Re Lloyd Anthony Furniture Pty Ltd; Ex parte Walker

[1996] FCA 186

CATCHWORDS

CORPORATIONS - application pursuant to s 266(4) of the Corporations Law to extend the period within which a notice in respect of a charge may be lodged - failure to lodge notice in respect of a charge created by Bill of Sale due to inadvertence - whether appropriate for Court to extend time with respect to the giving of notice of charge where company is in liquidation - the winding up of the Company is a significant factor weighing against an exercise of the Court's discretion in granting an extension of time.

Corporations Law s 263 and s 266(4)

Sanwa Australia Finance Ltd v Ground-Breakers Pty Ltd     (In liqu) [1991] 2 QdR 456

In Re Flinders Trading Co Ltd (1978) 20 SASR 14

Scarfe Steel Supplies Pty Ltd v S.M.P. Pty Ltd & Ors (1980)   27 SASR

Douglas-Brown as liquidator of De Barros Nominees Pty Ltd     (in liq) v Standard Chartered Finance Ltd (1990) 8 ACLC 993

Rynmark Pty Ltd v Classic Ergonomic Chairs Pty Ltd (1994)     12 ACLC 1,038

No SG 3014 of 1996

IN THE MATTER OF LLOYD ANTHONY FURNITURE PTY LTD
A.C.N. 008 005 454 (Receiver & Manager Appointed)
(In Liquidation)

EX PARTE:

SAMUEL JAMES WALKER

Branson J
Adelaide
22 March 1996

IN THE FEDERAL COURT OF AUSTRALIA )
  )
SOUTH AUSTRALIA DISTRICT REGISTRY )    No SG 3014 of 1996
  )
GENERAL DIVISION                 )

IN THE MATTER OF

LLOYD ANTHONY FURNITURE
  PTY LTD  A.C.N. 008 005 454

(Receiver & Manager

Appointed) (In Liquidation)

EX PARTE:

SAMUEL JAMES WALKER

Applicant

MINUTES OF ORDER

CORAM:    Branson J
PLACE:    Adelaide
DATE:     22 March 1996

THE COURT ORDERS THAT:

1. The application is dismissed.

Note:     Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA )
  )
SOUTH AUSTRALIA DISTRICT REGISTRY )    No SG 3014 of 1996
  )
GENERAL DIVISION                 )

IN THE MATTER OF

LLOYD ANTHONY FURNITURE
  PTY LTD  A.C.N. 008 005 454

(Receiver & Manager

Appointed) (In Liquidation)

EX PARTE:

SAMUEL JAMES WALKER

Applicant

REASONS FOR JUDGMENT

CORAM:    Branson J
PLACE:    Adelaide
DATE:     22 March 1996

By application dated 24 January 1996 the applicant seeks an order pursuant to s266(4) of the Corporations Law extending the period within which a notice in respect of a charge may be lodged. The applicant is the grantee and the company Lloyd Anthony Furniture Pty Ltd, now in liquidation, ("the Company") is the grantor of a Bill of Sale with respect to a "Point to Point Acimall Boring Machine Serial No. 032162" ("the machine").

Section 263 of the Corporations Law provides that where a company creates a charge, the company shall ensure that there is lodged, within 45 days after the creation of the charge, a

notice in the prescribed form setting out certain specified particulars. Section 266 of the Corporations Law, so far as is here relevant, is in the following terms:-

"(1) Where:

(a)an order is made, or a resolution is passed, for the winding up of a company; or

(b)an administrator of a company is appointed under section 436A ...; or

(ba)a company executes a deed of company arrangement;

a registrable charge on property of the company is void as a security on that property as against the liquidator, the administrator of the company, or the deed's administrator, as the case may be, unless:

(c)a notice in respect of the charge was lodged under section 263 ... :

(i)within the relevant period; or

(ii)at least 6 months before the critical day;

. . . . . .

(2)The reference in paragraph (1)(c) to the relevant period shall be construed as a reference to:

(a)in relation to a charge to which subsection 263(1) applies - the period of 45 days specified in that subsection, or that period as extended by the Court under subsection 4 of this section;

. . . . . .

(3). . . . . .

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

(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 any other grounds it is just and equitable to grant relief, may, on the application of the company or any other person interested and on such terms and conditions as seems to the Court just and expedient, by order, extend the period for such further period as is specified in the order.

(5)  . . . . . .

(6). . . . . .

(7). . . . . .

(8)In this section:

"critical day" in relation to a company, means:

(a)if the company is being wound up - the day when the winding up began; or

(b)if the company is under administration - the section 513C day in relation to the administration; or

(c). . . . . ."

The Company was a family company which manufactured furniture. Allan Walker ("Mr Walker") and Jean Walker ("Mrs Walker") were its directors.  Mr Walker has given affidavit evidence that he and his wife were the only shareholders of the Company.  Other evidence suggests that Sam Nominees Pty Limited held the only two issued shares in the Company.  It seems likely that Mr & Mrs Walker are the shareholders of Sam Nominees Pty Limited.

In about October 1994 Mr Walker made arrangements for the Company to borrow $20,000 from the applicant, who is his son. The applicant had funds available to him following the settlement of a personal injuries damages claim.  The sum of $20,000 was used to pay ordinary trade creditors of the Company.

Mr Walker intended that the loan by the applicant to the Company be secured by way of a Bill of Sale over the machine.  As the National Australia Bank ("NAB") held a registered mortgage debenture operating as fixed and floating charge over the assets of the Company to secure certain advances to the Company, Mr Walker sought and obtained the consent of NAB to the proposed Bill of Sale.

Mr Walker instructed a licensed land broker and conveyancer, Barry M Swincer ("Mr Swincer") to prepare the proposed Bill of Sale.  This was done and a Bill of Sale was executed by the Company under seal and stamped as a security for $20,000 ("the Bill of Sale").  The date when the Bill of Sale was executed is not shown on the Bill of Sale.  It was stamped on 27 October 1994.  Mr Swincer sent the stamped Bill of Sale to Mr Walker under cover of a letter dated 2 November 1994.  The letter contained the following advice:-

"We recommend that you keep this document in a safe place so that it can always be found when next needed.  We would suggest that you arrange a Security Envelope at your Bank or similar safe place.  If this document is lost or destroyed, a replacement will lead to considerable cost and inconvenience."

Neither Mr Walker, nor the Company, apparently received any advice from Mr Swincer, or any other person, of the Corporations Law requirements to lodge a notice with respect to the charge over the machine created by the Bill of Sale. It would also have been necessary for NAB to release the machine from its charge by the registration of a partial discharge of its registered mortgage debenture. As NAB received no request to take this step it was never done.

On 1 December 1995 Peter Ivan Macks ("Mr Macks") was appointed administrator of the Company pursuant to s436A of the Corporations Law. On 6 December 1995 NAB appointed Scott Bradley Kershaw ("Mr Kershaw") as receiver and manager of the Company. On 22 December 1995 the creditors of the Company resolved, pursuant to s439C(c) of the Corporations Law, that the Company be wound up, and Mr Macks became the liquidator of the Company.

By letter dated 6 March 1996 Mr Macks was advised by Mr Kershaw that he had ceased to act as receiver and manager of the Company.  A notice of cessation of appointment dated 6 March 1996 was lodged by Mr Kershaw with the Australian Securities Commission.  Mr Kershaw forwarded to Mr Macks a cheque in the amount of $29,449.25 being the balance of funds in the account of the receiver and manager.  He also provided to Mr Macks a list of amounts not realised by him from debtors of the Company and a schedule of unrealised assets of the Company.  I was invited by the parties to act on the assumption that the machine is an asset in the liquidation of the Company.

It seems fair to assume, on the basis of the above, that there will be funds available to Mr Macks in the winding up of the Company.  Whether any such funds will become available to meet claims of unsecured creditors is unclear.  If this application is successful there is the possibility that the funds available to the liquidator will be reduced by $20,000.

I am satisfied that the failure to lodge a notice in respect of the Bill of Sale was due to inadvertence on the part of the Company and its directors (Sanwa Australia Finance Ltd v Ground-Breakers Pty Ltd (In liqu) [1991] 2 QdR 456). The Court thus has a discretion, on such terms and conditions as seem to it to be just and expedient, to extend the period within which the notice may be lodged.

It is argued on behalf of the liquidator that the Court ought not, in the exercise of the discretion conferred by s266(4) of the Corporations Law, extend the time for registration of a charge once a winding up has commenced in the absence of exceptional circumstances.

The authorities reveal that the courts have adopted an essentially similar approach to the issue here raised when considering applications under s266(4) of the Corporations Law to that earlier adopted under corresponding provisions in the Companies Codes and the uniform Companies Acts.

Mitchell J, with whom Walters J agreed, in In Re Flinders Trading Co Ltd (1978) 20 SASR 14 at 49 stated with respect to s106 of the Companies Act 1962 (S.A.) that "even where it is mere inadvertence which leads to the failure to register a charge within the prescribed time, the argument that the registration of the charge merely puts the mortgagee in the position in which he or it would have been had there been no inadvertence should not prevail over the claims of unsecured creditors where there is a danger that such claims will not be met in full owing to the insolvency or likely insolvency of the company."  Bray CJ at 39, who was in dissent in that case, was not willing to give overwhelming significance to the insolvency of the company at least in circumstances in which there had been "no execution, no petition presented, and no resolution for voluntary winding up."

Scarfe Steel Supplies Pty Ltd v S.M.P. Pty Ltd & Ors (1980) 27 SASR 187 was also a case in which, in contrast with the circumstances which I am required to consider, the company was not in liquidation. Zelling J in that case expressed the view that the discretion to extend time would survive an imminent liquidation, although its exercise in such circumstances would be "most unusual".  He expressed no view as to whether the discretion would survive the commencement of a winding up.

In Douglas-Brown as liquidator of De Barros Nominees Pty Ltd (in liq) v Standard Chartered Finance Ltd (1990) 8 ACLC 993 the Full Court of the Supreme Court of Western Australia accepted that neither insolvency, nor the commencement of a winding up, was fatal to an application for an extension of time to register a charge under the Companies (Western Australia) Code. However, the Full Court at 998 appeared to accept that "an extension of time will almost invariably be refused after the commencement of a winding up and will only be granted in exceptional circumstances."

Underwood J took a similar view in Rynmark Pty Ltd v Classic Ergonomic Chairs Pty Ltd (1994) 12 ACLC 1,038. His Honour stated at 1,048:-

"The intervention of winding up between the creation of the charge and the application to extend the time for lodgment of a notice is an important factor against exercising the discretion in favour of the applicant even though lodgment occurred before the winding up, because an order extending the period will assist the applicant creditor over the other unsecured creditors."

I accept the appropriateness of the approach to an application to extend time with respect to the giving of notice of a charge where the company is in liquidation reflected in The De Barros Nominees Pty Ltd (in liq) Case and in the Rynmark Pty Ltd Case.

Counsel for the applicant in this case placed weight on the reliance placed by the Company, and by inference by the applicant, on Mr Swincer.  He also drew attention to the fact
that any person who had searched the Australian Register of Company Charges would have discovered that NAB held a registered charge over the Company's assets, including the machine.

Counsel for Mr Macks drew the Court's attention to the delay of over one year in the lodging of the notice, the failure of the applicant to adduce evidence from Mr Swincer as to why notice of the Bill of Sale was not lodged, the fact that the Company continued to trade after the granting of the Bill of Sale thus incurring additional debts, and the possibility that the applicant may have a cause of action against Mr Swincer.

I agree that the delay in this case was substantial. However, I accept that so far as the Company and the applicant are concerned, the explanation for the delay lies in their ignorance of the requirements of s263 of the Corporations Law. In the circumstance that the applicant may have a cause of action against Mr Swincer I am not prepared to draw any adverse inference from the failure of the applicant to adduce evidence from Mr Swincer.

Although Mr Walker gave evidence that the funds borrowed from the applicant were used in paying ordinary trade creditors of the Company, there is no evidence to suggest that the unsecured debts of the Company are now less than they would have been had the Company not borrowed $20,000 from the applicant. I note also that, at the time that the Company borrowed the $20,000 from the applicant, it had a significant deficiency in net assets. For present purposes, however, I accept the opinion expressed by Mr Macks in his report pursuant to s439A(4) of the Corporations Law, that at that time, if loans to the Company by Mr Walker were excluded, it could not be shown that the Company was insolvent.

It is a matter attracting personal sympathy to the applicant that the $20,000 lent by him to the Company came from the proceeds of settlement of a personal injuries damages claim. However, I do not consider that the source of the funds in his hands is a matter relevant to the exercise of the discretion given to the Court by s266(4) of the Corporations Law.

The fact that any creditor who searched the Australian Register of Company Charges would have learned of the NAB charge over the assets of the Company is a matter tending to support an exercise of the Court's discretion in favour of the applicant.  However, as is disclosed above, the winding up of the Company is a significant factor weighing against an exercise of the Court's discretion in favour of the applicant.  Indeed, in this case there is more than a mere commencement of winding up.  The receiver and manager appointed by NAB apparently took possession of the assets of the Company, which included the machine, upon his appointment.  The machine, it appears, is now in the possession of the liquidator by reason only of the cessation of the appointment of Mr Kershaw.

The circumstances of this case considered as a whole are, in my view, insufficient to bring this case into the category of exceptional cases in which an extension of time may appropriately be granted notwithstanding a winding up.

I am not satisfied that it would be an appropriate exercise of the Court's discretion to extend the period within which a notice in respect of the charge created by the Bill of Sale may be lodged.

The application will be dismissed.  I will hear counsel as to costs.

I certify that this and the preceding       pages are a true copy of the Reasons for Judgment of the Honourable Justice Branson.

Associate:

Dated:

Counsel for the Applicant        :    Mr R I Sallis
Solicitors for the Applicant     :    Proud & Company

Counsel for the Liquidator,      :    Mr J M Cudmore
     Peter Ivan Macks
Solicitors for the Liquidator,    :    Ward & Partners
     Peter Ivan Macks

Hearing Date  :    8 March 1996