Federal Court of Australia

Elimatta Pty Ltd v NT Bullion Pty Ltd, in the matter of NT Bullion Pty Ltd [2021] FCA 1416

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 588FM, and for the purposes of s 588FL(2)(b)(iv) of the Corporations Act 2001 (Cth) (Corporations Act), 1 October 2021 and 8 October 2021 are fixed as the time for the plaintiff to register on the PPSR, PPSR Registration number: 202110010048482 (First Registration) and 202110080045429 (Second Registration), respectively.

2.    If, within 6 months of 1 October 2021 in respect of the First Registration and 8 October 2021 in respect of the Second Registration a winding up of the first defendant occurs, or an administrator is appointed to the first defendant under ss 436A, 436B, or 436C of the Corporations Act, or the first defendant executes a deed of company arrangement, liberty is reserved to any liquidator, administrator or deed administrator appointed to the first defendant to apply to discharge or vary Order 1.

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

REASONS FOR JUDGMENT

YATES J

Introduction

1    This is an application under s 588FM of the Corporations Act 2001 (Cth) (the Act) to fix “a later time” for the purposes of s 588FL(2)(b)(iv) of the Act.

2    To explain, s 588FL deals with the vesting of Personal Property Securities Act 2009 (Cth) (PPSA) security interests in the grantor if collateral is not registered within the latest of certain specified times. When a company is being wound up, an administrator is appointed, or a deed of company arrangement is executed, then, by dint of s 588FL(2), any PPSA security interest which was perfected, registered, or enforceable against a third party after the latest of six months before the “critical time” or 20 days after the security agreement came into force, or such later time as the Court may fix under s 588FM, vests in the company, for the benefit of creditors generally. In short, in those circumstances, the secured creditor loses the benefit of the security.

3    Section 588FM provides:

(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.

4    The provision confers a discretion of the Court to fix a later date if satisfied of any one of the three stated grounds.

5    The reference to “inadvertence” in s 588FM(2)(a)(i) includes a failure to advert to or understand the requirement for registration. It also includes innocent error, such as the failure to register through ignorance of the legal requirement to do so. The meaning of “inadvertence” has been explored and explained in a number of cases: Re Appleyard Capital Pty Ltd; 123 Sweden AB v Appleyard Capital Pty Ltd [2014] NSWSC 782; 101 ACSR 629 (Appleyard) at [10]; Re Cardinia Nominees Pty Ltd [2013] NSWSC 32 (Cardinia) at [15]; Re Accolade Wines Australia Limited [2016] NSWSC 1023 at [14]; Northern Managed Finance Pty Ltd v 4 in 1 Wyoming Pty Ltd [2017] NSWSC 407; 120 ACSR 167 at [35] – [41]; Commonwealth Bank of Australia v HM Aircraft Holdings Pty Ltd [2021] FCA 447; 152 ACSR 63 at [64].

6    An extension order under s 588FM can operate to the detriment of unsecured creditors if the grantor goes into liquidation or administration within six months of the security interest being perfected, because it avoids the consequence that the security interest would otherwise vest in the grantor for their benefit. The prejudice to other creditors arises from the delay in registration of the security interest rather than from the making of the order. Thus, the length of delay prior to registration is a relevant factor for the exercise of the Court’s discretion under the extension provision.

7    In Cardinia, Black J (at [21]) said that an extension under s 588FM would not generally be granted if there was a danger that the claims of unsecured creditors would not be met owing to insolvency, or the likely insolvency, of the grantor company. To this end, the interest of unsecured creditors can be protected by a “Guardian Securities condition”, as explained by Brereton J in Appleyard at [25] and [28]:

[25]    The Australian authorities establish that the interests of the unsecured creditors are a relevant consideration, so that the court must have regard to the financial position of the company as at the time of the application for extension. If the company is shown to be financially secure, then it is unlikely that a “critical day” will arise in the foreseeable future and the grant of relief will not likely affect any person adversely [Hewlett Packard, [29]]; indeed, if solvency is established that is likely to be the end of the matter [Investa Properties Pty Ltd v Westpac Property Funds Management Ltd [2001] NSWSC 1089, [31]]. But otherwise, where the Court is not satisfied that there is no risk that unsecured creditors could be adversely affected, the unsecured creditors (or their representative) are entitled to be heard against the making of an order, though this may sufficiently be achieved by suspending the operation of the order, or by imposing a term reserving leave to apply to set it aside in the event of a liquidation or administration (“a Guardian Securities condition“) [Re Guardian Securities, 97; see also Re Cinema Art Films [1930] NZLR 500 at 502–3; Re L H Charles & Co Ltd (1935) WN(Eng) 15; Bevillesta v Imagine, 58].

…

[28]    In practice, the strictures of Re Flinders Trading Co have not been applied, and it has been commonplace, even when it appears that the company may be insolvent and liquidation or administration is imminent, to extend time subject to a “Guardian Securities condition” reserving leave to any liquidator or administrator appointed within six months to apply to set the order aside. This course, or one similar to it, was taken in Re a Ltd Co (Long Innes J), where solvency was dubious; in Re L H Charles (Clauson J), where liquidation was in contemplation; in Re Cinema Art Films (Myers CJ); in Re Guardian Securities (McLelland J), where there was “no evidence whatsoever as to the solvency or otherwise of the company creating the charge“ (at 98); and in Bevillesta (Robson J), where the evidence of solvency was inconclusive. In recent times in this court, such orders have been made in Cardinia Nominees (Black J), where again the evidence of solvency was inconclusive; in In the matter of Apex Gold Pty Ltd [2013] NSWSC 881 (Hammerschlag J), where administration was imminent; and in Black Opal IP (Brereton J), where there was some but less than comprehensive evidence of solvency.

Facts

8    The first plaintiff, Elimatta Pty Ltd, is the trustee for the Jamoyd Property Trust. The second plaintiff, Elimatta Developments Pty Ltd is the trustee for the O’Keeffe Family Super Fund. The defendant, NT Bullion Pty Ltd, is a gold and iron ore mining company, which operates in the Northern Territory.

9    In around September 2020, the plaintiffs and the defendant negotiated the terms of the loan whereby the plaintiffs agreed to lend the sum of $2 million to the defendant. It was agreed that the defendant would pay the plaintiffs interest at the rate of 10% per annum, with the principal and interest being repaid in full within 12 months from the date of the advance. The plaintiffs and the defendant also agreed that the plaintiffs would be able to elect to convert the loan into equity in the defendant, should they wish to do so.

10    On 1 October 2020, the plaintiffs and the defendants entered into a Deed of Loan, a Convertible Note Deed, and a General Security Agreement. A director of the plaintiffs, and beneficiary in each of the trusts, Mr O’Keeffe, engaged a law firm to act on the plaintiffs’ behalf in respect of the preparation and execution of the three agreements. He understood that these lawyers would do everything necessary to ensure that the agreements were valid and effective.

11    On 2 October 2020, the plaintiffs advanced the sum of $2 million to the defendant. In accordance with the agreements, this sum, together with accrued interest, was to be repaid by 2 October 2021.

12    The evidence before the Court discloses that there have been apparent breaches of the Deed of Loan and the Convertible Note Deed with respect to the defendant furnishing the plaintiffs with quarterly financial reports and monthly management accounts. The details of these apparent breaches are identified in an affidavit made by Mr O’Keeffe on 19 October 2021 but are not relevant for present purposes.

13    On 20 September 2021, an accountant engaged on behalf of the plaintiffs sent, on Mr O’Keeffe’s instructions, an email to the defendant regarding repayment of the loan amount.

14    On 30 September 2021, the defendant replied by letter. The letter was, essentially, a request—expressed as an “invitation”—to refinance the loan “for a short period”. The letter stated that it would be advantageous for all parties for the plaintiffs to do this because of, amongst other things, the “flawed position of the Lenders”. The letter explained:

… the registration of security interest on the PPS Register was not effected as required to preserve the priority of the Lenders and that such security would be at risk of being set aside should the directors of NT Bullion appoint an Administrator.

15    Mr O’Keeffe’s evidence is that the making of the statement was the first time that he became aware that the plaintiffs’ interests, which had been granted pursuant to the General Security Agreement, had not been registered on the PPSR. He said that the lawyers engaged on behalf of the plaintiffs in relation to the transaction had not informed him that the plaintiffs were required to register their security interest on the PPSR and that he had assumed that they had done all things necessary to preserve the plaintiffs’ interests.

16    On receiving the defendant’s letter of 30 September 2021, Mr O’Keeffe obtained advice from his current solicitor that there were strict timelines which needed to be complied with in order to perfect a security interest on the PPSR. Mr O’Keeffe then immediately instructed his current solicitor to perform searches of the PPSR to ascertain whether there had been any security interests perfected on the PPSR with respect to the defendant. On 1 October 2021, he was informed that there were no financing statements registered on the PPSR as at that date.

17    Mr O’Keeffe then instructed his current solicitors to lodge a registration in respect of the plaintiffs’ security interests. This was also done on 1 October 2021.

18    The PPSR registration lodged on 1 October 2021 records Elimatta Pty Ltd as the secured party through its own ACN rather than the ABN of the Jamoyd Property Trust. Apparently the required reference, when making a registration concerning a trustee of a trust, is the ABN of the trust (if one exists). Upon becoming aware of this, Mr O’Keeffe instructed his solicitor to lodge a further financing statement on the PPSR with the correct particulars.

19    By way of further background, on 29 October 2021 Stewart J made orders for abridged service on the defendant of the originating process seeking relief under s 588FM. His Honour listed the matter for final hearing on 8 November 2021 before me as the current Commercial and Corporations Duty Judge in New South Wales if the granting of that relief is not opposed.

20    As matters have transpired, the defendant does not oppose the granting of the relief that is sought.

Consideration

21    The plaintiffs seek the following final relief (prayers 4 – 7) in the originating process (the relief sought in earlier prayers of the originating process is for interlocutory relief):

4.    An order that, pursuant to section 588FM and for the purposes of section 588FL(2)(b)(iv) of the Corporations Act, 1 October 2021 and 8 October 2021 are fixed as the time for the Plaintiff to register on the PPSR, PPSR Registration number: 202110010048482 (First Registration) and 202110080045429 (Second Registration), respectively.

5.    An order that, if, within 6 months of 1 October 2021 in respect of the First Registration and 8 October 2021 in respect of the Second Registration a winding up of the First Defendant occurs, or an administrator is appointed to the First Defendant under sections 436A, 436B or 436C of the Corporations Act, or the First Defendant executes a deed of company arrangement, liberty is reserved to any liquidator, administrator or deed administrator appointed to the First Defendant to apply to discharge or vary order 4.

6.    A direction that orders 4 and 5 are to be entered forthwith.

7.    Any further or other order that this Honourable Court deems fit.

22    It will be apparent that the second order sought (prayer 5) provides a “Guardian Securities condition”.

23    The plaintiffs base their present application on three grounds. First, they say that the failure to register the collateral earlier was accidental or due to inadvertence.

24    Secondly, they say that the failure to register the collateral earlier is not of such a nature as to prejudice the position of creditors or shareholders of the defendant.

25    The third ground on which they base their application is that it is just and equitable to grant the relief sought.

26    There is no evidence before me of any explanation from the former solicitors as to why the collateral was not registered in time, but equally there is no evidence that this failure was deliberate or conscious. It is more likely than not that the failure to register was through ignorance, oversight, or incompetence. Whatever the reason might be, it should not be visited on the plaintiff by denial of the relief that is now sought. I am satisfied from the explanation given by Mr O’Keefe that the ground of accident or inadvertence is made out and justifies the making of the orders that are now sought.

27    In that regard, one matter relevant to the court’s discretion is the expedition with which the plaintiffs have moved to seek the relief now claimed. On the evidence before me I am satisfied that the plaintiffs have moved expeditiously since becoming aware on 30 September 2021 that their security interests had not been perfected.

28    Having been satisfied that the ground referred to in section 588FM(2)(a)(i) is made out, it is not necessary for me to determine whether the other grounds on which the plaintiffs rely have been established.

Disposition

29    The relief sought by the plaintiffs as final relief should be granted.

Associate:

Dated:    8 November 2021