Brookfield Multiplex Capital Management Limited and Ors - Re Multiplex Acumen Property Fund

[2009] NSWSC 1014

CITATION:	Brookfield Multiplex Capital Management Limited & Ors - Re Multiplex Acumen Property Fund [2009] NSWSC 1014
HEARING DATE(S):	24 August 2009, 2 September 2009, 9 September 2009
JUDGMENT DATE :	29 September 2009
JUDGMENT OF:	Bergin CJ in Eq
DECISION:	Time extended
CATCHWORDS:	[CORPORATIONS] - Registration of charges - Change of responsible entity - Failure to lodge notice in time - Whether failure due to oversight - Whether failure accidental or due to inadvertence - Application for extension of time to lodge notice - Whether prejudice to creditors apparent
LEGISLATION CITED:	Corporations Act 2001
CASES CITED:	Sanwa Australia Finance Limited v Ground-Breakers Pty Limited (in liquidation) (1990) 2 ACSR 692 Re Dudley Engineering Pty Limited (1967) 87 WN (Part 1) (NSW) 326 Re Investa Properties Ltd & Anor (2001) 187 ALR 462
PARTIES:	Brookfield Multiplex Capital Management Limited (Plaintiff) National Australia Bank Limited (Plaintiff)
FILE NUMBER(S):	SC 3784 of 2009
COUNSEL:	EA Collins (Plaintiffs)
SOLICITORS:	Clayton Utz (Plaintiffs)

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IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

BERGIN CJ in Eq

29 SEPTEMBER 2009

3784 OF 2009 BROOKFIELD MULTIPLEX CAPITAL MANAGEMENT LIMITED & ORS: RE MULTIPLEX ACUMEN PROPERTY FUND

JUDGMENT

1 The plaintiffs, Brookfield Multiplex Capital Management Limited (Brookfield) and National Australia Bank Limited (the Bank), seek orders pursuant to s 266(4) of the Corporations Act 2001 (the Act) that the time for the lodgement of notices pursuant to s 264 of the Act be extended in respect of charges granted for the benefit of the Bank over the property of Multiplex Acumen Property Fund (the Fund) of which Brookfield is the Responsible Entity.

2 Section 263 of the Act requires a company that creates a charge to ensure that a notice in the prescribed form is lodged with the Australian Securities and Investments Commission (ASIC) within 45 days after the creation of the charge. Section 264 of the Act provides that where a company acquires property that is subject to a charge, the company must ensure that a notice in the prescribed form in relation to the charge is lodged with ASIC within 45 days after the acquisition of the property.

3 Section 266(4) of the Act provides:

(4) The Court, if it is satisfied that the failure to lodge a notice in respect of a charge, or in respect of a variation in the terms of a charge, as required by any provision of this Part:

(a) was accidental or due to inadvertence or some other sufficient cause; or
(b) is not of a nature to prejudice the position of creditors or shareholders;
or that on other grounds it is just and equitable to grant relief, may, on the application of the company or any person interested and on such terms and conditions as seem to the Court just and expedient, by order, extend the period for such further period as is specified in the order.

4 In this case there were seven separate charges granted (or subsequently assigned) for the benefit of the Bank, all of which were lodged with ASIC within the requisite time. In mid 2005 and October 2007 respectively the Custodian and the Responsible Entity of the Fund changed, so that the new Custodian and the new Responsible Entity acquired property of the Fund subject to those charges. On both occasions notifications of the acquisition of property subject to the charges were not lodged with ASIC.

5 The Fund, formerly known as the Acumen Capital Property Securities Fund, was established in April 2003. The Responsible Entity at that time was Acumen Capital Securities Limited (Securities). On 26 May 2003 Securities entered into a Custody Agreement with Permanent Trustee Australia Limited (Permanent). It was a term of that Agreement that Securities appoint Permanent to provide custodial services on terms including Permanent’s agreement to “custodially hold” as agent for Securities the Portfolio and Title Documents in relation to the Fund. The practical effect of this Agreement was that the securities acquired and beneficially owned by the Fund were registered in the name of Securities.

6 In December 2003 the Fund obtained a loan facility with the Commonwealth Bank of Australia (CBA). In February 2004 the Fund obtained an additional loan facility with Westpac Banking Corporation (Westpac) and in April 2004 it obtained a third facility with the Bank. In December 2004 the CBA facility was refinanced with the Bank and in February 2005 the Westpac facility was refinanced with the Bank. By mid 2005 the Bank was the Fund’s only secured creditor and that remains the position today.

7 At the time that the facilities were provided, the Fund and Securities entered into various Deeds of Charge. Seven separate notices in respect of those charges were lodged in accordance with s 263 of the Act in the period December 2003 to February 2005. Notices of Assignment of the Westpac and CBA charges to the Bank were also lodged within time.

8 On 23 December 2003 notification of the charge granted by Securities in favour of CBA was lodged as was notification of the charge granted by Permanent to the CBA. Notices of Assignment in respect of both of those charges to the Bank were lodged on 3 December 2004.

9 On 2 March 2004 notification of the charge granted by Securities in favour of Westpac was lodged as was notification of the charge granted by Permanent to Westpac. On 24 February 2005 Notices of Assignment of those charges to the Bank were lodged.

10 On 8 April 2004 notification of the charge granted by Permanent in favour of the Bank was lodged. On 13 December 2004 notification of the charge granted by Permanent in favour of the Bank was lodged.

11 On 17 March 2005 notification of the charge granted by Permanent in favour of the Bank was lodged, however while notification was registered within the requisite period, a Form 350 (Notice of Compliance with Stamp Duty) was not lodged in time and consequently the charge was subsequently deleted as a registered charge by ASIC.

12 In mid 2005 Permanent was replaced by ANZ Nominees Limited (ANZ Nominees) as the new Custodian. It would appear that the parent company of ANZ Nominees, Australia and New Zealand Banking Group (the ANZ), acquired the assets and undertakings of Permanent. Two Agreements were subsequently executed in respect of the change in Custodian: (a) a Novation Deed on 13 April 2005 between Securities, Permanent and the ANZ; and (b) a Deed of Novation dated 25 July 2006 between Securities, Permanent, ANZ Nominees and the Bank.

13 On 29 October 2007 Multiplex Capital Management Limited (Multiplex) became the Responsible Entity of the Fund.

14 Notices pursuant to s 264 of the Act were not lodged within 45 days of the acquisition of property by ANZ Nominees on 13 April 2005, nor were notices pursuant to section 264 of the Act lodged within 45 days of the acquisition of property by Multiplex on 29 October 2007. The failure to lodge such notices was only detected in January 2009 by the Legal Counsel (Finance) for Brookfield, Ms Phillipa Carr.

15 In mid 2005 when ANZ Nominees became the new Custodian the securities beneficially owned by the Fund were registered in the name of Permanent. Those securities included units in the Investa Sixth Commercial Trust, the FAL Property Fund and the Multiplex New Zealand Property Fund. Those securities formed part of the “property” of the Fund.

16 Section 601FC(2) of the Act has the effect that the Responsible Entity of the Fund also holds property of the Fund, including any rights arising out of the Custody Agreement in place with the Custodian.

17 The seven charges, the subject of the application, charge the following property beneficially owned by the Fund:

(a) the two Charges in December 2003 and the Charge granted by Permanent in December 2004 charged all rights and interests pertaining to the units in the Investa Sixth Commercial Trust;

(b) the two Charges in February 2004 and the Permanent Charge in 2005 charged all rights and interests pertaining to the units in the FAL Property Trust; and

(c) the April 2004 Permanent Charge charged the remaining assets and undertakings of the Fund.

18 The registered owner of the Fund’s securities changed from 4 July 2005. A schedule in evidence records that Multiplex became registered as the legal owner of the individual securities which make up the Fund on the dates recorded in the schedule. The dates on which this occurred were: in the case of the Multiplex New Zealand Property Fund on 4 July 2005; in the case of Investa Sixth Commercial Trust on 12 July 2005; and in the case of the FAL Property Trust, the relevant documentation was unable to be located but after stapling was approved, the units in the new fund known as the Westpac Diversified Property Fund were registered on 22 August 2006. When Multiplex first became the registered legal owner of any one of the securities making up the Fund’s securities, this triggered the obligation to lodge notices with ASIC within the requisite 45 days because that property was charged.

19 On 31 August 2009 the Fund released its audited Financial Report for the year ended 30 June 2009 (the Report). The Income Statement for the Fund records that in the reporting period it recorded a net loss of $104,673,000. The primary contributor to that result is “impairment expenses” of $100,876,000. The Notes to the Accounts explain that impairment expenses were determined on the basis of the significant and prolonged decline in the value of listed and unlisted property trusts during the reporting period and market conditions within the property sector generally.

20 The Balance Sheet of the Fund as at 30 June 2009 records net assets of $80,004,000 down from $231,791,000 as at 30 June 2008. The total current assets as at the balance date were $4,109,000, with total current liabilities of $75,491,000.

21 The Report records that as at 30 June 2009 the Fund had a fully drawn $74.2 million debt facility with the Bank which was scheduled to mature on 31 December 2009. As at 30 June 2009, and at the date of the Report, 31 August 2009, the Fund was in breach of its Interest Coverage Ratio (ICR), gearing covenant or Extension Ratio Limit (ERL). The Report includes the following:

…a detailed term sheet setting out the terms on which the financier [the Bank] will extend the new facility was signed on 28 August 2009. This term sheet is subject to finalising formal documentation and various conditions precedent and specifies a staged pay down of the existing debt, removal of the gearing and ERL covenants, relaxation of the existing ICR covenant and extension of the Facility to 31 December 2011. The financier [the Bank] has waived the ICR, gearing and ERL covenant breaches until 30 September 2009, by which time it is anticipated that the extended facility will have been formally documented.

22 On 22 July 2009 the Fund manager, Mr Spencer, gave affidavit evidence that the only secured creditor was the Bank. His affidavit evidence was (par 39):

Other unsecured creditors comprise KPMG (audit fees of $82,000), ANZ (custody fees of $8,000), Brookfield Multiplex Capital Management Limited (management fees of $697,000), an Independent Third Party (fees of $322,000), consultants and lawyers (fees not exceeding $300,000) and other (marketing and ASX fees of $140,000).

23 The affidavit evidence was that the debts to these “other unsecured creditors” totalled $1,549,000. On 2 September 2009 Mr Spencer swore a further affidavit referring to paragraph 39 of his earlier affidavit and gave the following evidence:

6. It has now come to my attention that when I swore my July affidavit I inadvertently omitted to include a liability the Acumen Fund has to the Multiplex Prime Property Fund ( MPPF ). The responsible entity of the MPPF is the first plaintiff in these proceedings, Brookfield Multiplex Capital Management Limited, who is also the responsible entity of the Acumen Fund.

7. That liability is recorded as a non-current liability of $10,299,000 in the balance sheet of the Acumen Fund as at 30 June 2009. Note 14 of the 2009 Report (page 34) records that that liability relates to the present value of the final call in respect of the units beneficially owned by the Acumen Fund in the MPPF. Those units were acquired on September 2006. The final call of $0.40 per unit is payable in June 2011 but may be accelerated by the financier.

8. As at 25 August 2009, the unsecured creditors of the Acumen Fund are owed a total of $1,196,491 (excluding the liability to the MPPF) and a total of $11,495,836 including the liability to the MPFF ( sic ).

24 In January 2009 Ms Carr obtained a company search of Securities as part of a review of a facility agreement from the Bank. It was at this time that she discovered the existence of the December 2003 and February 2004 Charges and she realised that Notices had not been lodged with ASIC pursuant to s 264 of the Act in respect of the properties secured by those Charges. This led Ms Carr to investigate the Charges granted by Permanent and she subsequently discovered that ANZ Nominees had failed to lodge notices with ASIC in relation to the February 2005 charge.

25 On 20 March 2009 Ms Carr wrote to the Bank attaching seven ASIC Notices in respect of each of the Charges. On 24 March 2009 those seven notices were lodged with ASIC pursuant to s 264 of the Act by the Fund’s solicitors.

26 In Sanwa Australia Finance Limited v Ground-Breakers Pty Limited (in liquidation) (1990) 2 ACSR 692 the Full Court of the Supreme Court of Queensland held that ignorance of the requirement to give notice of the creation of a charge is capable of constituting “inadvertence”: per Kelly SPJ at 695-696. His Honour noted that such a conclusion was consistent with the decision of Street J (as his Honour then was) in Re Dudley Engineering Pty Limited (1967) 87 WN (Part 1) (NSW) 326 at 328-9, where his Honour held that ignorance by a mortgagee of the requirement to register a mortgage was sufficient to constitute inadvertence.

27 The evidence establishes that the persons who seem to have been primarily involved in documentation of the changeover of the Custodian have left the employment of the Multiplex Group or ANZ Nominees. Ms Carr concluded that it appears that no one gave consideration in mid 2005 to the fact that the execution of the Novation Deed in April 2005 for the registration of ANZ Nominees as the holder of the securities constituted, or may have constituted, an acquisition of property by ANZ Nominees, triggering a requirement to lodge notices with ASIC. Correspondence supports that conclusion. Although the issue was detected in late 2005 to mid 2006, the requisite Notices were still not filed. The Bank officer responsible for the Fund’s accounts with the Bank, Mr Coxon, gave evidence that the failure to lodge relevant ASIC forms following the execution of the July 2006 Deed was a result either of an oversight on the part of the Bank’s then solicitors or an oversight on the part of the Bank in its instructions to its solicitors.

28 In October 2007 when Multiplex became the new responsible entity of the Fund Ms Carr did not appreciate that Charges had been granted in respect of the assets of the Fund. It was not until January 2009 when she discovered the existence of the December 2003 and February 2004 Charges that she realised that the new Responsible Entity had failed to lodge Notices in respect of those Charges. Mr Coxon’s evidence was that in October 2007 he did not know that ASIC forms were required to be lodged following the change of Responsible Entity.

29 Counsel for the plaintiffs, Ms EA Collins, submitted that in the case of both the acquisition of property by the new Custodian and the new Responsible Entity, the failure to lodge Notices pursuant to s 264 of the Act was accidental or due to inadvertence within the meaning of those expressions in s 266(4) of the Act. Once the Court is satisfied that it has jurisdiction to make orders under s 264, the central issue is whether the exercise of the discretion may cause prejudice to any person within the purview of the protection of the statutory scheme: Re Investa Properties Ltd & Anor (2001) 187 ALR 462 at 469 [30]. The prospects of winding up or administration or stress which might lead to winding up or administration and the existence of other registrable charges are central factors for consideration in the exercise of the discretion: Investa at 470 [31].

30 I am satisfied that the failure to lodge the requisite Notices was accidental or due to inadvertence. In the present case the Bank is the Fund’s only secured creditor. It has also been the Fund’s financier for many years and the amount owing under the present facility is substantial. While the Fund has recorded a loss to 30 June 2009 and has clearly been affected by the present financial crisis, it is, on the evidence, able to meet its debts as they fall due, subject to the new facility being put in place. The unsecured creditors have been notified of the plaintiff’s applications. There is no evidence of any objection by the unsecured creditors nor is there any evidence of any prejudice to any person if the orders sought are made.

Orders

31 Orders will be made extending the period for lodging the requisite Notices. The plaintiff is to bring in Short Minutes of Order at 9.30 am on 1 October 2009 when the matter is listed for that purpose.

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