Bluewaters Power 1 Pty Ltd v The Griffin Coal Mining Company Pty Ltd
[2019] WASC 438
•3 DECEMBER 2019
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: BLUEWATERS POWER 1 PTY LTD -v- THE GRIFFIN COAL MINING COMPANY PTY LTD [2019] WASC 438
CORAM: VAUGHAN J
HEARD: 21 NOVEMBER 2019
DELIVERED : 21 NOVEMBER 2019
PUBLISHED : 3 DECEMBER 2019
FILE NO/S: COR 199 of 2019
BETWEEN: BLUEWATERS POWER 1 PTY LTD
First Plaintiff
BLUEWATERS POWER 2 PTY LTD
Second Plaintiff
AND
THE GRIFFIN COAL MINING COMPANY PTY LTD
Defendant
Catchwords:
Corporations - Application under Corporations Act 2001 (Cth) s 588FM to fix registration time for security interests - Security interests not registered due to inadvertence - Turns on own facts
Personal property - Personal Property Securities Act 2009 (Cth) - Meaning of security interest - Whether step-in rights pursuant to contract constitute a security interest under the PPSA - Turns on own facts
Legislation:
Corporations Act 2001 (Cth), s 588FL, s 588FM
Personal Property Securities Act 2009 (Cth), s 12
Result:
Application granted
Category: B
Representation:
Counsel:
| First Plaintiff | : | C P Blaxill |
| Second Plaintiff | : | C P Blaxill |
| Defendant | : | No appearance |
Solicitors:
| First Plaintiff | : | Allens |
| Second Plaintiff | : | Allens |
| Defendant | : | McNally & Co |
Cases referred to in decision:
Caason Investments Pty Ltd v Ausroc Metals Ltd [2016] WASC 267
McCloy v Manukau Institute of Technology [2013] 3 NZLR 390
National Australia Bank Ltd v Davis & Waddell (Vic) Pty Ltd [2003] VSC 1; (2003) 44 ACSR 296
Re Accolade Wines Australia Ltd [2016] NSWSC 1023
Re ACE Funding Ltd [2003] FCA 59; (2003) 44 ACSR 363
Re Appleyard Capital Pty Ltd [2014] NSWSC 782; (2014) 101 ACSR 629
Re Cardinia Nominees Pty Ltd [2013] NSWSC 32
Re Enviro Pallets (NSW) Pty Ltd [2013] QSC 220
Re Transurban CCT Pty Ltd [2014] NSWSC 1909
Sanwa Australia Finance Ltd v Ground-Breakers Pty Ltd (in liq) (1992) 2 ACSR 692
VAUGHAN J:
(These reasons were delivered orally at the conclusion of the hearing. They have been edited to correct matters of grammar and infelicity of expression. Authorities and other references have also been footnoted rather than appearing in the body of the reasons.)
Introduction
The plaintiffs, Bluewaters Power 1 Pty Ltd (Bluewaters 1) and Bluewaters Power 2 Pty Ltd (Bluewaters 2), apply by originating process dated 24 October 2019 under s 588FM of the Corporations Act 2001 (Cth) to fix a later time under s 588FL(2)(b)(iv) of the Act in relation to the registration of a security interest under the Personal Property Securities Act 2009 (Cth) (PPSA).
The application is made in relation to putative security interests in the form of certain step‑in rights granted by the defendant, The Griffin Coal Mining Company Pty Ltd (Griffin Coal), to the plaintiffs under two coal supply agreements. Griffin Coal has been joined as a defendant and served with the application. However, Griffin Coal has chosen not to participate in the proceedings. Essentially the application is unopposed.
The step‑in rights became included in the coal supply agreements by amendments effected on 15 February 2013. However, no immediate steps were taken to register any security interest in relation to the step‑in rights. Bluewaters 1 and Bluewaters 2 only registered security interests arising in relation to the step‑in rights on 1 October 2019. Accordingly, they now wish to extend the time for registration for the purpose of s 588FL(2)(b)(iv) of the Act to 1 October 2019.
The application is supported by two affidavits:
1.Affidavit of Hiroyuki Fujioka affirmed 24 October 2019.
2.Affidavit of Alex Antoniazzi sworn 24 October 2019.
Mr Fujioka is a director of the plaintiffs. He gives direct evidence of the relevant events. Mr Antoniazzi is a solicitor employed by the firm acting for the plaintiffs. He simply attaches various documents that need to be put before the court.
The plaintiffs have also filed a comprehensive outline of submissions dated 15 November 2019.
Background facts
The defendant, Griffin Coal, operates the Ewington Coal Mine located in Collie, Western Australia. The plaintiffs operate the Bluewaters Power Station (a coal-fired base load power station) located adjacent to the Ewington Coal Mine in Collie. The relationship between the parties - in particular their ownership and the relevant corporate structure - has altered over time.
Initially the plaintiffs and the defendant were related companies, being part of the Griffin Energy Group. The plaintiffs were wholly owned subsidiaries of the defendant. However, in 2010 external administrators were appointed to the defendant. That resulted in various changes in ownership as the external administrators proceeded to realise assets.
Specifically, there was a change in ownership between the plaintiffs, who conduct the Power Station, and the defendant, who conducts the coal mine. In summary:
1.The plaintiffs, Bluewaters 1 and Bluewaters 2, became owned by the The Kansai Electric Power Company Inc (directly as to 50.01%) and Sumitomo Corporation (indirectly as to 49.99%).
2.The defendant, Griffin Coal, became owned by Lanco Resources Australia Pty Ltd - a company of which an Indian entity, Lanco Infratech Ltd, is the ultimate holding entity through a Singapore company called Lanco Resources International Pte Ltd.
Before the appointment of the external administrators there were two coal supply agreements in place between the plaintiffs, on the one hand, and Griffin Coal, on the other. Bluewaters 1 and Bluewaters 2 sourced coal from Griffin Coal for the Bluewaters Power Station pursuant to the coal supply agreements. With the change in the ownership of the plaintiffs and the defendant the terms of the two coal supply agreements were renegotiated. On 15 February 2013 the two coal supply agreements were amended and restated by deeds of amendment, restatement and accession. The amended and restated coal supply agreements are essentially in the same terms.
The amendments to the coal supply agreements included, among other things, the inclusion of step‑in rights in favour of the plaintiffs should certain step‑in events occur. Mr Fujioka describes the rationale and effect of the step‑in rights in the following terms:
The Step‑in Rights were negotiated because of uncertainties around the security of coal supply which arose as a consequence of the sale of Griffin Coal to Lanco Australia, and Bluewaters and Griffin Coal ceasing to be members of the same corporate group.
Under the CSAs [ie the coal supply agreements], the Step‑in Rights are enforced by Bluewaters or its nominee entering on and taking possession of all plant, material, equipment, documents and information of Griffin Coal as it reasonably considers necessary or advisable to operate, maintain and manage the Ewington Mine for the purpose of remedying the relevant Step‑in Event.
At the time of the amendments to the coal supply agreements Bluewaters 1, Bluewaters 2, Griffin Coal and a number of other entities entered into an inter‑creditor deed. Those other entities included ICICI Bank Ltd who was and is the principal secured creditor of Griffin Coal. By the inter‑creditor deed the parties agreed to regulate the arrangements between Griffin Coal's financiers in respect of various securities granted to a security trustee now known as Sargon CT Pty Ltd. The inter‑creditor deed contains certain terms which affect the exercise of the plaintiffs' step‑in rights under the coal supply agreements.
The security trustee, Sargon, registered the security interests held by it on the Personal Properties Security Register (PPSR). That occurred on 15 February 2013. A security interest was registered against all present and after acquired property held by Griffin Coal, ie an ALLPAP registration.
At that time, as mentioned, there was no registration of any security interest in relation to the step‑in rights under the coal supply agreements. Bluewaters 1 and Bluewaters 2 were then represented by a large commercial law firm. That firm had acted for Bluewaters 1 and Bluewaters 2 in the negotiation of the amended and restated coal supply agreements.
Mr Fujioka deposes that:
Bluewaters did not take steps to register the Step‑in Rights under the CSAs [ie the coal supply agreements] on the PPSR at the time that the CSAs were varied on 15 February 2013.
Having searched my files, to the best of my knowledge, as at 15 February 2013 neither I nor the officeholders and management of Bluewaters were aware that:
(a)the Step‑in Rights under the CSAs could give rise to a security interest; or
(b) that any such interest ought to be registered in the PPSR.
I have searched my files and have not found any legal advice from that time to the above effect.
…
To the best of my knowledge and recollection, it was my understanding as at February 2013 and until July 2019 that the registration by the Security Trustee was sufficient to protect any and all security interests held by Bluewaters.
Having searched my files, prior to July 2019, to the best of my knowledge neither I nor the officeholders and management of Bluewaters were aware of the decision of the High Court of New Zealand in McCloy v Manukau Institute of Technology [2013] 3 NZLR 390.
The reference to McCloy v Manukau Institute of Technology[1] is to a 1 May 2013 decision of Collins J in New Zealand in which it was held, in substance, that particular step‑in rights in a construction contract provided a form of security over certain machinery. There the clause allowed one party, in the event of the other party's default, to complete works using the defaulting party's machinery. Afterwards the machinery could be sold by public auction, or such other method as agreed, with the proceeds to be applied in reduction of the defaulting party's liability, if any, to the non-defaulting party. Collins J held that the non‑defaulting party acquired a security interest in the machinery when the right was invoked as the clause was a transaction that in substance secured payment or performance of the defaulting party's obligations to the non‑defaulting party.
[1] McCloy v Manukau Institute of Technology [2013] 3 NZLR 390.
Mr Fujioka does not depose to the circumstances in which Bluewaters 1 and Bluewaters 2 became aware of the decision in McCloy v Manukau Institute of Technology and its possible implications for the step‑in rights under the coal supply agreements. However, I infer that the plaintiffs' awareness arose in the context of the plaintiffs taking legal advice as to their position vis‑à‑vis Griffin Coal under the coal supply agreements. That inference is available as Mr Fujioka goes on to explain the delay in thereafter effecting registration - a period from July 2019 to 1 October 2019 - in terms of the plaintiffs and their shareholders being engaged in communications with each other and their legal advisers as to the practical effect and consequences of failure to register the putative security interests and the steps required to effect registration.
As mentioned, registration was effected on 1 October 2019. This application was then commenced on 24 October 2019.
There is some uncertainty as to the financial position of Griffin Coal. Lanco Infratech is in liquidation in India. Lanco International is also insolvent and is subject to receivership under Singaporean law. The plaintiffs have adduced in evidence the last available financial report for Griffin Coal. These are financial statements for the period to 31 March 2018. The financial statements to 31 March 2019 are not yet available. The 2018 financial statements disclose that since 2017 ICICI has been providing financial support to Griffin Coal.
Also, as long ago as 24 April 2019, the plaintiffs received correspondence from Griffin Coal which suggested that - with the liquidation and receivership of its parent entities - Griffin Coal remained in a vulnerable financial position with ongoing operational losses.
Is there a security interest?
The plaintiffs have brought this application because they consider that the step‑in rights under the two coal supply agreements give rise to a registrable security interest. It is said that the step‑in rights secure the performance of Griffin Coal's obligations under the two coal supply agreements.
Section 12 of the PPSA provides:
A security interest 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).
Counsel for the plaintiffs has informed me that the question of whether step‑in rights constitute a security interest under the PPSA has not been judicially considered in Australia. Counsel referred, however, to McCloy v Manukau Institute of Technology. It was also submitted that the weight of academic commentary supports the proposition that a similar approach is likely to be adopted in Australia.
It is, however, necessary to have regard to the specific terms of the step‑in rights under the two coal supply agreements.
The coal supply agreements provide for definitions of step‑in event and step‑in rights. The term step‑in rights includes the rights referred to in cl 17.7(a) of the coal supply agreements. In turn, cl 17.7(a) provides:
On the giving of a Step‑in Notice pursuant to clause 17.6, [the plaintiffs] or its nominee may enter on and take possession of all plant, material, equipment, documents and information of Griffin Coal as it reasonably considers are necessary or advisable to operate, maintain and manage the Ewington Mine for the sole purpose of remedying the Step‑in Event as soon as practicable …
Accordingly, the step‑in right is provided for the purpose of remedying the step‑in event. That understanding of the provision is reinforced when regard is had to cl 17.6, cl 17.7(c)(i), cl 17.7(d) and cl 17.7(e)(i).
A step‑in event occurs where Griffin Coal defaults under any one of the following and that default is not remedied within the relevant cure period:
1.Clause 17.1(a) - delivery of coal which does not meet relevant specifications on a certain number of occasions and which has a material adverse effect on the plaintiffs' obligations to supply power.
2.Clause 17.1(b) - failure to deliver the quantities of coal required to be delivered which has a material adverse effect on the plaintiffs' obligations to supply power.
3.Clause 17.1(e) - an insolvency event.
4.Clause 17.1(f) - Griffin Coal fails to pay any sum due to the relevant plaintiff under the coal supply agreement within five days of the due date (but only to the extent that such failure to pay is with respect to the payment of any amount due and properly incurred by the relevant plaintiff in respect of alternative supplies and damages under cl 18 of the coal supply agreement).
I am reluctant to authoritatively determine the question of whether there is a registrable PPSA security interest in relation to the step‑in rights under the coal supply agreements. There are two reasons for that. First, I have not heard full argument. There is no contradictor to this application. The point is novel. In my view it is a point best considered with the benefit of argument on both sides. Second, the application has been brought on in circumstances of urgency. In that situation it is unsurprising that, other than being directed to McCloy v Manukau Institute of Technology, I have not received detailed submissions on the point.
It is, however, sufficient for present purposes if I am satisfied that there is a reasonably arguable case that the step‑in rights under the coal supply agreements constitute a registrable security interest. If that be the case I can, I consider, make an order under s 588FM, fixing a later time under s 588FL(2)(b)(iv), if and to the extent that the step‑in rights constitute a PPSA security interest.
I am satisfied, to that reasonably arguable standard I have mentioned, that the step‑in rights under the two coal supply agreements are registrable PPSA security interests. The definition under s 12 of the PPSA is a functional definition. The relevant question is whether, in substance, there is an interest in personal property provided for by the transaction that secures payment or performance of an obligation. In the present case, by reference to the definition of step‑in event as incorporates the default in cl 17.1(f), the step‑in right is, among other things, provided to remedy a failure to pay certain amounts becoming due by Griffin Coal to the relevant plaintiff. The step‑in rights allow the relevant plaintiff to enter on and take possession of personal property to operate, maintain and manage the Ewington Coal Mine for the purpose of remedying that step‑in event. In that way, at least arguably, the step‑in rights secure payment or performance of Griffin Coal's obligation to the relevant plaintiff.
On that basis, I will go on to consider whether I should fix a later time under s 588FL(2)(b)(iv), for the registration of the step‑in rights under the two coal supply agreements, if and to the extent that they constitute a PPSA security interest.
Legal principles
Section 588FL of the Corporations Act 2001 (Cth) has the effect that a PPSA security interest vests in the company on a voluntary administration or winding up if: (1) it was perfected by registration; (2) it was registered within the six months preceding the administration or liquidation; but (3) it was not registered within 20 business days after the grant - unless it was registered within such later time as is ordered by the court under s 588FM. In short, where security interests are not registered within 20 business days, there is a six month hardening period unless the court orders that there be a later time for registration and there is then registration within that additional time.
Section 588FM of the Corporations Act 2001 (Cth) empowers the court to make an order fixing a later time for the purpose of s 588FL(2)(b)(iv). Usually the order that is sought is one that extends the time for registration to the date that a late registration was in fact effected. The application may be made by a 'person interested' - for example the holder of the security interest - and any order may be made on terms and conditions that seem just and expedient to the court (see s 588FM(3)).
The purpose and effect of such an order under s 588FM is to avoid the vesting of the security interest in a company if it goes into administration or liquidation within six months after the actual date of registration, there not having been registration within the 20 business days. The order thus preserves the secured creditor's security to the detriment of the unsecured creditors. The only utility of such an order is in the event that the company does goes into administration or liquidation within the six months.
Put alternatively, in the absence of an order, a security holder who registers late is exposed to the risk that it will be deprived of its security if the company goes into administration or liquidation within six months after any late registration.
It is important to appreciate that a s 588FM order has no effect on the priority of a security interest; but rather merely avoids the consequence that in the event of administration or liquidation within six months after registration the security interest vests in the grantor.
The company, as grantor, should be joined as a defendant on any application for orders under s 588FM and served with it.[2] That occurred in the present case. However, it is not necessary to join other secured creditors. An order under s 588FM has no effect on the priority of security interests. Accordingly, the rights of the other secured creditors are not affected by an order under s 588FM(1).[3]
[2] Re Appleyard Capital Pty Ltd [2014] NSWSC 782; (2014) 101 ACSR 629 [34], Re Accolade Wines Australia Ltd [2016] NSWSC 1023 [6], [9], [46].
[3] Re Accolade Wines Australia Ltd [10], [21]. See also Re Appleyard Capital Pty Ltd [15]; Re Transurban CCT Pty Ltd [2014] NSWSC 1909 [9].
An order can be made under s 588FM of the Corporations Act 2001 (Cth) where the court is satisfied that:
1.the failure to register the collateral earlier was accidental or due to inadvertence or some other sufficient cause (s 588FM(2)(a)(i));
2.the failure to register the collateral earlier is not of such a nature as to prejudice the position of creditors or shareholders (s 588FM(2)(a)(ii)); or
3.it is just and equitable to grant relief (s 588FM(2)(b)).
Only one of the three grounds needs to be established.[4] In this case, the plaintiffs rely on each ground. I am, however, satisfied that the plaintiffs' application has been made out on the ground that the failure to register was accidental or inadvertent, in particular, that it was inadvertent. Accordingly, I only propose to mention the legal principles as to accident and inadvertence.
[4] Re Appleyard Capital Pty Ltd [9]; Caason Investments Pty Ltd v Ausroc Metals Ltd [2016] WASC 267 [10].
A lack of legal understanding as to the requirements for registration may amount to 'inadvertence'.[5] The concept is concerned with human error or oversight[6] or being 'not properly attentive'.[7]
[5] Sanwa Australia Finance Ltd v Ground-Breakers Pty Ltd (in liq) (1992) 2 ACSR 692, 695; Re Enviro Pallets (NSW) Pty Ltd [2013] QSC 220, 5 - 6; Re Appleyard Capital Pty Ltd [10]; Re Transurban CCT Pty Ltd [8]; Re Accolade Wines Australia Ltd [14].
[6] National Australia Bank Ltd v Davis & Waddell (Vic) Pty Ltd [2003] VSC 1; (2003) 44 ACSR 296 [65].
[7] Re ACE Funding Ltd [2003] FCA 59; (2003) 44 ACSR 363 [8].
Inadvertence will readily be found 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 statutory obligations.[8]
[8] Re Accolade Wines Australia Ltd [14].
Where an applicant relies on its own inadvertence its proper officer should give appropriate direct evidence of that inadvertence.[9]
[9] Re Accolade Wines Australia Ltd [16].
Disposition: the failure to register was inadvertent
The plaintiffs are not lenders. Mr Fujioka deposes that, with the exception of the step‑in rights under the coal supply agreements, neither Bluewaters 1 nor Bluewaters 2 have been granted any step‑in rights and do not hold any direct interest in the collateral of any third parties. That is also the case for Kansai Electric and Sumitomo. I have already referred to Mr Fujioka's express evidence that from the grant of the step‑in rights, until July 2019, the plaintiffs were not aware and did not receive any legal advice to the effect that the step‑in rights could give rise to a security interest and that such an interest ought to be registered on the PPSR.
To the contrary, until July 2019, the plaintiffs understood that the registration effected by the security trustee was sufficient to protect any and all security interests held by Bluewaters 1 and Bluewaters 2.
It is also relevant, I consider, to have regard to two additional matters.
First, at the time of negotiation and execution of the coal supply agreements Bluewaters 1 and Bluewaters 2 were represented by a large commercial law firm. The coal supply agreements as amended are commercially sophisticated. So too is the inter‑creditor deed. It is to be expected, and I find, that the plaintiffs were depending on their solicitors to effect all legal requirements for registration. Had the plaintiffs' lawyers advised the plaintiffs that the step‑in rights might require registration - or otherwise fail in the event of voluntary administration or liquidation - it is likely that registration would have been effected. After all, there was registration of the security interests held by the security trustee.
Second, the decision in McCloy v Manukau Institute of Technology was not handed down until after the amendment of the two coal supply agreements and the creation of the step‑in rights. It is entirely understandable that those acting for the plaintiffs on the transaction may not have considered whether the step‑in rights constituted a registrable PPSA security interest. Indeed, even now the position is far from clear.
Taking that together, I am satisfied that there was a lack of legal understanding as to the requirement for registration. There was an innocent error in the sense of a failure to register through ignorance of the requirement to do so. That amounts to a failure to register due to inadvertence within the authorities I have previously referred to. The power under s 588FM is enlivened.
Disposition: exercise of the power
The application is not automatically successful because the plaintiffs have established to my satisfaction that the failure to register was due to inadvertence. There is a remaining issue of discretion. The court must be satisfied, in all the circumstances, that it is appropriate to make the order for extension. The court should also consider, under s 588FM(3), whether it is just and convenient that the order be made on particular terms and conditions.
In short, whether to make the order for extension involves the exercise of a judicial discretion.
In exercising the discretion the court will consider countervailing prejudice that may be suffered by third parties - essentially unsecured creditors. It is however important to identify the type of prejudice that is relevant. In Re Appleyard Capital Pty Ltd Brereton J stated at [30]:
… the presence or absence of prejudice to unsecured creditors is a relevant discretionary consideration, relevant prejudice is not necessarily established merely by showing that the dividend to unsecured creditors will be less if the security interest does not vest in the company; the unsecured creditors may well have been in no different a position had the security interest been timely registered. The type of prejudice that is of particular relevance is prejudice attributable to the delay in registration, rather than prejudice from making the order (which is inevitable). This is the type of prejudice contemplated by the legislation (see s 588FM(2)(a)(ii), which refers to prejudice from the failure to register earlier, not from making the order) … (emphasis added)
This passage was cited with approval in Caason Investments Pty Ltd v Ausroc Metals Ltd.[10]
[10] Caason Investments Pty Ltd v Ausroc Metals Ltd [14]. See also Re Transurban CCT Pty Ltd [13]; Re Accolade Wines Australia Ltd [18].
The length of the delay in registration is thus a relevant factor in the exercise of the court's discretion.[11] The period of delay in effecting registration is relevant because the shorter the delay the less likely that the failure to register within time will have had any relevant impact on ordinary unsecured creditors. The significance of the passing of time is mainly related to the possibility that others will have dealt with the company on a basis that the collateral was unencumbered.[12] For example, unsecured creditors may be detrimentally affected by the delay in registration if they traded with the company of the face of the register that showed no security interest.[13]
[11] Re Cardinia Nominees Pty Ltd [2013] NSWSC 32 [18].
[12] Re Appleyard Capital Pty Ltd [30]; Caason Investments Pty Ltd v Ausroc Metals Ltd [15].
[13] Re Appleyard Capital Pty Ltd [31].
The interests of unsecured creditors being a relevant consideration, it is relevant to consider the financial position of the company. If solvent that may be the end of the matter. But where the court cannot be satisfied that there is no risk that unsecured creditors could be adversely affected they are entitled to be heard against the making of the order. That may be achieved by reserving leave to apply to set aside the order in the event of administration or liquidation.[14]
[14] Re Transurban CCT Pty Ltd [10]; Re Accolade Wines Australia Ltd [19]; Caason Investments Pty Ltd v Ausroc Metals Ltd [15]. See also Re Cardinia Nominees Pty Ltd [20] - [21]; Re Appleyard Capital Pty Ltd [22], [24] - [28].
Generic evidence that the applicant knows nothing to suggest impending insolvency is unlikely to be sufficient.[15] In the absence of evidence demonstrating solvency it is likely that an order under s 588FM will only be made preserving the ability of an administrator, liquidator, deed administrator or other unsecured creditor to apply to discharge the order within six months after the date of registration.
[15] Cf Re Accolade Wines Australia Ltd [20]. See also Re Transurban CCT Pty Ltd [11] - [12]; Re Cardinia Nominees Pty Ltd [22] - [24].
In the present case, there are two matters which militate against an extension.
1.The delay is considerable. The step‑in rights were created in mid‑February 2013 and registration did not occur until 1 October 2019, ie a delay of over six and a half years.
2.It appears that the financial position of Griffin Coal is problematic. This is not a case in which it can be said that the court could be satisfied as to solvency.
However, it is incorrect, as a matter of principle, to regard the adverse impact on the interests of unsecured creditors as a practically conclusive or a dominant consideration.[16]
[16] Re Appleyard Capital Pty Ltd [27], [29].
It is, I consider, useful to have regard to the observations of Brereton J in Re Appleyard Capital Pty Ltd at [28]:
In practice … 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 6 months to apply to set the order aside. This course, or one similar to it, was taken in Limited Company per Long Innes J, where solvency was dubious; in L H Charles & Co per Clauson J, where liquidation was in contemplation; in Cinema Art Films per Myers CJ; in Guardian Securities per 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 per Robson J, where the evidence of solvency was inconclusive. In recent times in this court, such orders have been made in Cardinia Nominees per Black J, where again the evidence of solvency was inconclusive; in Re Apex Gold Pty Ltd [2013] NSWSC 881 per Hammerschlag J, where administration was imminent; and in Black Opal IP per Brereton J, where there was some but less than comprehensive evidence of solvency.
Accordingly, the court has been prepared to grant extensions of time even in the context where administration or liquidation is in contemplation. In doing so it will, however, reserve leave to the administrator, liquidator or unsecured creditors to apply to set the orders aside.
Indeed, in Re Enviro Pallets (NSW) Pty Ltd an extension was granted notwithstanding that the company had been placed into liquidation already. It was material that notification of the application had been provided to the liquidator and unsecured creditors. None had appeared to oppose the application. In those circumstances the court was satisfied that it could not be said that the unsecured creditors would be unfairly prejudiced by the proposed order.[17]
[17] Re Enviro Pallets (NSW) Pty Ltd (7).
The delay in the present case is considerable. It is, however, ameliorated in two respects. First, the initial delay from mid‑February 2013 to July 2019 was bound up with the original inadvertent failure to register. The delay since the plaintiffs became aware of the possible registration requirement is limited and has been adequately explained in the affidavit material. Second, and more importantly, the delay arises in circumstances where, due to the security trustee's registration, there was at all material times an ALLPAP security registration which would have been apparent to any unsecured creditor searching the PPSR. It is unlikely that any unsecured creditors would have dealt with the defendant company on the basis that the relevant collateral affected by the step‑in rights was unencumbered.
As to the evidence of financial instability on the part of Griffin Coal - and in particular the lack of positive evidence as to solvency - I am satisfied that the interests of unsecured creditors can be accommodated by a Guardian Securities condition as explained in the passage of Re Appleyard Capital Pty Ltd to which I have previously referred.
Conclusion and orders
For these reasons I am satisfied that I should exercise the power under s 588FM and make an order fixing a later time under s 588FL(2)(b)(iv) in relation to any PPSA security interest as represented by the step‑in rights under the two coal supply agreements.
I propose to make orders substantially in the following terms:
(1)If and to the extent that the step‑in rights granted by the defendant in favour of the plaintiffs in connection with the amended and restated coal supply agreements made between the plaintiffs and defendant, each dated 15 February 2013, are a PPSA security interest granted by the defendant in collateral, pursuant to s 588FM of the Corporations Act 2001 (Cth), the court fixes the date of 1 October 2019 as the later time for the purposes of s 588FL(2)(b)(iv) of the Act.
(2)In the event that within six months after 1 October 2019 a winding up of the defendant commences or an administrator of the defendant is appointed under s 436A, 436B or 436C of the Corporations Act 2001 (Cth) or the 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 par 1 above.
I will hear from counsel as to the precise terms of the orders to be made.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
ZC
Associate to the Honourable Justice Vaughan3 DECEMBER 2019
16
9
2