respect of the security interest granted by the defendants in favour of the plaintiff referred to in registration number 202002240013157 in the Personal Properties Security Register (the Register) established under the Personal Property Securities Act 2009 (Cth) (the PPSA).

2    Section 588FL of the Act provides for the vesting of security interests, the subject of the PPSA, in the grantor if collateral is not registered within the latest of certain specified times. Those specified times are set out in s 588FL(2) of the Act. Section 588FM of the Act confers on the Court a discretion to fix a later time, if satisfied on any one of the grounds, relevantly, that the failure to register the collateral earlier was “accidental or due to inadvertence or some other sufficient cause”. Section 588FM(3) permits the Court to make the order on terms and conditions.

3    In the present case, the relevant security agreement came into force on 19 December 2019, when it was executed, and should have been registered by 21 January 2020, but, in fact, was registered on 24 February 2020. It is for this reason that the plaintiff seeks the relief proposed in the originating application.

4    The plaintiff is a related party of Credit Capital Partners (CCP), a private equity firm which invests in companies and sectors with potential growth within Australia and abroad. On or about 10 December 2019, the general counsel of CCP engaged Johnson Winter & Slattery on behalf of CCP to prepare a facility agreement and general security deed in relation to an advance of funds to be provided by a related entity of CCP to the defendants (the Security Documents). Johnson Winter & Slattery and the general counsel of CCP then communicated thereafter in relation to the production and execution of the Security Documents. In the event, as I have said, the defendants executed the Security Documents on 19 December 2019, and on 20 December 2019, the plaintiff advanced the facility amount to the first defendant.

5    As a result, and pursuant to s 588FL of the Act, the security interest created by the Security Documents was due to be registered on the Register by 21 January 2020, being the period of 20 days after the Security Documents came into force. As I have said, however, the security interests were not registered until 24 February 2020; being 34 days late.

6    The reason that the Security Documents were not registered on the Register within the 20 day period is apparent from the affidavits filed in support of the application. The Security Documents were being attended to on 19 December 2019 in circumstances where both of the persons directly involved in the arrangements for the execution of the Security Documents were going on leave on 20 December 2019. The general counsel from CCP assumed he had given instructions to Johnson Winter & Slattery to attend to registration of the Security Documents, execution of which was anticipated on 19 December 2019. The relevant solicitor from Johnson Winter & Slattery understood that the Security Documents may be executed on 19 December 2019, but that confirmation of the same would be received, having regard to the fact that there were a number of amendments and other matters occurring which needed to be attended to before the Security Documents could be executed. In particular, the solicitor from Johnson, Winter & Slattery did not construe an email from CCP to be a definite instruction to the effect that the Security Documents would be executed on 19 December 2019, and for Johnson Winter & Slattery to arrange for registration as a result.

7    The relevant principles and facts have been comprehensively addressed in an outline of submissions filed on behalf of the plaintiff. In accordance with the summary of principles set out therein, it is sufficient to note the following:

(1)    inadvertence includes being ‘not properly attentive’: Squadron Resources Pty Ltd v 'Highlake Resources Pty Ltd [2018] FCA 1292 at [35C] (Squadron Resources);

(2)    a miscommunication as to who is responsible for registration has also been accepted as inadvertence: see Re Kris Cruisers Ltd [1948] 2 ALL ER 1105, in particular at [1107];

(3)    once the discretion is enlivened, the Court must exercise its discretion judicially as to whether to make the orders sought, and whether an order should be made on terms and conditions; and

(4)    the question whether the Court should exercise the discretion will depend on the facts and circumstances of each case.

8    In paragraph 39 of the written submissions for the plaintiff, there is a useful summary of the relevant principles, particularly as stated in Squadron Resources at [35]. That summary of relevant considerations refers to the following matters:

(a)    the delay in registration was caused by ‘inadvertence’ is of considerable importance to the exercise of the discretion;

(b)    the length of the delay prior to registration of the security interest. The period of delay is relevant because the shorter the delay the less likely that the failure to register within time will have had any impact on other creditors;

  (c)    the default in registration was remediated within a reasonable time;

(d)    whether there are any other security interests registered against the grantor who might be prejudiced if the relief is granted;

(e)    the solvency of the grantor and the likelihood of its solvency being maintained into the foreseeable future; and

(f)     prejudice to other creditors being prejudice caused by the delay in registration of the security rather than from the making of the order sought.

9    I accept the submission for the plaintiff that a miscommunication or misunderstanding arose as between the representatives of CCP and Johnson Winter & Slattery due to the terms of the email sent on 19 December 2019, and that this amounts to inadvertence within the meaning of s 588FM of the Act. The fact that both gentlemen were thereafter on leave, and when they returned from leave were busy with other matters, merely compounded the inadvertence and led to the delay in registration.

10    Also relevant to the exercise of the discretion are the following factors to which the plaintiff adverted in its written submissions:

(1)    the defendants have been given notice of the application, and have confirmed that they do not object to the relief sought by the plaintiff;

(2)    the delay in registration was for a period of only 34 days;

(3)    registration was made on the day that CCP learned that the Security Documents had not been registered within time; and

(4)    there are no other security interests registered against four of the following defendants:

(a)    ACN 635 717 323 Pty Ltd;

(b)    Kiss or Kill Pty Ltd;

(c)    Snug & Associates Electrical Goods, Services and Circus Paraphernalia Pty Ltd; and

(d)    The Mechanical Operating Company Pty Ltd,

and in respect of the second defendant, Strut & Fret Pty Ltd, a subsequent security interest was registered on 5 March 2020, but that registration is a purchase money security interest, which means that a holder of that interest has priority over the plaintiff, in respect of the goods supplied and subject to the registration in any event. Accordingly, the relief sought is not of a kind that would prejudice the position of that creditor.

11    The only other relevant matter to note, which is set out in the written submissions, is that because the plaintiff has not led any evidence as to the solvency or otherwise of the defendants, and the likelihood of the defendants maintaining solvency until at least 24 August 2020, it is appropriate that unsecured creditors of the defendants be given leave to protect their position in the orders. This is provided for in proposed order 4 of the orders put forward by the plaintiff.

12    In these circumstances, I am satisfied I should make orders in accordance with the draft orders proposed by the plaintiff, the effect of which will be to fix 24 February 2020 as the later time for the purposes of s 588FL(2)(b)(iv) of the Act and its operation.

Associate:

Dated:    20 July 2020

SCHEDULE OF PARTIES