FEDERAL COURT OF AUSTRALIA

Von Arx v Todae Solar Pty Ltd, in the matter of Todae Solar Pty Ltd (Administrators Appointed) [2020] FCA 1071

ORDERS

THE COURT ORDERS THAT:

1.    The plaintiffs are granted leave to proceed against the first defendant pursuant to section 440D(2) of the Corporations Act 2001 (Cth) (Corporations Act).

2.    Pursuant to r 1.3 of the Federal Court (Corporations) Rules 2011 (Cth) (the Rules), the requirement for service of the originating process under r 2.7 of the Rules is dispensed with.

3.    Pursuant to s 588FM, and for the purposes of s 588FL(2)(b)(iv), of the Corporations Act, 22 June 2020 is fixed as the time for the plaintiffs to register on the Personal Property Securities Register (the PPSR), PPSR registration number 202006220074562.

4.    The plaintiffs are directed to provide all known creditors of the first defendant at the time these orders are made with a copy of any orders made by the Court within 7 business days of the making of any such orders.

5.    Any creditor of the first defendant has liberty to apply to vary or set aside order 3 within 14 days after service on it of these orders.

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 application by which the plaintiffs seek an order for an extension of time pursuant to s 588FM of the Corporations Act 2001 (Cth) (the Act) in respect of a Personal Property Securities Register (the PPSR) registration for the purposes of s 588FL(2)(b)(iv) of the Act.

2    The plaintiffs are husband and wife. In or around December 2019, the plaintiffs lent the first defendant (the company) $300,000 as short-term working capital with a view to allowing the company to secure more long-term funding. As security for the advance of the loan, the company granted to the plaintiffs an all present and after-acquired property (AllPAAP) no exceptions security interest over all of its property. The plaintiffs attended to registration on the PPSR in respect of the AllPAAP security interest on 6 February 2020. They did so, however, without first taking legal advice as to how to attend to lodging an appropriate registration. By April 2020, the plaintiffs became concerned with the status of their registration of the AllPAAP security interest as a consequence of the COVID-19 pandemic, amongst other things, and the implications this had on the ability of the company to acquire finance. They obtained informal advice from an accountant about the validity and enforceability of the first registration, but no material issue seems to have been raised at that time.

3    It was not until 5 June 2020 that one of the plaintiffs became aware that a search of the PPSR against the company did not reveal the first registration. Attempts were made by one of the plaintiffs to alleviate this issue, but it was not until 17 June 2020 that one of the plaintiffs sought legal advice concerning the first registration and the loan more generally. Advice concerning the first registration was communicated on 22 June 2020, and at that time, the solicitors were instructed to lodge what is now the registration on that same day which occurred.

4    On 2 July 2020, the company entered external administration.

5    Section 588FM of the Act provides that:

A company or any person interested may apply to the court for an order fixing a later time for the purposes of subparagraph 588FL(2)(b)(iv).

6    By s 588FM(2), on such an application, the Court may make the order if it is satisfied that the failure to register the collateral earlier was, relevantly:

(a)(i)

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 on other grounds, it is just and equitable to do so.

7    A number of cases have considered failures that are accidental or due to inadvertence. It has been said that inadvertence includes failure to advert to or understand the requirements 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 Ltd; 123 Sweden AB v Appleyard Capital Pty Ltd [2014] NSWSC 782 at [10]. Inadvertence, it has been said, goes beyond mere ignorance of the requirement to register entirely and may also be established where a party operates under a mistake to the consequences of failing to register a security interest: Re Cardinia Nominees Pty Ltd [2013] NSWSC 32 (Re Cardinia). It has also been said that predecessor provisions were taken to have a benevolent operation 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 at [15].

8    The evidence in the present case discloses that the plaintiffs, while not ignorant of the requirements, were unaware of the particular way in which a registration must be attended to on the PPSR and the associated timing restrictions at the time of making the first registration. Until the amendments to the first registration occurred on 6 June 2020, that unawareness would have caused the first registration to fall foul of s 165(b) of the Personal Property Securities Act 2009 (Cth) which would render the first registration ineffective, that is, as though the first registration had not occurred in the first instance. As has been submitted, by this point of time, it would not have been possible for the plaintiffs to adhere to the timing requirements imposed by s 588FL(2)(b)(ii) of the Act even if the first registration was entirely corrected by force of the amendments and relief under s 588FM would have needed to have been sought in any event.

9    As has been submitted, the imposition of time constraints as to when a secured party can perfect a security interest granted by a corporate grantor was not something that the plaintiffs were aware of until 11 or 12 June 2020 at which time they took prompt steps to address their earlier inadvertence.

10    In these circumstances, I am satisfied that the failure of the plaintiffs to attend to the prescribed requirements at the time of making the first registration arose due to accident or inadvertence within the meaning of s 588FM(2)(a)(i) of the Act. I accept also the submission that the order sought is not of a kind to prejudice the position of creditors or shareholders because, as has been stated, orders pursuant to s 588FM of the Act have no effect on the priority of the underlying security interest.

11    The critical matter, as has been pointed out in submissions, is that the relief pursuant to s 588FM being sought predates the appointment of any external administrator which is a requirement satisfied in the present case. More particularly, the voluntary administrators have been joined to the proceedings and do not oppose the grant of the relief sought. Two of the orders proposed provide for the plaintiffs to notify all known creditors of the company within seven business days and give liberty to any creditor of the company to apply to vary or set aside the substantive order which is sought. In these circumstances, the grant of the relief is not such as to prejudice the position of creditors.

12    As a result, I am satisfied that I should make orders 1 to 5 as proposed in the short minutes of order provided by counsel for the plaintiffs, and those orders will be made accordingly.

Associate:

Dated:    27 July 2020