Celtic Capital Pty Ltd v Sky and Space Company Ltd
[2023] WASC 269
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
CITATION: CELTIC CAPITAL PTY LTD -v- SKY AND SPACE COMPANY LTD [2023] WASC 269
CORAM: ACTING MASTER MCDONALD
HEARD: ON THE PAPERS
DELIVERED : 21 JULY 2023
FILE NO/S: COR 110 of 2023
BETWEEN: CELTIC CAPITAL PTY LTD
Plaintiff
AND
SKY AND SPACE COMPANY LTD
Defendant
Catchwords:
Corporations - Personal Property Securities Register - Security interests not registered due to inadvertence - Application under Corporations Act 2001 (Cth) s 588FM to fix registration time for security interests - Turns on own facts
Legislation:
Corporations Act 2001 (Cth) s 588FL, s 588FM
Personal Property Securities Act 2009 (Cth), s 12, s 20, s 21, s 160, s 163, s 339
Personal Property Securities (Corporations and Other Amendments) Act 2010 (Cth)
Rules of the Supreme Court 1971 (WA), O 67B r 5
Result:
Application granted
Category: B
Representation:
Counsel:
| Plaintiff | : | No appearance |
| Defendant | : | No appearance |
Solicitors:
| Plaintiff | : | Blackwall Legal LLP |
| Defendant | : | Steinepreis Paganin |
Cases referred to in decision:
AWE Perth Pty Ltd v Clough Projects Australia Pty Ltd [2023] WASC 203
Bluewaters Power 1 Pty Ltd v The Griffin Coal Mining Company Pty Ltd [2019] WASC 438
Caason Investments Pty Ltd v Ausroc Metals Ltd [2016] WASC 267
Craig Mostyn & Co Pty Ltd v Old Valley Pty Ltd [2004] FCA 1083
Gold Valley Iron Pty ltd (in liq) v OPS Screening and Crushing Equipment [2022] WASCA 134
Hewlett-Packard Australia Pty Ltd v Exceed Pty Ltd [2004] FCA 135
Re Barclays Bank Plc [2012] NSWSC 1095
Re Investa Properties Ltd [2001] NSWSC 1089
Transurban CCT Pty Ltd Pty Ltd [2014] NSWSC 1909
ACTING MASTER MCDONALD:
Introduction
On 28 November 2022, Sky and Space Company Ltd (SAS) granted Celtic Capital Pty Ltd (Celtic) a security interest in its personal property. A registration with respect to that security interest ought to have been entered onto the Personal Property Securities Register (PPSR) by 28 December 2022, but instead it was registered on 29 June 2023.
Celtic applies by originating process under s 588FM(1) of the Corporations Act 2001 (Cth) (Corporations Act) for an order that the time for registering its security interest on the PPSR against SAS be extended to 29 June 2023 for the purposes of s 588FL(2)(b)(iv) of the Corporations Act (and for ancillary orders).
Celtic relies on an affidavit sworn by Ms Sarah Elizabeth Peterson on 7 July 2023 (Peterson Affidavit) and an affidavit sworn by Mr Jamie George Michael Ogilvie on 7 July 2023 (Ogilvie Affidavit).
Celtic has brought the application on an urgent basis given that the enforceability of its security interest remains at risk until the relief sought is granted. For that reason, Celtic seeks orders to abridge the time for service and the hearing of the application.
The application was originally listed to be heard on an urgent basis on 13 July 2023. On 11 July 2023, SAS consented to the orders sought. Celtic filed submissions which were of assistance in determining the matter on an urgent basis. Having been satisfied that it is appropriate to extend time to 29 June 2023 for Celtic to register its security interest on the PPSR against SAS for the purposes of s 588FL(2)(b)(iv) of the Corporations Act together with the ancillary orders, I made orders on 12 July 2023 on the papers. These are my reasons for making the orders.
Background
On 28 November 2022, Celtic and SAS entered a suite of documents comprising a secured convertible note deed poll (Deed Poll),[1] a general security deed (GSD),[2] and a security trust deed (Trust Deed).[3]
[1] Peterson Affidavit, [10] 'SEP3'.
[2] Peterson Affidavit, [12] 'SEP4'.
[3] Peterson Affidavit, [12] 'SEP5'.
The Deed Poll recorded the terms pursuant to which SAS was to issue secured convertible notes (Notes). According to its terms:
(a)a person could apply to be issued Notes. Each Note had a face value of $100, and an applicant was required to apply for at least $50,000 worth of Notes;
(b)each Note entitled its holder to be paid an amount by SAS equal to the Note's face value and accrued interest. That payment could either be made by SAS redeeming the Notes (i.e. paying the value of the Note and accrued interest to the noteholder in cash) or by the conversion of the Notes into fully paid ordinary shares in the capital of SAS;
(c)as a condition of receiving and using the subscription fees for the Notes, SAS agreed to enter a GSD with Celtic as a security trustee. The GSD was to secure all money owing by SAS to the noteholders and Celtic as security trustee.
The GSD set out the terms on which SAS agreed to grant Celtic a security interest to secure SAS' obligations under (among other things) the Deed Poll. According to the terms of the GSD:
(a)SAS confirmed its obligation to pay the 'Secured Moneys'. The term 'Secured Moneys' referred to SAS' monetary liabilities to any 'Beneficiary' (Celtic or a noteholder) or Celtic under the Deed Poll;
(b)as security for payment of the 'Secured Moneys' and observance of its obligations under the Deed Poll, SAS granted to Celtic a security interest (by way of a fixed and floating charge) in its 'Collateral'. 'Collateral' referred to SAS' present, after-acquired and future acquired property, including all personal property; (Security Interest);
(c)Celtic was permitted to register the Security Interest on the PPSR as established under the Personal Property Securities Act 2009 (Cth) (PPSA).
Pursuant to the Trust Deed Celtic agreed (among other things) to hold the Security Interest on trust for the noteholders.
The Security Interest was not registered on the PPSR within 20 business days after the security agreement that gave rise to the Security Interest came into force.
To avoid the effect of s 588FL(2), namely that in the event of administration or liquidation within six months after registration, the security interest will vest in the grantor, the security interests should have been registered by no later than 28 December 2022. Mr Ogilvie deposes that the failure to register the security interest was not intentional or due to being unaware of the requirement to do so. Rather it was a mistake, an inadvertent oversight. That oversight was brought to Mr Ogilvie's attention on 29 June 2023.[4]
[4] Ogilvie Affidavit [27] - [30], 'JGM02', 'JGM03'.
On 29 June 2023, registration 232306290113917 with respect to the Security Interest was registered on the PPSR against the Australian Company Number for SAS being commercial property, all present and after-acquired property with no exceptions.[5]
[5] Ogilvie Affidavit [29] and 'JGMO3'.
A search of the PPSR reveals that there are no other parties with a security interest registered on the PPSR in respect of the defendant. A search of the company extract records maintained by the Australian Securities and Investments Commission reveals that the defendant remains registered and no external administrators have been appointed to the defendant as at 7 July 2023.
Legal Principles
Security Interest
If an interest in personal property falls within the meaning of 'security interest' within s 12 of the PPSA, it is an interest to which the PPSA applies.[6] Section 12(1) of the PPSA provides:
12Meaning of Security Interest
(1)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).
[6] AWE Perth Pty Ltd v Clough Projects Australia Pty Ltd [2023] WASC 203 [22].
Section 12(2) of the PPSA provides relevantly:
(2)For example, a security interest includes an interest in personal property by any of the following transactions, if the transaction, in substance, secures payment or performance of an obligation:
(a)a fixed charge;
(b)a floating charge;
…
A reference to a fixed charge over property is taken to be a reference to a security interest over personal property that has attached to personal property that is not a circulating asset.[7]
[7] PPSA s 339(4).
A reference to a floating charge over property is taken to be a reference to a security interest that has attached to a circulating asset.[8]
[8] PPSA, s 339(5).
In Gold Valley Iron Pty ltd (in liq) v OPS Screening and Crushing Equipment [2022] WASCA 134 the Court of Appeal held[9]:
Section 12(1) requires attention to two aspects. First, does a transaction provide for 'an interest in personal property … (without regard to the form of the transaction or the identity of the person who has title to the property)'? Secondly, if so, does the transaction which provides for the interest in personal property 'in substance, secure 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)'?
[9] Gold Valley Iron Pty ltd (in liq) v OPS Screening and Crushing Equipment [2022] WASCA 134, [189].
Section 21 of the PPSA provides that a security interest in collateral is perfected if the security interest is attached to the collateral, the security interest is enforceable against a third party (for example, by way of a written agreement under s 20(2) of the PPSA) and (among several options) a registration is effective with respect to the collateral.
Timing for registration on the PPSR
Section 588FL(2) of the Corporations Act provides:
(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.
The 'critical time' is defined in s 588FL(7) of the Corporations Act as the date on which the administration, winding up or restructuring is taken to have commenced.[10]
[10]
Therefore, where the security interest is not registered within 20 days after the grant of the security interest and the registration occurs in the six months prior to the appointment of an external administrator to the grantor of the interest, the security vests in the grantor. This vesting is irreversible.[11]
[11] AWE Perth Pty Ltd v Clough Projects Australia Pty Ltd [2023] 203, [27].
As Vaughan J described it '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': Bluewaters Power 1 Pty Ltd v The Griffin Coal Mining Company Pty Ltd [2019] WASC 438 at [32] (Bluewaters).
Extension of Time
Section 588FM(1) of the Corporations Act provides that a company, or any person interested, may apply to the court for an order fixing a later time for the purposes of subparagraph 588FL(2)(b)(iv) of the Corporations Act.
In AWE Perth Pty Ltd v Clough Projects Australia Pty Ltd [2023] 203 (AWE Perth) Hill J held [39] - [40]:
The purpose and effect of 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. An order under s 588FM does not have any effect on the priority of a security interest; it simply preserves the security to the detriment of the unsecured creditors. In the absence of an order being made under s 588FM of the Act, a security holder who registers their security interest late is exposed to the risk that its security will be ineffective and will vest in the grantor of the interest if that company goes into administration or liquidation within the six month period after any late registration.
On an application for orders under s 588FM, the company who granted the security interest should be joined as a defendant and served with the application. However, it is not necessary to join other secured creditors as the rights of other secured creditors are not affected by an order under s 588FM(1).
Section 588FM(2) of the Corporations Act provides that a court may make such an order if it is satisfied that:
(a)the failure to register the collateral earlier was accidental or due to inadvertence or some other sufficient cause; or
(b)the failure to register the collateral earlier is not of such a nature as to prejudice the position of creditors or shareholders; or
(c)on other grounds, it is just and equitable to grant relief.
Only one of the three grounds need be established.[12]
[12] Bluewaters [39].
Once a ground has been established, the making of the order sought becomes a matter of the court's discretion. The court must be 'satisfied, in all the circumstances, that it is appropriate to make the order for extension'.[13]
[13] Bluewaters [49].
In Bluewaters, Vaughan J referred to the legal principles as to accident and inadvertence as follows [40] - [42]:
A lack of legal understanding as to the requirements for registration may amount to 'inadvertence' (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]). The concept is concerned with human error or oversight (National Australia Bank Ltd v Davis & Waddell (Vic) Pty Ltd [2003] VSC 1; (2003) 44 ACSR 296 [65]) or being 'not properly attentive' (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 (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 (Re Accolade Wines Australia Ltd [16].
Sections 588FL and 588FM of the Corporations Act were introduced by the Personal Property Securities (Corporations and Other Amendments) Act 2010 (Cth). The terms of s 588FM are broadly similar to the circumstances in which a court could extend the time for lodgement of notice of a charge under the former s 266(4) of the Corporations Act. Therefore, the authorities as to s 266(4) assist in guiding the exercise of the court's discretion under s 588FM.[14]
[14] Re Barclays Bank Plc [2012] NSWSC 1095 [4].
Accident or inadvertence under the former s 266(4) was met in circumstances where:
(a)an employee of the chargee knew that a charge had to be registered but became involved in other matters and forgot to attend to registration. The employee was not 'continually conscious' of the need to register the charge;[15]
(b)after a change in legislation, a new entity became a responsible entity of a managed investment scheme. A solicitor knew that a charge which pre-dated that change required updating but overlooked the matter on two occasions;[16]
(c)a charge was lodged late because the chargee's solicitor was focused on a different task, there was a lack of awareness of the relevant time limits by the practitioners involved and a lack of adequate communication between two relevant teams within a firm that were responsible for the preparation of the documentation.[17]
Discretionary factors
[15] Hewlett-Packard Australia Pty Ltd v Exceed Pty Ltd [2004] FCA 135 [45].
[16] Re Investa Properties Ltd [2001] NSWSC 1089 [29].
[17] Craig Mostyn & Co Pty Ltd v Old Valley Pty Ltd [2004] FCA 1083 [46].
In exercising its discretion, the court is to consider the countervailing prejudice that may be suffered by third parties (essentially unsecured creditors). More particularly: [18]
(a)the type of prejudice that is relevant is the prejudice attributable to the delay in registration (rather than prejudice arising from an extension of time);
(b)the length of the delay in registration is therefore a relevant factor - the shorter the delay, the less likely the failure to register in time will impact unsecured creditors; and
(c)given the interests of unsecured creditors is a relevant consideration, the financial position of the company is also important. If 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 an order which may be achieved by reserving liberty for an administrator, liquidator, deed administrator or other unsecured creditor to apply to set aside the extension of time in the event of an external administration, known as a Guardian Securities order.
[18] Bluewaters [51] - [55].
Disposition
Security Interest
A security interest is perfected if it has attached to the collateral, is enforceable against third parties and certain extra steps have been taken (such as possession of the collateral, or registration on the PPSR) to protect that interest.[19] Having said that, it is not necessary for the court to determine on a final basis whether the interests the subject of this application are registrable security interests. It is sufficient for the court to be satisfied that it is reasonably arguable that the interests the subject of the application are registrable security interests.[20]
[19] PPSA s 21.
[20] AWE Perth [41]; Bluewaters [29] - [30].
The interest provided to Celtic under the GSD is a fixed and floating charge[21] in personal property (by reference to the definition of 'Collateral' in clause 1.2 of the GSD). That interest was granted to secure SAS' obligations under the Deed Poll, including its obligation to pay money to noteholders.[22]
[21] Petersen Affidavit, SEP4 (177).
[22] Petersen Affidavit, SEP4 (176) - (177).
By virtue of the GSD, Celtic's security interest has attached to SAS' personal property and is enforceable against a third party.[23]
[23] Petersen Affidavit, SEP4 (177).
I am satisfied it is reasonably arguable the Security Interest is therefore a security interest for the purposes of the PPSA.
Registration and timing
To complete the perfection of the Security Interest, Celtic was required to register it on the PPSR.
A registration is effective from the moment the description of the registration becomes available for search in the PPSR.[24] In this case, the registration was effective as of 4.57 pm Australian Eastern Standard Time on 29 June 2023.[25]
[24] PPSA s 160(1) and 163(1).
[25] Ogilvie Affidavit 'JGMO3'.
The Security Interest was granted when the GSD was executed on 28 November 2022 and, therefore, to avoid the vesting of the Security Interest in SAS upon an appointment of an external administrator, the registration ought to have been made by 28 December 2022.
Celtic relies on the first limb of s 588FM(2)(a), namely that the failure to register the Security Interest by 28 December 2022 was accidental or due to inadvertence.
In this regard, Celtic makes the following submissions:
(a)Mr Ogilvie was responsible for registering the Security Interest on the PPSR and was aware that it ought to have been done within 20 business days of its creation.[26] Therefore, Mr Ogilvie was not ignorant of the legal requirement to lodge nor the consequences of a failure to do so;
(b)Mr Ogilvie did not intentionally refrain from registering the Security Interest on the PPSR. Rather, he simply made a mistake by inadvertently overlooking the requirement to register in completing the transaction for Celtic;[27]
(c)Mr Ogilvie did not become aware of his mistake until the matter was brought to his attention on 29 June 2023, by both Celtic and a representative from SAS.[28]
[26] Ogilvie affidavit [19] - [23].
[27] Ogilvie Affidavit [24] - [26].
[28] Ogilvie Affidavit [27] - [28] and 'JGMO2'.
I am satisfied that Celtic has established that the failure to register the Security Interest within 20 days of it being granted by SAS was accidental and due to inadvertence. As such the power to extend time under s 588FM of the Corporations Act is enlivened.
Discretionary factors
The court still, in its discretion, must consider if it is appropriate to make an order for an extension of time. In this matter, the relevant delay was six months. In other cases, an extension of time was granted despite:
(a)a delay of 18 months, given there were other registrations on the PPSR so unsecured creditors would not have assumed that the grantor's assets were unencumbered;[29]
(b)a considerable delay of six years (coupled with solvency concerns) on the basis that a Guardian Securities order was made;[30] and
(c)a delay of 18 months on the basis that a Guardian Securities order was made.[31]
[29] AWE Perth [91].
[30] Bluewaters [56] - [64].
[31] Caason Investments Pty Ltd v Ausroc Metals Ltd [2016] WASC 267 [20] - [22].
A delay of six months may nevertheless prejudice unsecured creditors who dealt with the defendant on the assumption the collateral was unencumbered. In Transurban CCT Pty Ltd Pty Ltd [2014] NSWSC 1909, Brereton J held: [32]
On the other hand, the interests of unsecured creditors are a relevant consideration, since in the only event that will make the order sought of practical importance they will be deprived of the benefit of having the security vest in the company and it will instead be preserved for the benefit of the unsecured creditors. Thus it is relevant to consider the financial position of the company, because if the company is shown to be financially secure and it is unlikely that a 'critical day' will arise in the foreseeable future and solvency is established, that is likely to be the end of the matter. On the other hand, 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, although that may be sufficiently achieved, depending on the degree of risk involved, by suspending the operation of the order or imposing a term reserving leave to apply to set it aside in the event of a liquidation or administration.
[32] Transurban CCT Pty Ltd Pty Ltd [10].
In cases such as this where there is limited evidence available as to the solvency position of SAS,[33] it is appropriate to grant an extension of time under s 588FM along with a Guardian Securities order.[34]
[33] Ogilvie Affidavit [33] - [35]; Peterson Affidavit 'SEP2'.
[34] Bluewaters [55].
The court has the power to make an order on conditions. In the absence of any evidence about the solvency of SAS or notice of the application to unsecured creditors, it is appropriate to make the order that liberty be reserved to any liquidator, administrator, deed administrator or unsecured creditor to apply to vary or discharge the order if external administrators are appointed to SAS within six months of 29 June 2023.
Ancillary Orders
Celtic also seeks an order for confidentiality in respect of the Peterson Affidavit and the Ogilvie Affidavit under Order 67B rule 5 of the Rules of the Supreme Court 1971 (WA) on the basis that they contain commercially sensitive information that could prejudice the parties (particularly SAS) if the contents were made public.
I am satisfied the affidavits contain commercially sensitive information and access should be restricted to the parties.[35]
[35] The facts referred to in these reasons are those replicated in the submissions over which no restriction order was sought.
Conclusion
The failure to register the Security Interest within the time prescribed by s 588FL(2)(b)(ii) of the Corporations Act was due to inadvertence. Furthermore, any prejudice that may be suffered due to the delay in registering is ameliorated by reserving a right to third parties to apply in relation to the extension of time.
For those reasons, it is appropriate to make the following orders:
1.Pursuant to s 588FM of the Corporations Act 2001 (Cth) ('Act'), 29 June 2023 be fixed as the later time for the purposes of s 588FL(2)(b)(iv) of the Act in respect of any security interest granted by the defendant in favour of the plaintiff, which arose under a general security deed dated 28 November 2022 and corresponds to the registration number 202306290113917, being an all present and after acquired property registration on the Personal Property Securities Register established under the Personal Property Securities Act 2009 (Cth).
2.Liberty be reserved to any liquidator, administrator, deed administrator or unsecured creditor of the defendant to apply to discharge or vary order 1 if any winding up of the defendant occurs, or an administrator is appointed to the defendant under s 436A, s 436B or s 436C of the Act, or if the defendant executes a deed of company arrangement within six months of 29 June 2023.
3.Pursuant to Order 67B rule 5 of the Rules of the Supreme Court 1971 (WA), the confidential affidavit of Sarah Elizabeth Peterson sworn on 7 July 2023 and the confidential affidavit of Jamie George Michael Ogilvie sworn on 7 July 2023 and filed in these proceedings be sealed on the court file and kept confidential.
4.The time for the plaintiffs to serve this application on the defendant, and the time for hearing of the application, be abridged pursuant to Order 3 Rule 5 of the Rules of the Supreme Court 1971 (WA).
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
CM
Associate to the Acting Master
21 JULY 2023
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