Re David Brown Gear Industries Pty Ltd

[2017] NSWSC 907

Supreme Court

New South Wales

Medium Neutral Citation:	In the matter of David Brown Gear Industries Pty Ltd [2017] NSWSC 907
Hearing dates:	21 February 2017
Decision date:	21 February 2017
Jurisdiction:	Equity - Corporations List
Before:	Black J
Decision:	Order that 20 January 2017 be fixed as the time by which the Plaintiff is to perfect any security interest granted to it by the Defendant in all present and after acquired property with the exception of any personal property of the Defendant which is not from time to time subject to a security agreement in favour of the Plaintiff as referred to in PPSR registration number 201701200058404.
Catchwords:	CORPORATIONS — Debentures, charges and mortgages — Registration — Extension of time for registration – where collateral inadvertently not registered against grantor’s Australian company number – where grantor consents to extension – where extension would not prejudice other creditors
Legislation Cited:	- Corporations Act 2001 (Cth), ss 588FL–588FM
Cases Cited:	- Re Appleyard Capital Pty Limited [2014] NSWSC 782; (2014) 101 ACSR 629 - Re Cardinia Nominees Pty Limited [2013] NSWSC 32
Category:	Principal judgment
Parties:	Sanne Fiduciary Services Pty Limited (Plaintiff) David Brown Gear Industries Pty Ltd (Defendant)
Representation:	Counsel: N Mirzai (Plaintiff)   Solicitors: Clayton Utz (Plaintiff)
File Number(s):	2017/55216

Judgment – ex tempore

1. By Originating Process filed today by leave, the Plaintiff, Sanne Fiduciary Services Pty Limited (“Sanne”), seeks an order under s 588FM(1) of the Corporations Act 2001 (Cth) to extend the time for it to register a security interest granted to it by the Defendant, David Brown Gear Industries Pty Ltd (“Company”) on the Personal Property Securities Register (“PPSR”). In particular, an order is sought under s 588FM of the Act fixing 20 January 2017 as the time, for the purposes of s 588FL(2)(v)(iv) of the Act, by which time Sanne is to register any security interest granted to it by the Company in all present and after acquired property, with the exception of any personal property which is not from time to time subject to a security agreement in favour of Sanne. The application is brought on a common basis that liberty would be reserved to any liquidator, administrator or deed administrator who might in the future be appointed to the Company to apply to discharge or vary that order within a six month period.

2. The application is supported by an affidavit of Mr Geoffrey Geha dated 20 February 2017. Mr Geha is a partner in the firm of solicitors which acted for Sanne as local Australian counsel in respect of the entry into a facilities agreement which was put in place on 1 June 2016. Mr Geha’s evidence is that the Company is party to that facilities agreement to guarantee the facilities and give certain undertakings and representations of warranties and Sanne is, in turn, party to the facilities agreement as security trustee and holds various security interests on trust for the lenders. Sanne also entered into a general security deed dated 12 July 2016 with the Company, which granted Sanne a security interest in specified collateral, including all of the Company’s present and after acquired property, interests and proceeds over which the Company has sufficient right to grant such an interest, including specified assets. That security interest was registered on the PPSR on 13 July 2016 but, it appears, was not registered against the Australian company number of the Company.

3. Mr Geha leads evidence of circumstances in which he was advised by the Company’s solicitors in late January 2017 of the fact that the security interest was not registered against its Australian company number. After Mr Geha was advised of that matter, a further financing statement in respect of the security interest was promptly lodged on the PPSR against the Company’s Australian company number, with a link to the earlier registration which did not contain that information. Since that time, Sanne’s solicitors have taken instructions as to these matters and obtained the Company’s consent to the orders which are sought, to which I will refer further below.

4. The evidence seems to me to establish the fact that the error in registration of the security interest occurred by inadvertence, so far as the solicitor who had direct responsibility for registration, under Mr Geha’s supervision, failed to recognise the need to register the security interest against the Company’s Australian company number. Mr Geha also refers to accident or inadvertence on his part and his responsibility as a responsible partner supervising that solicitor. The inference of inadvertence in this matter is more readily drawn where importance of registration of a PPSR interest against a Company’s Australian company number has now been recognised in several cases and a failure to do so would scarcely be a deliberate act of solicitors attending to such a registration.

5. Mr Geha also leads evidence which, it seems to me, establishes that the failure to register would not be prejudicial to creditors or shareholders, although there are several subsequent registrations of purchase money security interests (“PMSIs”) by other creditors of the Company, which would have priority over the security registered by Sanne in any event. Mr Geha’s evidence also indicates that Sanne has moved promptly to address these issues after they came to its solicitor’s attention.

6. Sanne also relies on a letter from the Company signed by its chief financial officer which confirms that it does not oppose the orders sought in the application; confirms that there has been no material change in the Company’s financial position in the period from 12 July 2016 to the date of the letter; confirms that no other security interest has been granted by the company other than the three interests being PMSI interests to which I referred above; and confirms the Company’s solvency on the basis indicated in its audited accounts. These audited accounts have been tendered, subject to a claim for confidentiality by the Company, and I have had regard to their content. In summary, that evidence establishes the Company’s assessment of its solvency, the fact that its accounts are prepared on an ongoing basis and the detailed basis on which those accounts are prepared, to which I need not refer further.

7. Mr Mirzai, who appears for Sanne, also points out that the position of unsecured creditors would be addressed by the common provision allowing an application to be made by an insolvency administrator in the unhappy event that an insolvency administrator were to be appointed to the Company within a six month period.

8. The case law in respect of applications under s 588FM of the Corporations Act is now well-established and has been addressed by Mr Mirzai in his submissions. That section permits the court to make an order fixing a later time for the purposes of s 588FL(2)(d)(iv) of the Act if, relevantly, a failure to register collateral at an earlier time was accidental or due to inadvertence or some other sufficient cause, or is not of such a nature as to prejudice the position of creditors or shareholders. Mr Mirzai refers to my decision in Re Cardinia Nominees Pty Limited [2013] NSWSC 32, where I noted that inadvertence could be established where a party operates under a mistake as to the consequence of failing to register a security interest. Mr Mirzai also refers to the absence of prejudice to creditors, pointing to the fact that the earlier PMSI registrations will prevail over Sanne’s registration and to the fact that, as Brereton J recognised in Re Appleyard Capital Pty Limited [2014] NSWSC 782; (2014) 101 ACSR 629, an order of this kind will not allow Sanne’s security interest any priority over other security interests already registered before the relevant date. As I noted above, the position of unsecured creditors and any effect upon them in a future insolvency of the Company can be addressed by a condition of the kind to which Sanne submits.

9. I am, therefore, satisfied that the error in the original registration, namely, the absence of reference to the Australian company number which affects its validity, was accidental or due to inadvertence and, in any event, the relief sought is not of such a nature as to prejudice the position of creditors or shareholders of the Company. The Court may more readily grant such relief, as it has in other similar cases, where that will perfect the intentions of the parties in respect of the grant of the security and the application is made with the Company’s consent, as in this application.

10. For these reasons, I make orders in accordance with the short minutes of order initialled by me and placed with the file. I also make an order that the exhibits be returned.

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Decision last updated: 18 July 2017