In the matter of Ralan Arncliffe Pty Ltd (admins apptd) (recs and mgrs apptd)

[2019] NSWSC 1678

Supreme Court

New South Wales

Medium Neutral Citation:	In the matter of Ralan Arncliffe Pty Ltd (admins apptd) (recs and mgrs apptd) [2019] NSWSC 1678
Hearing dates:	4 November 2019
Date of orders:	04 November 2019
Decision date:	04 November 2019
Jurisdiction:	Equity - Corporations List
Before:	Black J
Decision:	Orders made pursuant to s 588FM of the Corporations Act 2001 (Cth) fixing a date 20 business days after the Plaintiff grants the Defendant the specified security as the later time for the purposes of s 588FL(2)(b)(iv) of the Act.
Catchwords:	CORPORATIONS – security interest – extension of time for registration – where facility for company created after date administrators were appointed – where security interest in company granted by company – where facility is best financing option presently available for company – whether an order fixing a later date for registration of the specified security for the purposes of s 588FL(2)(b)(iv) of the Corporations Act 2001 (Cth) should be made.
Legislation Cited:	- Corporations Act 2001 (Cth) ss 420A, 588FL, 588FL(2), 588FL(2)(b)(iv), 588FM, - Court Suppression and Non-publication Orders Act 2010 (NSW)
Cases Cited:	- Hill (administrator), Re Flow Systems Pty Ltd (admins apptd) [2019] FCA 35 - K J Renfrey Nominees Pty Ltd (as trustee for the Renfrey Family Trust) v OneSteel Manufacturing Pty Ltd [2017] FCA 325; (2017) 120 ACSR 117 - Re Ten Network Holdings Ltd (admins apptd) (recs and mgrs apptd) [2017] FCA 1144
Category:	Principal judgment
Parties:	Ralan Arncliffe Pty Ltd (admins apptd) (recs and mgrs apptd) (Plaintiff) FCCD (Australia) Nominee Pty Limited (Defendant)
Representation:	Counsel: R Mansted (Plaintiff)   Solicitors: Arnold Bloch Leibler (Plaintiff)
File Number(s):	2019/346167

Judgment – ex tempore (revised 6 november 2019)

1. By Originating Process filed today, by leave, the Plaintiff, Ralan Arncliffe Pty Ltd (admins apptd) (recs and mgrs apptd) (“Company”), by its receivers, applies for an order under s 588FM of the Corporations Act 2001 (Cth) to set a later time for the purpose of s 588FL(2)(b)(iv) of the Corporations Act for the registration of certain security interests to be granted by the Company in favour of the Defendant, FCCD (Australia) Nominee Pty Ltd (“FCCD”), so that those security interests do not vest in the Company by reason of s 588FL(2) of the Act. The application is brought, as I noted above, by the Company by its receivers. The Company is in administration, and the administrators are on notice of the application, and neither consent to, nor oppose the relief that is sought.

2. The issues which arise in respect of the application of s 588FL(2) of the Corporations Act, involve the potential for the vesting of a PPSA security interest now granted by the Company in the Company, if that security interest is not registered within time. In a case such as the present, where a facility was created after the date on which administrators were appointed, then the registration requirement within the time specified by s 588FL(2) could not and would not be satisfied. The difficulties which arise in that context have been addressed in earlier authorities, including K J Renfrey Nominees Pty Ltd (as trustee for the Renfrey Family Trust) v OneSteel Manufacturing Pty Ltd [2017] FCA 325; (2017) 120 ACSR 117; Re Ten Network Holdings Ltd (admins apptd) (recs and mgrs apptd) [2017] FCA 1144 and Hill (administrator), Re Flow Systems Pty Ltd (admins apptd) [2019] FCA 35. Those decisions undertake a careful review of the relevant provisions, which are relatively complex, and their operation in similar circumstances: see, for example, Re Ten Network Holdings Ltd above at [50]ff. Given the urgency of this application, it is not necessary for me to repeat that review, and I gratefully adopt the review of the relevant provisions and their complexities that is set out in those decisions.

3. The application is supported by the affidavit dated 4 November 2019 of Mr Jason Tracy, who is one of the joint and several receivers and managers appointed to the Company. Mr Tracy points out that the receivers and managers were appointed by a mezzanine creditor to the Company, which is a second ranking secured creditor after a bank that made a facility available to the Company. Mr Tracy rightly recognises that he owes a primary duty to the secured creditor that appointed him, but that he also owes a duty to unsecured creditors to take reasonable care in realising the relevant collateral for not less than its market value or, if there is no market value, the best price reasonably obtainable, reflecting the terms of s 420A of the Corporations Act.

4. Mr Tracy in turn refers to the circumstances of the Company, which is presently constructing a substantial apartment development in Arncliffe, New South Wales, involving 318 residential apartments and other facilities. It appears that the development is approximately half completed. The Company has, however, been placed in administration; building works were suspended for a period, and then recommenced under temporary facilities provided by the mezzanine financier; and steps are now being taken to seek to fund the completion of the work, so as to bring the apartment development to completion.

5. Mr Tracy refers to steps which have been taken to identify a new lender, to replace the existing bank lender which will not continue to advance funds where the Company is in administration. The amount borrowed will be applied to pay out amounts currently owed to the bank lender, amounts currently owed to the builder and, it is anticipated, allow completion of the development, and also replace certain bank guarantees provided to the local council. The proposed incoming lender will require a registered first ranking mortgage over the development and a registered first ranking general security agreement, and the Defendant, FCCD, will be the security trustee in that regard. Mr Tracy fairly recognises that the terms of the proposed facility are less favourable than the arrangements previously available from the bank lender, but that is hardly surprising given the Company’s present circumstances. Mr Tracy also expresses the view that the proposed facility is the best financing option presently available to complete the development, and I give considerable weight to his expertise in that respect.

6. Mr Tracy notes that it would be a condition of funds being made available under the facility that the time for registration of the security interest be extended. That is, in one respect, self-evident, since it would hardly be likely that a lender would provide substantial amounts by way of funding, intended to be secured, if that security would vest in the Company by reason of the operation of s 588FL of the Act. That, of course, is a similar situation to that addressed in the case law noted above.

7. Mr Tracy fairly recognises the difficulties in predicting the future market for apartments, given the present state of completion of the property, but equally expresses the view that the realised value of the property in its present state is likely to be substantially less than if it were completed. It seems to me that, having regard to Mr Tracy’s evidence and the commercial probabilities, it at least can be said that the entry into the proposed facility would preserve the prospect that completing the development would add value to the property, which exceeds the amount of the principal and interest payable under the proposed facility, and preserves for unsecured creditors a prospect that their recoveries would be improved, by contrast with the position that the property was sold in an incomplete state, with the substantial risk that value realised would not exceed the amounts lent by secured lenders.

8. Ms Mansted, who appears for the Company and the receivers in the application has made detailed and careful submissions. She refers to the circumstances that have led to the need for relief, and the urgency of the application, which reflect the fact that the present facilities which have allowed the builder to recommence work are limited in time and amount. The time limit for those facilities has now expired, subject to an extension request, and the amount available under them will likely be utilised by the end of this week. Ms Mansted rightly points to the risks of additional costs for the Company if, when that amount is exhausted, the builder were to exercise its rights, and either suspend construction or demobilise.

9. The Company and the receivers acknowledge that s 588FL of the Act would apply in the relevant circumstances, because the security interest had not been registered by the relevant time, here, the date of the administrators’ appointment. Ms Mansted rightly points out that the Court may grant relief, under s 588FM of the Act, in circumstances where it is satisfied that it is just and equitable to grant that relief. Ms Manstead points to several factors which she submits, and I accept, have that consequence in the present circumstances. First, the security is similar in nature to that held by the bank lender which would be discharged and, second, the grant of that security would facilitate continued construction of the development, which at least preserves the prospect for an improvement in the position of unsecured creditors, as I noted above. Both of those propositions seem to me to be established, notwithstanding that the terms of any borrowing may be less favourable to the Company than in the previous facility from the bank, recognising the change in the Company’s circumstances. Ms Mansted also rightly points out that there has been no delay in registration, where the difficulties which arise in this case are the consequence of the Company being placed in administration.

10. Ms Mansted also draws attention to relevant discretionary matters, which are less matters that support the grant of relief, than matters that displace reasons why it might not otherwise be granted. First, the relief sought is supported by the Company, FCCD which would be the security trustee in the facility, and the mezzanine lenders. The support of the mezzanine lenders is significant, because they have a real commercial interest in satisfying themselves that the transaction is one that adds value to the Company. Ms Mansted also points to the fact that the administrators do not oppose the application. Ms Mansted notes that the receivers have acted promptly in seeking the relevant order and, importantly, the rights of any interested party to seek to have the order set aside are reserved.

11. In these circumstances, having regard to the case law to which I have referred above, the commercial logic of the steps which have been taken and the receivers’ assessment of the Company’s position, it seems to me that it is just and equitable to grant the relief sought. It is plain enough that the refinancing could not proceed, and it is likely that any opportunity for unsecured creditors to realise value that comes from the refinancing and completion of the development would be lost, if the orders sought are not made. For these reasons, I will make orders in the form that is sought by the receivers. It will not be necessary to make an order that had been foreshadowed under the Court Suppression and Non-publication Orders Act 2010 (NSW) where the exhibits will be returned in any event.

12. I therefore make the following orders, in addition to those which have previously been made in the course of the hearing:

1. Pursuant to s 588FM of the Corporations Act, a date 20 business days after the date on which the Plaintiff grants the Defendant a security interest over all of the property and undertaking of the Plaintiff be fixed as the later time for the purposes of s 588FL(2)(b)(iv) of the Act.

2.    Liberty to apply to any party who can demonstrate sufficient interest to apply to vary or discharge any relief granted on no less than three business days’ notice to the Plaintiff, the Defendant and the Court.

3.    The exhibits be returned.

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Decision last updated: 29 November 2019