Greenlight Asset Pty Ltd v WBK Ricetti Pty Ltd - [2017] WASC 278

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: GREENLIGHT ASSET PTY LTD -v- WBK RICETTI PTY LTD [2017] WASC 278

CORAM: MASTER SANDERSON

HEARD: 21 SEPTEMBER 2017

DELIVERED : 21 SEPTEMBER 2017

PUBLISHED : 29 SEPTEMBER 2017

FILE NO/S: COR 200 of 2017

BETWEEN: GREENLIGHT ASSET PTY LTD
First Plaintiff
TERRENCE ROBERT LADHAMS & TRACY LEE LADHAMS as Trustees for the LADHAMS FAMILY TRUST
Second Plaintiff
AND
WBK RICETTI PTY LTD
Defendant

Catchwords:

Personal Property Securities Act 2009 (Cth) - Extension of time to register certain interests in personal property - Principles to be applied

Legislation:

Corporations Act 2001 (Cth)
Personal Property Securities Act 2009 (Cth)

Result:

Time extended

Category: A

Representation:

Counsel:

First Plaintiff                  :     Ms M Banerjee
Second Plaintiff             :     Ms M Banerjee
Defendant:     No appearance

Solicitors:

First Plaintiff                  :     HWL Ebsworth Lawyers
Second Plaintiff             :     HWL Ebsworth Lawyers
Defendant:     No appearance

Case(s) referred to in judgment(s):

Re Accodale Wines Australia Ltd [2016] NSWSC 1023
Re Appleyard Capital Pty Ltd (2014) 101 ACSR 629
Re Barclays Bank Plc [2012] NSWSC 1095
Re Black Opal IP Pty Ltd [2013] NSWSC 1225
Re Duke Contracting Australia Pty Ltd [2017] NSWSC 767
Re Transurban CCT Pty Ltd [2014] NSWSC 1909

MASTER SANDERSON: This was the plaintiffs' originating process brought pursuant to s 588FM of the Corporations Act 2001 (Cth) (the Act) and s 293(1)(a) of the Personal Property Securities Act 2009 (Cth) (PPSA) to have certain dates in May fixed as the time for the plaintiffs to register security interests in certain personal property. Those dates would then be the date of registration for the purposes of s 588FL(2)(b)(iv) of the Act. No party appeared to oppose the application. After considering the matter I made orders sought by the plaintiffs. The plaintiffs' solicitor provided a detailed outline of submissions in support of their application. These reasons draw heavily upon those submissions.
In support of the application the plaintiffs relied upon an affidavit of Tracy Lee Ladhams sworn 15 August 2017. The following summary of the facts is drawn from that affidavit. The plaintiffs each hold security interests in personal property of the defendant. On or around 13 November 2016 the first plaintiff and the defendant entered into a contract for sale and purchase under which the first plaintiff agreed to sell its interest in the business of TL Dozing Contractor (the Business) as a going concern to the defendant. On or around the same date the second plaintiff and the defendant entered into a separate contract for sale and purchase under which the second plaintiff agreed to sell its interest in the Business as a going concern to the defendant. In or about December 2016 the plaintiffs entered into two separate loan agreements pursuant to which the plaintiffs provided vendor finance to the defendant to enable the defendant to complete the sale contracts. In each of these loan agreements the defendant granted a security interest in favour of the plaintiffs over all the defendant's present and after acquired property as security for the loan amounts.
On 6 December 2016 the plaintiffs then legal advisors (not the plaintiffs' present legal advisors) registered financing agreements on the Personal Property Security Register (PPSR) in relation to the plaintiffs' security interests under the loan agreements. In or around early March 2017 the plaintiffs engaged another firm of solicitors (again not the plaintiffs' present solicitors) to review the registrations. In the course of reviewing the PPSR registrations the solicitors discovered that most of the financing statements registered on 6 December 2016 were possibly defective as they referred to the first plaintiff only. At the suggestion of the plaintiffs' then solicitors the plaintiffs engaged EDX Australia Pty Ltd (EDX) to review the PPSR registrations to assess their efficacy. EDX holds itself out as experts in personal property securities and specifically in PPSR registrations.
EDX gave the plaintiffs certain advice on how defects in the registration could be resolved. On or around 19 April 2017 EDX amended the PPSR registrations in relation to the plaintiffs' security interests in accordance with that advice. Prudently and out of an abundance of caution the plaintiffs then consulted their present solicitors. Between 28 April 2017 and 1 May 2017 Mr Richard Johnson, a partner of the plaintiffs' present solicitors, conducted a review of the PPSR registrations amended by EDX and advised the plaintiffs they were potentially defective and that new registrations may be required. On 29 May 2017 and 30 May 2017 the plaintiffs' solicitors registered new financing statements in relation to each of the plaintiffs' security interests.
Pursuant to s 588FL(2)(b)(ii) of the Act if a PPSA security interest that is perfected by registration is not registered within 20 business days after the security agreement giving rise to the interest comes into force and the grantor goes into liquidation or administration within six months after it is registered then the security interest vests in the company for the benefit of the creditors generally.
A 'PPSA security interest' means a security interest within the meaning of the PPSA and to which the PPSA applies other than a transitional security interest. A security interest is defined in s 12(1) of the PPSA as 'an interest in personal property provided for by a transaction that, in substance, secures payment or performance of an obligation'. The plaintiffs' security interests are not 'transitional security interests' as the loan agreements were entered into after the registration commencement time (that is, 30 January 2012).
In Re Appleyard Capital Pty Ltd (2014) 101 ACSR 629, Brereton J made the following observations about the operation of s 588FL:
In order to understand what relevant considerations inform the exercise of that discretion - in addition to the matters that enliven the jurisdiction to make an order - it is necessary to appreciate the purpose and effect of an order of this kind. If the collateral is registered within 20 days after the security agreement comes into force, the security interest prevails over the interest of unsecured creditors, even if the company goes into liquidation or administration within six months. However, if it is not registered within that period, and the company goes into liquidation or administration within six months after it is registered, then the security interest vests in the company for the benefit of creditors generally - unless a later time is fixed under s 588FM. In other words, the effect of not registering within 20 days is to expose the secured creditor to the loss of its security if the company goes into liquidation within six months of the actual date of registration, when otherwise the security would have been effective even in the event of liquidation or administration within six months. Essentially, the purpose and effect of an order under s 588FM is to avoid the vesting of the security interest in the company if it goes into liquidation or administration within six months after the actual date of registration, and thereby preserve the secured creditor’s security, to the necessary detriment of the unsecured creditors for whose benefit the security interest would otherwise vest in the company. The only utility of such an order is in the event that the company does go into liquidation or administration within six months [13].
The criteria to enliven s 588FL(2) of the Act are satisfied in this case because the security interest attached to personal property provided as collateral and was perfected by registration (see s 19 and s 20 of the PPSA). A secured party who fails to perfect this interest by registration within the time prescribed by s 588FL of the Act may apply to the court for an order fixing a later time for registration for the purposes of s 588FL(2)(b)(iv) of the Act.
Pursuant to s 62(3) of the PPSA if a purchase money security interest (PMSI) within the meaning of s 14 of the PPSA is not registered within 15 business days of the grantor taking possession of the property, the secured party may not have priority under s 62 of the PPSA as against other security interests. If a PMSI is registered in time it acquires 'super priority' such that the secured party has priority to the asset over all other secured creditors even those that registered their security interest at an earlier time.
A secured party who fails to perfect its interest by registration within the time prescribed by s 62(3)(b) of the PPSA may apply to the court under s 293(1)(a) for an order extending the time for registration.
As a result of the original (as amended) registrations apparently being defective, and because the new registrations were only made on 29 May 2017 and 30 May 2017 the plaintiffs' security interests may not have been perfected by registration within the time specified under s 588FL(2)(b)(ii) of the Act and s 62(3) of the PPSA. That means, potentially, if an administrator or liquidator is appointed to the defendant before 30 November 2017 some or all of the security interests may vest in the defendant and to the extent the plaintiffs hold PMSIs under s 14 of the PPSA the plaintiffs may not have priority under s 62 of the PPSA as against other security interests. It is for that reason the plaintiffs applied for orders under s 588FM and s 293 of the PPSA. They seek to ensure the plaintiffs' rights as secured creditors of the defendant accord with the parties intention in entering into the loan agreements.
Section 588FM(2) of the Corporations Act is in the following terms:
(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.
Section 588FM confers on the court a discretion to fix a later time if satisfied of any one of the grounds specified in the subsection. As the section is of recent import there is limited authority on its operation. But it is broadly similar to the former s 266(4). In Re Barclays Bank Plc [2012] NSWSC 1095 the court concluded, correctly in my view, the authorities relevant to the earlier subsection were of assistance in guiding the exercise of discretion under s 588FM.
'Inadvertence' includes failure to advert to or understand the requirement for registration within the specified period. It also includes innocent error in the sense of failure to register through ignorance of the requirement to do so: see Re Appleyard [10]. 'Inadvertence' has also been held to include a circumstance where there has been a bona fide attempt to register the security interests and potential deficiencies come to the notice of the secured party's solicitor after the time for registration has passed: see Re Transurban CCT Pty Ltd [2014] NSWSC 1909 [13].
It is clear in this case the plaintiffs made bona fide attempts to register their security interests through their then solicitors. At the date of execution of the loan agreements the plaintiffs were unaware of the detailed operation, or implications of, the PPSA as it related to the loan agreements. They were aware that registration was necessary. However, they clearly believed their then solicitors being a competent law firm would know the requirements for registering on the PPSR to ensure the security interests were enforceable. When doubts were raised about the original registrations the plaintiffs relied on EDX. Further, the plaintiffs' commercial experience is limited to engaging in the business as earth moving and haulage contractors. The plaintiffs were not and never have been engaged in the business of providing commercial credit, leasing or bailing goods for value consideration. It is understandable they were not conversant with what was involved with the PPSA.
The authorities establish that the financial position of the grantor company is relevant to the exercise of discretion under s 588FM. Where the grantor is shown to be financially secure and it is unlikely that a 'critical day' will arise in the foreseeable future it is unlikely the grant of relief will adversely effect any party. However, if a court is not satisfied there is no risk that unsecured creditors could be adversely affected the unsecured creditors (or their representatives) are entitled to be heard against the making of an order. This may be sufficiently achieved by suspending the operation of the order or by imposing a term reserving leave to apply to set aside in the event of a liquidation or administration: see Re Appleyard [25]; Re Accodale Wines Australia Ltd [2016] NSWSC 1023 [19].
In this case the plaintiffs have, according to the affidavit of Ms Ladhams sworn 19 September 2017, no knowledge that the defendant is insolvent or likely to become insolvent before 30 November 2017.
The length of the delay to registration is also relevant although the significance of the delay is related to the possibility of competing security interests arising during that time: see Re Black Opal IP Pty Ltd [2013] NSWSC 1225 [8].
The significance of risk or prejudice to unsecured creditors and shareholders is a relevant discretionary consideration. Prejudice is not established by showing that the dividend to unsecured creditors would be reduced if the security interests were not vested in the company. The creditors may well have been in no better position had the security been registered in a timely manner. That is not a proper basis for objecting to the making of an order. The type of prejudice that is of particular relevance is prejudice attributable to delay in registration rather than prejudice from making the order. To establish the relevant prejudice an unsecured creditor would need to show that they extended credit or advanced money to the company after searching the register and proceeding on the footing that the collateral was unencumbered. That is, there is a need for a causal connection between the failure to perfect the security interest by registration and the incurring of a debt by an unsecured creditor in the period during which the security interest remained unperfected.
As was submitted by counsel for the plaintiffs the circumstances in this case are similar to those in Re Transurban and Re Accodale Wines where registrations were made in respect of security interests which were potentially defective. In Re Transurban Brereton J considered it a dominant factor that, even if there was some defect in the registrations, a search of the register in respect of each of the grantors in that case at the time from the date of the original registration would have disclosed the relevant security interest. He considered that no one could have dealt with the grantors on the faith of the register believing the secured parties' security interest did not exist or had not been registered. Similarly, in Re Accodale Wines his Honour was persuaded by evidence led on behalf of the plaintiffs that financiers commonly search the PPSR by grantor across ACN, ABN and company name and in circumstances where the registrations had been made against the grantor's ABN but not the ACN it was unlikely that any unsecured creditors would have relied on the collateral being unencumbered.
That conclusion reflects a practical approach to a real world situation. In this case any defects in the registration were technical - that is to say, there was not an absolute failure to register the security interests. While the provisions of the PPSA ought be followed and a lackadaisical approach to registration ought not be encouraged, an over technical approach to what is a complex Act is in no one's interest. Although there was no evidence on the question in this case it is difficult to imagine anyone searching the register could have been misled as to the plaintiffs' security interests in the chattels. For a party to have been alerted to that interest and have realised there was a defect in the registration and then to have acted to their advantage would have been at best unscrupulous.
Furthermore, the defects in the registration here were in respect of the description of the secured party, not the grantor. That being so it is even less likely than in Re Transurban and Re Accodale Wines that unsecured creditors would have been unaware of the plaintiffs' security interests or relied on the collateral being unencumbered.
Searches of the PPSR show that there are four secured creditors other than the plaintiffs. They are Westpac Banking Corporation, BOC Ltd, Conplant Pty Ltd and Toyota Finance Australia Ltd. On 17 July 2017 the plaintiffs and Westpac executed a deed of priority. The security interests of BOC, Conplant and Toyota are PMSIs within the meaning of s 14 of the PPSA. They will therefore have priority over the plaintiffs' security interests. The positions of each of these three will therefore be unaffected by the making of these orders. Each of the three parties have been informed of the plaintiffs' application. None have raised any objection.
In all the circumstances I was satisfied the plaintiffs acted honestly and reasonably both in relying upon their initial solicitors and in relying on EDX. The failure to perfect the security interests by registration is clearly a result of inadvertence. There being no prejudice to any other parties I was satisfied an order should be made under s 588FM of the Act to specify 30 May 2017 as being the date of registration.
An order under s 588FM has no effect in the priority of security interests. It merely avoids the consequence that in the event of liquidation or administration within six months the security interests vest in the grantor. Pursuant to s 293(1) of the PPSA the court may make an order extending the number of business days in a period specified in s 62(3)(b) if the court is satisfied that it is just and equitable to do so. The court may make an order even if the period has ended. In making an order to extend a period under s 293(1) the court must take into account:
(a)whether the need to extend the period arises as a result of an accident, inadvertence or some other sufficient cause;
(b)whether extending the period would prejudice the position of any other secured party or other creditors; and
(c)whether any person has acted, or not acted, in reliance on the period having ended.
An order pursuant to s 293 only gives the plaintiffs priority over the interests of other secured creditors in respect of specific collateral over which the plaintiffs' respectively hold a security interest which is a PMSI within the meaning of s 14 of the PPSA. That is, the position of unsecured creditors is not affected by an order under s 293. They already sit behind secured creditors in terms of priority.
In Re Accodale Wines Brereton J noted that the question of prejudice in relation to s 293 directs attention not to the impact on other secured parties or creditors of the delay in registration but to the impact of making an order extending the period. To evaluate prejudice for that purpose it is necessary to compare the position of creditors if an extension is granted with their position if no extension is granted. Usually there will be a difference because priorities will be disturbed. Such prejudice while not irrelevant is not conclusive. The question of prejudice in the context of s 588FM has at its essential purpose the granting of an extension to reinstate priority to which a PMSI would otherwise be entitled over prior registrations over the same collateral. It follows in any case in which the remedy is of any practical utility there will be prejudice to a prior secured creditor with interest in the same collateral. In Re Duke Contracting Australia Pty Ltd [2017] NSWSC 767, Brereton J in dealing with the meaning of the term 'reliance' in s 293 stated:
The kind of 'reliance' contemplated is where a third party has dealt with the grantor - in particular, by taking a security interest over property that includes the PMSI - in the belief that there was no perfected PMSI that would trump its interest [19]. (footnote omitted)

In the circumstances of this case although the defendant has granted security interests to other secured parties prior to the perfection of the plaintiffs' registration no other party will be adversely affected.
So, to repeat what I have said above, the plaintiffs acted honestly and reasonably in relying upon their solicitors and EDX. The failure to perfect the security interest by registration within the time prescribed by s 62(3)(b) of the PPSA is clearly a result of inadvertence. In the absence of any relevant prejudice to any other party the plaintiffs should be relieved of the consequences of the failure of its solicitors to perfect their security interests. Accordingly, I exercised a discretion under s 293(1)(a) of the PPSA to extend the period for registration to 29 May 2017 and 30 May 2017 respectively such that the registrations made by the plaintiffs on these dates will fall within the time period prescribed by s 62(3)(b) of the PPSA.