Federal Court of Australia

De Lage Landen Pty Ltd v Blayney Crane Services Pty Ltd, in the matter of Blayney Crane Services Pty Ltd [2020] FCA 1692

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 293(1)(a) of the Personal Property Securities Act 2009 (Cth) (PPSA), the number of business days set out in s 62(3)(b) be extended by the necessary number of business days relevant to each registration contained in schedule B to these orders such that any registration made by the plaintiff up to and including the date specified in column 4 of schedule B (or otherwise up to and including 23 July 2020) falls within the time period prescribed by s 62(3)(b) of the PPSA as extended by this order.

2.    Any party who has a competing perfected security interest (within the meaning of the PPSA) over collateral the subject of any of the registrations set out in schedule B to these orders, other than any of the second defendants to these proceedings (named in schedule B of the originating process), has liberty to restore this matter to the list to seek to set aside, amend or vary order 1 of these orders on three day's written notice to the plaintiff and to the Court.

3.    The otherwise part-heard matter be adjourned to Wednesday 7 October 2020 at 10.15 am.

SCHEDULE B

ORDERS

THE COURT DECLARES THAT:

1.    The PPSA security interest granted by the first defendant to the plaintiff on 2 July 2018 did not vest in the first defendant at the time it first became enforceable against third parties.

2.    The PPSA security interest granted by the first defendant to the plaintiff on 26 March 2019 did not vest in the first defendant at the time it first became enforceable against third parties.

3.    The PPSA security interests granted by the second defendant to the plaintiff between 5 April 2019 and 29 June 2020 did not vest in the second defendant at the time each such PPSA security interest first became enforceable against third parties.

4.    The PPSA security interest granted by the third defendant to the plaintiff on 22 October 2019 did not vest in the third defendant at the time it first became enforceable against third parties.

THE COURT ORDERS THAT:

5.    The application for relief in prayers 2 and 3 of the originating process be refused.

6.    There be no order as to costs.

7.    Otherwise, the originating process be dismissed.

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

REASONS FOR JUDGMENT

GLEESON J:

1    By originating process dated 27 August 2020, the plaintiff (DLL) applied for relief in connection with specified Personal Property Securities Registrar (PPSR) registrations, and certain other PPSR registrations, including declaratory relief, orders pursuant to s 588FM of the Corporations Act 2001 (Cth) (Corporations Act) and s 293(1)(a) of the Personal Property Securities Act 2009 (Cth) (PPSA) and ancillary relief.

2    The specified registrations concern purchase money security interests (PMSIs) granted to DLL by the first three defendants, Blayney Crane Services Pty Ltd, Onesteel Recycling Pty Ltd and Mid Coast Cranes Pty Ltd (MCC) (collectively grantors).

3    DLL also joined four AllPAP (all present and after-acquired property) security interest holders as defendants to the proceeding: SIMS Group Australia Holdings Limited, BTA Institutional Services Australia Limited, Cashflow Finance Australia Pty Ltd and Global Loan Agency Services Australia Nominees Pty Ltd (GLAS) (collectively AllPAP holders).

4    Of the grantors, only Onesteel appeared on the hearing of the application. On behalf of Onesteel, Ms Beechey of counsel made no submissions on the s 293(1)(a) of the PPSA issue and made brief submissions in support of submissions made on behalf of GLAS.

5    Of the AllPAP holders, BTA and GLAS appeared on the hearing of the application. SIMS and Cashflow informed DLL’s solicitor that they did not intend to participate in the proceeding. BTA neither consented to nor opposed the declaratory relief sought by DDL. Mr Krochmalik of counsel made submissions on behalf of GLAS concerning the operation of ss 588FL and 588FM of the Corporations Act.

6    The originating process and supporting evidence was also served on the Registrar of Personal Property Securities. The Registrar informed DLL’s solicitor that he did not intend to make submissions to the Court in connection with the relief sought by DLL in the originating process.

7    After hearing oral submissions on 25 September 2020, I made an order pursuant to s 293(1)(a) of the PPSA in the terms sought, extending the number of business days set out in s 62(3)(b) of the PPSA to the date of the registration in respect of 25 registrations: one concerning a PMSI granted by Blayney Crane; one concerning a PMSI granted by MCC and 23 concerning PMSIs granted by Onesteel. After hearing further oral submissions on 7 October 2020, I reserved my decision on the remainder of the relief sought.

Background to application

8    DLL is a subsidiary of De Lage Langden International BV and forms part of the Rabobank Group of companies. DLL provides financial solutions to customers including commercial finance, retail finance and equipment finance in a variety of industries.

9    Each of the grantors is a company that has previously been, but is no longer, under administration in accordance with Pt 5.3A of the Corporations Act.

Blayney Crane

10    On 12 June 2013, Blayney Crane was placed into administration on the appointment of Geoffrey Reidy and Melissa Lau as administrators. The administration ended on about 14 August 2013, when Blayney Crane became subject to a deed of company arrangement (DoCA).

11    On 17 July 2014, Cashflow lodged a financing statement on the PPSR indicating that it had taken an AllPAP security interest over the assets of Blayney Crane.

12    The DoCA was terminated on about 29 March 2016, the arrangement having achieved its purpose.

13    On 2 July 2018, DLL entered into a Chattel Mortgage Agreement with Blayney Crane (first Blayney Crane CMA). Pursuant to the first Blayney Crane CMA, DLL financed Blayney Crane’s purchase of a Grove mobile crane. Clause 1 of the Terms and Conditions of the first Blayney Crane CMA provides:

1. What we lend

We will lend you the Loan Amount by paying the Supplier if: (a) we receive (on terms satisfactory to us): (i) all duly signed Security and related documents; (ii) evidence of any insurance we require; and (iii) any other document or information we reasonable require; and (b) you are not in default under this agreement or any Security.

14    Clause 9.1 of the Terms and Conditions of the first Blayney Crane CMA provides:

9. Goods Mortgage

9.1 This agreement is a security agreement. You grant a Security Interest in the Goods to us to secure the punctual payment of all amounts that you owe, and the performance of all your other obligations, under this agreement and any other agreement you have with us. The Security Interest attaches or otherwise takes effect immediately upon your possession of the Goods.

15    On about 26 March 2019, DLL entered into a second Chattel Mortgage Agreement with Blayney Crane (second Blayney Crane CMA). Pursuant to the second Blayney Crane CMA, DLL financed the purchase by Blayney Crane of a Grove crane. The Terms and Conditions of the second Blayney Crane CMA included cll 1 and 9.1 in the terms set out above.

16    Between 12 June 2018 and 19 November 2019, DLL lodged registrations on the PPSR in respect of the security interests granted by the first and second Blayney Crane CMAs. DLL paid each of the equipment suppliers of the cranes on or around the date that the relevant security interest was created.

MCC

17    Between 30 June 2014 and 4 August 2014, MCC was under administration. The administration ended when MCC became subject to a DoCA. The DoCA was terminated on about 10 May 2016, after the arrangement had achieved its purpose.

18    On 22 October 2019, DLL entered into a Master Chattel Mortgage Agreement with MCC (MCC agreement). The MCC agreement describes itself as a master agreement under which the customer, MCC, may request to borrow money from DLL under chattel mortgage agreements constituted by the MCC agreement and the relevant Goods Schedule. By a Goods Schedule signed on behalf of DLL on 22 October 2019, a chattel mortgage agreement was constituted by the terms of the MCC agreement, the Goods Schedule and any special conditions set out or referred to in it (MCC Goods Schedule). Pursuant to that agreement, DLL financed MCC’s purchase of three cranes.

19    Clause 2 of the MCC agreement provides:

2. What we lend

We will lend you the Loan amount by paying the Supplier if (a) we receive (on terms satisfactory to us) (i) all duly signed Security and related documents; (ii) evidence of any insurance we require; and (iii) any other document or information we reasonably require; and (b) you are not in default under the agreement or any Security

20    Pursuant to cl 10.1 of the MCC agreement, MCC granted DLL a security interest in the three cranes to secure the punctual payment and performance of all obligations of MCC under the MCC agreement. Clause 10.1 was in identical terms to cl 9.1 of the first Blayney Crane CMA.

21    Between 10 October 2019 and 16 December 2019, DLL lodged registrations on the PPSR in respect of the security interest in the three cranes. DLL paid each of the equipment suppliers of the cranes on or around the date that the security interest was created.

Onesteel

22    On 18 December 2015, SIMS lodged a financing statement on the PPSR indicating that it had taken an AllPAP security interest over the assets of Onesteel.

23    On 7 April 2016, Onesteel was placed into administration on the appointment of Paul Billingham, Said Jhani, Matthew Byrnes and Michael McCann as administrators. The administration ended on about 4 November 2016, when Onesteeel became subject to a DoCA.

24    The DoCA was terminated on about 31 August 2017, the arrangement having achieved its purpose.

25    On 5 April 2019, DLL entered into a Master Rental Agreement with Onesteel (Onesteel agreement). Between 5 April 2019 and 29 June 2019, DLL entered into 55 Schedules to the Onesteel agreement, by which DLL leased the equipment described in the various Schedules to Onesteel. Clause 22.1 of the Onesteel agreement states:

This agreement is a security agreement.

26    The term of each of the hire arrangements the subject of each of the Schedules was 60 months.

27    Between 3 April 2019 and 31 July 2020, DLL lodged registrations on the PPSR in respect of these security interests.

28    On 2 October 2019, BTA and GLAS each lodged a financing statement on the PPSR indicating that it had taken an AllPAP security interest over the assets of Onesteel.

PMSIs

29    By s 12(1) of the PPSA, a security interest within the meaning of the PPSA means an interest in personal property provided for by a transaction that, in substance, secures payment or performance of an obligation (without regard to the form of the transaction or the identity of the person who has title to the property). Section 12(3)(c) provides that a security interest also includes the interest of a lessor or bailor of goods under a PPS lease, whether or not the transaction concerned, in substance, secures payment or performance of an obligation.

30    By s 13(1)(a) of the PPSA and subject to ss 13(2) and 13(3), a PPS lease includes a lease or bailment of goods for a term of more than two years.

31    By s 14(1)(b) and subject to s 14(2), a PMSI includes a security interest taken in collateral by a person who gives value for the purpose of enabling the grantor to acquire rights in the collateral, to the extent that the value is applied to acquire those rights.

32    By s 14(1)(c) and subject to s 14(2), a PMSI also includes the interest of a lessor or bailor of goods under a PPS lease.

33    Accordingly, DLL holds PMSIs in respect of:

(1)    the mobile crane the subject of the first Blayney Crane CMA;

(2)    the Grove crane the subject of the second Blayney Crane CMA;

(3)    the cranes the subject of the MCC Goods Schedule; and

(4)    the equipment the subject of the 55 Schedules to the Onesteel agreement.

Reasons for section 293 relief

34    By s 293(1)(a) of the PPSA, on application, a court may make an order extending the number of business days in a period specified, relevantly, in s 62(3)(b) of the PPSA if the court is satisfied that it is just and equitable to do so. Section 62(3)(b) concerns the priority of perfected PMSIs over certain other security interests. Section 62 provides relevantly:

(1)    This section sets out when a perfected purchase money security interest that is granted by a grantor in collateral or its proceeds has priority over a perfected security interest that is granted by the same grantor in the same collateral, but that is not a purchase money security interest.

…

(3) The purchase money security interest has priority if:

(a) the interest is in personal property, or its proceeds, other than inventory; and

(b) the purchase money security interest is perfected by registration before the end of 15 business days after whichever of the following days applies:

(i) for goods—the day the grantor, or another person at the request of the grantor, obtains possession of the property;

(ii) for any other property—the day the interest attaches to the property; and

(c) the registration that perfects the purchase money security interest states, in accordance with item 7 of the table in section 153, that the interest is a purchase money security interest.

35    The court may make the order even if the period has ended: s 293(2).

36    By s 293(3), in making an order to extend a period under s 293(1), the court must take into account the following:

(a)    whether the need to extend the period arises as a result of an accident, inadvertence or some other sufficient cause;

(b)     whether extending the period would prejudice the position of any other secured parties or other creditors;

(c)     whether any person has acted, or not acted, in reliance on the period having ended.

37    DLL discovered registrations made by it on the PPSR concerning motor vehicles that identified the relevant vehicle by reference to a chassis number.

38    Item 2.2 of Sch 1 to the Personal Property Securities Regulations 2010 (Cth) provides, relevantly:

(1)    For paragraph (b) of item 4 of the table in subsection 153(1) of the Act:

(a)     the following classes of collateral, when described as consumer property, must be described by serial number:

…

(iii)     motor vehicles;

…

(c)     the following classes of collateral, when described as commercial property, may be described by serial number:

(i)     motor vehicles;

…

(3)    For paragraph (b) of item 4 of the table in subsection 153(1) of the Act, a description of collateral by serial number must include the following information:

…

(c)     for a motor vehicle:

(i)     the vehicle identification number; or

(ii)     if it has no vehicle identification number but has a chassis number—the chassis number; or

(iii)     if it has no vehicle identification number or chassis number—the manufacturer's number; …

39    The evidence was that the so-described chassis numbers were, in fact, the vehicle identification numbers for the relevant motor vehicles.

40    Thereafter, DLL’s solicitor lodged further registrations on behalf of DLL recording the relevant number, in each case, as a vehicle identification number.

41    In In the matter of Appleyard Capital Pty Limited; 123 Sweden AB v Appleyard Capital Pty Limited [2014] NSWSC 782; 101 ACSR 629 (Appleyard) at [10], Brereton J stated:

For the purposes of s 588FM(2)(a)(i), “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.

42    Courts have recognised that the concept of inadvertence in s 293(1)(a) is the same as for s 588FM(2): In the matter of Accolade Wines Limited [2016] NSWSC 1023 (Accolade Wines) at [26]; In the matter of 4 in 1 Wyoming Pty Ltd & the companies listed in Schedule A to the Originating Process [2017] NSWSC 407 at [63].

43    The misdescription of the vehicle identification numbers as chassis numbers was plainly a mistake in the course of attempts to lodge registrations for the purpose of securing priority. On that basis, I was satisfied that the need to extend the period arose as a result of inadvertence within the meaning of s 293(3)(a).

44    As to the question of prejudice, in Accolade Wines Brereton J stated (at [27]):

As to the prejudice referred to in s 293(3)(b), neither the researches of counsel, nor mine, have revealed any direct authority on s 293. The authorities on CORPA, s 588FM, and its predecessors provide some assistance, but, there is an important distinction. As explained in Appleyard Capital, in s 588FM(2)(a)(ii), the prejudice referred to is prejudice to the position of creditors or shareholders from “the failure to register the collateral earlier” – in other words, prejudice attributable to not making a timely registration. That means that, to evaluate prejudice for the purposes of s 588FM, one compares the position of the creditors if an extension is granted, with their position if there had been an effective timely registration; often there will be no difference. However, the prejudice referred to in s 293(3)(b) is prejudice from “extending the period”. This directs attention not to the impact on other secured parties or creditors of the delay in registration, but to the impact of making an order extending the period; to evaluate prejudice for that purpose, one compares the position of creditors if an extension is granted, with their position if no extension is granted, and usually there will be a difference because priorities will be disturbed.

45    At [29], Brereton J concluded:

… Appleyard Capital explained that in the context of s 588FM, prejudice to other creditors could not be conclusive because otherwise an order would never be made in any case in which it mattered: in any case where an extension was of utility, there would inevitably be prejudice by removing the collateral from the pool available to satisfy unsecured creditors generally, and enabling that result was the fundamental purpose of the provision. The same applies here: the essential purpose of granting an extension is to reinstate the priority to which a PMSI would otherwise be entitled over prior AllPAPs (as it will in any event have priority over later AllPAPs), and thus in any case in which the remedy is of any practical utility, there will be prejudice to a prior AllPAP holder.

46    Brereton J concluded that it was just and equitable to make an order extending the number of business days in the period specified in s 62(3)(b) for the perfection by registration of the plaintiffs’ PMSIs, having regard to the following matters at [52]:

(1)     there was a registration, which was recorded on the PPSR, albeit a defective one because it was against the Grantors’ ABN, not ACN;

(2)     the PMSIs are each in respect only of the specific collateral to which the relevant lease relates;

(3)     an AllPAP is always liable to be trumped, in respect of specific after-acquired collateral, by a PMSI in respect of that collateral;

(4)     to the extent that an Earlier AllPAP holder will be prejudiced, it is only by losing a windfall arising from inadvertence;

(5)     it is very likely that any Later AllPAP holder in fact had notice of the Plaintiffs’ PMSI when acquiring its security interest; and in any event, notice that there was an earlier PMSI in respect of specific collateral is unlikely to have been material to its decision to provide financial accommodation and take the AllPAP security.

47    Points (2) to (5) applied by analogy in this case. As to (1), there were registrations which were arguably defective because they identified the vehicle identification numbers as chassis numbers but, on the evidence, a third party searching the PPSR would have found the original registration in any event on a search of the grantor’s name.

48    In the absence of any opposition from any of the defendants, I was satisfied that extending the period would not cause relevant prejudice to the position of any other secured parties or other creditors. There was no reason to believe that any person had acted in reliance on the period having ended.

49    Against the possibility that a third party is adversely affected by the extension, and was not afforded a reasonable opportunity to be heard in opposition to the order, I granted leave to any party who has a competing perfected security interest over collateral the subject of any of the relevant registrations, other than any of the fourth to seventh defendants, to apply to set to set aside, amend or vary the order pursuant to s 293(1)(a).

Declaration and section 588FM relief

Statutory framework

50    Chapter 5 of the Corporations Act is entitled “External administration”. Part 5.3A, comprising ss 435A to 451H, is entitled “Administration of a company’s affairs with a view to executing a deed of company arrangement”. The stated object of Pt 5.3A is as follows:

The object of this Part, and Schedule 2 to the extent that it relates to this Part, is to provide for the business, property and affairs of an insolvent company to be administered in a way that:

(a)     maximises the chances of the company, or as much as possible of its business, continuing in existence; or

(b)     if it is not possible for the company or its business to continue in existence—results in a better return for the company's creditors and members than would result from an immediate winding up of the company.

51    Part 5.7B is entitled “Recovering property or compensation for the benefit of creditors of insolvent company”. Division 2A of Part 5.7B, comprising ss 588FK to 588FO, is entitled “Vesting of PPSA security interests if not continuously perfected”.

52    By s 588FK(1), a word or expression used in Div 2A has the same meaning as in the PPSA. By s 588FK(4), in Div 2A a PPSA security interest has the meaning given by s 51 of the Corporations Act. Section 51 provides:

In this Act:

“PPSA security interest” (short for Personal Property Securities Act security interest) means a security interest within the meaning of the Personal Property Securities Act 2009 and to which that Act applies, other than a transitional security interest within the meaning of that Act.

53    Each of the PMSIs identified at [33] above is a PPSA security interest within the meaning of the Corporations Act (PPSA security interest).

54    Section 588FL provides:

Vesting of PPSA security interests if collateral not registered within time

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.

Note 1: For the meaning of critical time, see subsection (7).

Note 2: For when a security interest is enforceable against third parties under the law of Australia, see section 20 of the Personal Property Securities Act 2009.

Note 3: A security interest may become perfected at a particular time by a registration that is made earlier than that time, if the security interest attaches to the collateral at the later time (after registration). See section 21 of the Personal Property Securities Act 2009.

Note 4: The Personal Property Securities Act 2009 provides for perfection by registration, possession or control, or by force of that Act (see section 21 of that Act).

Vesting of security interest in company

(4)     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.

Note: For the meaning of critical time, see subsection (7).

Property acquired for new value without knowledge

(5)     Subsection (4) does not affect the title of a person to personal property if:

(a) the person acquires the personal property for new value from a secured party, from a person on behalf of a secured party, or from a receiver in the exercise of powers:

(i) conferred by the security agreement providing for the security interest; or

(ii) implied by the general law; and

(b) at the time the person acquires the property, the person has no actual or constructive knowledge of the following (as the case requires):

(i) the filing of an application for an order to wind up the company;

(ii) the passing of a resolution to wind up the company;

(iii) the appointment of an administrator of the company under section 436A, 436B or 436C;

(iv) the execution of a deed of company arrangement by the company under Part 5.3A.

Note: For what is actual or constructive knowledge, see sections 297 and 298 of the Personal Property Securities Act 2009.

(6)     In a proceeding in Australia under this Act, the onus of proving the fact that a person acquires personal property without actual or constructive knowledge as mentioned in paragraph (5)(b) lies with the person asserting that fact.

 (7)     In this section:

critical time, in relation to a company, means:

(a) if the company is being wound up—when, on a day, the event occurs by virtue of which the winding up is taken to have begun or commenced on that day under section 513A or 513B; or

(b) in any other case—when, on a day, the event occurs by virtue of which the day is the section 513C day for the company.

55    Section 588FM provides, relevantly:

(1)     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).

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.

Interpretation of s 588FL

56    DLL submitted that, because each of the PPSA security interests was granted to DLL by a company which had previously entered external administration, and therefore had a “critical time” within the meaning of s 588FL of the Corporations Act, there is a risk that s 588FL applies to those security interests absent an order of the Court pursuant to s 588FM.

57    As explained below, I do not accept the premise of the DLL’s argument that there is a “critical time” within the meaning of s 588FL in respect of any of the grantors, by reason of their previous external administrations, which have ended. Section 588FL presently has no relevant application.

58    DLL referred to KJ Renfrey Nominees Pty Ltd (Trustee), in the matter of OneSteel Manufacturing Pty Ltd v OneSteel Manufacturing Pty Ltd [2017] FCA 325; 120 ACSR 117 (KJ Renfrey) where the Court held that it was necessary for a party who had taken a PPSA security interest to obtain relief under s 588FM. In that case, Onesteel Manufacturing had gone into administration on 7 April 2016, and entered into a DoCA on 4 November 2016. The plaintiff, Renfrey, fell into dispute with the administrators over whether a security interest had been properly registered on the PPSR as the relevant registration had identified Onesteel Manufacturing’s parent company as the grantor, instead of Onesteel Manufacturing. The dispute was resolved by the parties’ entry into a new agreement under which Renfrey was granted a new security interest. The new PPSA interest was registered on 12 December 2016, being within 20 business days of the security interest arising, and while Onesteel Manufacturing continued to be subject to the DoCA.

59    At [8] of her Honour’s reasons, Davies J noted that the application for relief under s 588FM was made in the following context:

Whilst the security interest was registered within 20 business days of the security interest coming into force, it was, nonetheless, registered after the “critical time”, namely 7 April 2016, and the parties are concerned that on one possible construction of s 588FL(2)(b)(ii), the fact that the security interest was registered after the “critical time” means that, by reason of s 588FL(4), the security interest automatically vested in OneSteel when it became enforceable. Renfrey applied for an order under s 588FM extending the time for registration of its security interest to 12 December 2016 to avoid the potential operation of s 588FL(4).

60    At [9], her Honour noted that the case was “an appropriate vehicle for grappling with the proper construction of s 588FL in relation to its application to a security interest granted and registered after the relevant event in s 588FL(1)(a) of the Corporations Act”.

61    Davies J concluded relevantly:

[15] Section 588FL must be read as a whole and, in my view, read as a whole, it seems clear … that the scope of s 588FL does cover PPSA security interests that are granted after a relevant s 588FL(1)(a) event.

[16] In this case, a s 588FL(1)(a) event occurred in relation to OneSteel, being the appointment of an administrator to OneSteel. Whether s 588FL applies depends on whether the security interest granted by OneSteel “is covered” by s 588FL(2) of the Corporations Act.

…

[18] The words of s 588FL(2)(a) expressly and unambiguously extend the scope of that subsection to cover a PPSA security interest that “arises after the critical time”. The “critical time” for that purpose is defined in s 588FL(7), relevantly, by reference to the events prescribed in s 588FL(1)(a) in relation to the grantor company, namely:

(a) in respect of a grantor company that is being wound up, the day when the winding up is taken to have begun or commenced as prescribed by ss 513A and 513B (whichever is relevant);

(b) “in any other case”: ie if an administrator is appointed to the grantor company or the grantor company executes a deed of company arrangement, the s 513C day in relation to an administration.

[19] If the grantor company is wound up, a security interest “arises after the critical time” if it arises after the day prescribed in s 513A or s 513B (whichever is relevant) as the day that the winding up is taken to have begun or commenced. Thus, for example, a security interest “arises after the critical time” if, in respect of a grantor company that is being wound up by court order, it arises after the day on which the order was made: s 513A(e) of the Corporations Act. If an administrator is appointed to the grantor company, a security interest “arises after the critical time” if it arises after the day prescribed in s 513C, namely the day on which the administration began: s 513C(b) of the Corporations Act.

[20] The express provision in s 588FL(2) that the subsection covers a security interest “arising after the critical time”, being an expression defined by reference to the events prescribed in s 588FL(1)(a), is a powerful textual and contextual reason against OneSteel’s construction of s 588FL(1) that the “granting” of that interest must have already occurred at the time of the triggering event under subparagraph (a). A security interest that “arises after the critical time” is congruent to a security interest “granted” by the company after the relevant event prescribed in s 588FL(1)(a) that “is covered” by s 588FL(2). Read in that way, the different tenses in s 588FL(1)(a) and (b) do not connote that it is necessary that the security interest be “granted” by the company before the relevant event “occurs”, that is, as a requirement to be satisfied as a past event before the relevant s 588FL(1)(a) event occurs.

62    Cases where relief has been granted pursuant to s 588FM in respect of security interests granted following the external administration of the grantor include Korda, in the matter of Ten Network Holdings Ltd (Administrators Appointed) (Receivers and Managers Appointed) [2017] FCA 1144; Hill (Administrator) in the matter of Flow Systems Pty Ltd (Administrators Appointed) [2019] FCA 35; Dickerson, in the matter of McWilliam’s Wines Group Ltd (Administrators Appointed) (No 2) [2020] FCA 417.

63    DLL described KJ Renfrey as authority for the proposition that it is necessary for a secured party who has taken a security interest from a company “which had already been the subject of external administration” to obtain relief under s 588FM. However, KJ Renfrey was concerned with the case of a grantor that was subject to a DoCA: it did not address the case of a grantor that has been, but is no longer, under external administration (including under administration pursuant to Pt 5.3A, or subject to a DoCA pursuant to Pt 5.3A).

64    DLL submitted that, if KJ Renfrey has the broad effect identified above, each and every security interest granted by the grantor companies immediately falls foul of s 588FL and requires relief from the Court pursuant to s 588FM from the time that security interest is first enforceable against their parties. DLL submitted that this cannot be the intended effect of ss 588FL and 588FM. I agree. Further, the proper interpretation of s 588FL does not support such a construction, and KJ Renfrey is not authority for the broad proposition suggested by DLL, either expressly or impliedly.

65    Starting with the text, the scope of s 588FL is identified, first, by reference to the occurrence of specified events that may occur in the external administration of a company, and second, by reference to the fact of a PPSA security interest granted by the company in collateral covered by s 588FL(2). The latter fact requires consideration of the circumstances of the PPSA security interest at or after the “critical time”.

66    Each specified event is of a kind that necessarily causes, or occurs in the context of, an external administration of the relevant company. The events specified in s 588FL(1)(a)(ii) and (iii) are directed to the case of a company in respect of which an opinion has been formed by the directors, or a liquidator or provisional liquidator that the company that is insolvent, or is likely to become insolvent, or where a security interest has become, and is still enforceable: ss 436A, 436B, 436C, 439A, 444A. The event specified in s 588FL(1)(a)(i) starts the process of winding up a company.

67    The use of the present tense in s 588FL(1) to identify the events that are pre-conditions to the application of s 588FL indicates that the section is concerned with the effect of those events in the course of an external administration. Accordingly, s 588FL(1)(a) does not cover the case of a company that executed a DoCA which has been terminated, with the result that the company is no longer under external administration. The events of the kind in s 588FL(1)(ii) and (iii) that occurred in the cases of Blayney Crane, MCC and Onesteel are historical matters that did not trigger the operation of s 588FL upon the creation of each of the relevant PPSA security interests.

68    As Davies J observed in KJ Renfrey, at [18], the “critical time” in s 588FL(7) is defined by reference to the events prescribed in s 588FL(1)(a) in relation to the grantor company. Although the phrase “in any other case” in s 588FL(7)(b) is ostensibly broad, in context, it is concerned with cases for which a day can be identified that “is” the s 513C day for the company.

69    Section 513C appears in Pt 5.6 of the Corporations Act, entitled “Winding up generally”, Division 1A entitled “When winding up taken to begin”. Section 513C provides:

513C Section 513C day in relation to an administration under Part 5.3A

The section 513C day in relation to the administration of a company is:

(a) if, when the administration began, a winding up of the company was in progress—the day on which the winding up is taken because of this Division to have begun; or

(b) otherwise—the day on which the administration began.

70    By s 513C, the identification of s 513C day for a company is made “in relation to the administration of a company”.

71    Sections 513A and 513B refer, relevantly, to when a winding up is taken to have begun or commenced. By s 513A(d), if, immediately before a relevant winding up order was made, a DoCA has been executed by the company and has not yet terminated, the relevant time is “on the s 513C day in relation to the administration that ended when the deed was executed”. See also ss 513B(c), (d) and (da).

72    These provisions support a conclusion that, if a company is not under administration, it has no s 513C day. By reference to ss 513A and 513B, if the legislature had intended to identify the “critical time” in s 588FL(7) by reference to the s 513C day in relation to an administration that had ended, it would have said so. Accordingly, none of the relevant PPSA security interests is covered by s 588FL(2) for the purposes of s 588FL(1)(b).

73    In KJ Renfrey, Davies J found (at [8] and [18]) that the “critical time” was the date that the administration began. At [16], her Honour noted that a s 588FL(1)(a) event occurred, being the appointment of an administrator to Onesteel Manufacturing. Her Honour did not address whether a second s 588FL(1)(a) event occurred when Onesteel Manufacturing executed a DoCA, which apparently happened in November 2016. Nor did her Honour advert to s 435C(1)(b), by which an administration ends on the execution of DoCA.

74    The interpretation above is in tension with her Honour’s reasoning to the extent that it implies that there is no “critical time” within the meaning of s 588FL(7) once an administration has ended on the happening of the execution of a DoCA, in accordance with s 435C(1)(b). Her Honour proceeded on the basis that “any other case” in s 588FL(7) covered the cases of the appointment of an administrator and the execution of a DoCA and that, in each case, it was possible to identify the s 513C day for the company.

75    However, in the context of s 588FL(1) (and s 588FL(5)), it is plainly arguable that “any other case” includes the case of a company that is subject to a DoCA and, in such a case, the critical time is the s 513C day in relation to the administration that ended when the deed was executed. This interpretation would involve reading additional words into s 588FL(7) in order to give effect to the express intention of s 588FL(1) that s 588FL applies if a company executes a DoCA under Pt 5.3A.

76    The context in which s 588FL appears, and its evident purpose, both strongly support the conclusion that s 588FL does not apply to cases where a PPSA security interest is granted by a company to which an administrator has been appointed or which has executed a DoCA, if the company is no longer in external administration.

77    Having regard to its location in Pt 5.7B, the evident concern of s 588FL is the protection of creditors, where a company is under external administration. If s 588FL were to apply after a company had ceased to be in external administration, it would not operate to protect creditors but would instead lead to the vesting of PPSA security interests in the company operating as a going concern.

78    If s 588FL operated in relation to a company to which Pt 5.3A no longer applied, a company which continued in existence following its restoration to corporate health (whether by the ending of a voluntary administration or the termination of a DoCA), would be treated differently from a company that had never been in administration, and would be disadvantaged, for no apparent purpose. Such an interpretation of s 588FL would produce the unnecessary and inconvenient result that, in every case where a company wished to grant a security interest after emerging from external administration, it would be necessary to seek relief under s 588FM in order to avoid the immediate vesting of the security interest in the company. That result would tend to subvert one object of Pt 5.3A, set out in s 435A, which is to provide for the administration of an insolvent company in a way that maximises the chances of the company continuing in existence.

79    In KJ Renfrey, Davies J rejected a submission that s 588FL applies only to interests that had already been granted when the relevant event in s 588FL(1)(a) occurs. DLL sought to put an argument which drew a distinction between security interests that arise or become enforceable after the critical time and security interests that are granted after the critical time. It is unnecessary to address this submission, in the light of my conclusion that s 588FL has no relevant application.

Conclusion

80    DLL’s principal claim was for a declaration that it “does not require relief pursuant to s 588FM” for any registration concerning any security interest that arose after the relevant grantor entered external administration (within the meaning of s 588FL(1)(a)) and which otherwise complies with s 588FL as though the s 588FL(1)(a) event had never occurred.

81    The power to grant declaratory relief is limited only by the boundaries of judicial power. In Ainsworth v Criminal Justice Commission [1992] HCA 10; 175 CLR 564 at 581-2, Mason CJ, Dawson, Toohey and Gaudron JJ stated relevantly:

It is now accepted that superior courts have inherent power to grant declaratory relief. It is a discretionary power which “[i]t is neither possible nor desirable to fetter ... by laying down rules as to the manner of its exercise.” However, it is confined by the considerations which mark out the boundaries of judicial power. Hence, declaratory relief must be directed to the determination of legal controversies and not to answering abstract or hypothetical questions. The person seeking relief must have “a real interest” and relief will not be granted if the question “is purely hypothetical”, if relief is “claimed in relation to circumstances that [have] not occurred and might never happen” or if “the Court’s declaration will produce no foreseeable consequences for the parties”.

(Footnotes omitted)

82    There is no claim that any of the relevant PPSA security interests has vested in one of the grantors under s 588FL(4). There is presently no “human dispute to be quelled”: see National Australia Bank Limited v Nautilus Insurance Pte Ltd (No 2) [2019] FCA 1543; 377 ALR 627 at [80].

83    The form of the proposed declaration does not correspond with the reasons set out above. In any event, it is too broad because it seeks to address the position of PPSA security interests about which the facts and affected parties were not identified, including security interests that may be granted in the future. However, having regard to the availability of relief extending the time for registration under s 588FM and DLL’s uncertainty as to whether relief under that section should be sought, I am persuaded that declaratory relief is appropriate to confirm that the PPSA security interests did not vest in the grantor companies under s 588FL(4).

84    The alternative relief claimed by DLL comprised orders pursuant to s 588FM. There is no basis for an order under s 588FM because 588FL(2)(b)(iv) has no relevant operation.

Associate:

Dated:    26 November 2020

SCHEDULE OF PARTIES