Talon a Pty Limited v Signav Pty Ltd (Administrators Appointed); in the matter of Signav Pty Limited (Administrators Appointed)

[2009] FCA 990

FEDERAL COURT OF AUSTRALIA

Talon A Pty Limited v Signav Pty Ltd (Administrators Appointed); in the matter of Signav Pty Limited (Administrators Appointed) [2009] FCA 990

Corporations Act 2001 (Cth) ss 263(1), 266(1), 266(4), 436A, 436B, 436C, 440D(1)

Craig Mostyn & Co v Old Valley Pty Ltd 139 FCR 477; referred to

TALON A PTY LIMITED (ACN 123 755 653) and ANOR v SIGNAV PTY LTD (ADMINISTRATORS APPOINTED) (ACN 065 096 380) & ORS; IN THE MATTER OF SIGNAV PTY LTD (ADMINISTRATORS APPOINTED) (ACN 065 096 380)

NSD 799 of 2009

EMMETT J

14 AUGUST 2009

SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION

NSD 799 of 2009

IN THE MATTER OF SIGNAV PTY LTD (ADMINISTRATORS APPOINTED) (ACN 065 096 380)

BETWEEN:

TALON A PTY LIMITED (ACN 123 755 653)
First Plaintiff

TALON B PTY LIMITED (ACN 123 755 699)
Second Plaintiff

AND:

SIGNAV PTY LTD (ADMINISTRATORS APPOINTED) (ACN 065 096 380)
First Defendant

BARRY ANTHONY TAYLOR
Second Defendant

ANDREW FLETCHER NEEDHAM
Third Defendant

JUDGE:	EMMETT J
DATE OF ORDER:	14 AUGUST 2009
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1.Leave is granted pursuant to section 440D(1)(b) of the Corporations Act 2001 (Cth) to begin and proceed with this application.

2.The time for the lodgement of notice pursuant to section 263(1)(a) of the Corporations Act 2001 (Cth) of the charge granted by the defendant to the first and second plaintiffs and dated 11 November 2008 (the Charge) with the Australian Securities and Investments Commission be extended up to and including 22 January 2009. 

3.The administrators, any creditor or any liquidator of the defendant be granted liberty to apply to the Court to vary Order 2 if a creditor of the defendant has advanced funds or given credit to the defendant in reliance on the Australian Register of Company Charges not disclosing the existence of the Charge between 27 December 2008 and 22 January 2009. 

4.Order 2 be without prejudice to the rights of any person in consequence of any dealings by that person with any property the subject of the Charge, where the dealing occurred between 27 December 2008 and 22 January 2009. 

5.The plaintiffs pay the defendants’ costs as assessed or agreed.

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

The text of entered orders can be located using eSearch on the Court’s website.

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION

NSD 799 of 2009

IN THE MATTER OF SIGNAV PTY LTD (ADMINISTRATORS APPOINTED) (ACN 065 096 380)

BETWEEN:

TALON A PTY LIMITED (ACN 123 755 653)
First Plaintiff

TALON B PTY LIMITED (ACN 123 755 699)
Second Plaintiff

AND:

SIGNAV PTY LTD (ADMINISTRATORS APPOINTED) (ACN 065 096 380)
First Defendant

BARRY ANTHONY TAYLOR
Second Defendant

ANDREW FLETCHER NEEDHAM
Third Defendant

JUDGE:	EMMETT J
DATE:	14 AUGUST 2009
PLACE:	SYDNEY

REASONS FOR JUDGMENT

1. This application is made under s 266(4) of the Corporations Act 2001 (Cth) (the Act) for an extension of the period within which the plaintiffs may lodge notice, pursuant to s 263(1) of the Act, of the creation of a charge in favour of the plaintiffs by the first defendant, SigNav Pty Ltd (the Company).  The plaintiffs, Talon A Pty Limited (Talon A) and Talon B Pty Limited (Talon B), are members of the Kestrel Group (the Kestrel Group), a private equity firm based in Sydney.  Mr Phillip Carter is the managing director of Kestrel Capital Pty Limited, which appears to be the holding company of the Kestrel Group.  The business of the Kestrel Group is conducted through a number of related entities, including Talon A, Talon B, as well as Nanyang Australia I Limited (Nanyang I) and Nanyang Australia II Limited (Nanyang II).  The directors of all of those members of the Kestrel Group are Messrs Alex Varley and Niall Cairns and Mr Carter. 

2. Before dealing with the circumstances of this case, it is desirable to say something about the statutory framework within which this application has been made. Under s 263(1), where a company creates a charge, the company must ensure that there is lodged, within 45 days after the creation of the charge, a notice in the prescribed form setting out the particulars specified in s 263(1)(a). Section 266(1) relevantly provides that, where an administrator of a company is appointed under ss 436A, 436B or 436C of the Act, a registrable charge on property of the company is void as a security on that property, as against the administrator, unless a notice in respect of the charge was lodged under s 263 within the relevant period or at least six months before the critical day. The reference to the relevant period was relevantly a reference to the period of 45 days specified in s 263, or that period as extended by the Court under s 266(4). The critical day, relevantly, is the day of the appointment of administrators.

3. Section 266(4) provides that the Court, if it is satisfied that the failure to lodge a notice in respect of a charge, as required by s 263, was accidental or due to inadvertence or some other sufficient cause or is not of a nature to prejudice the position of creditors or shareholders, or that, on other grounds, it is just and equitable to grant relief, may, on the application of the company, or any person interested, and on such terms and conditions as seem to the Court just and expedient, by order, extend the period for such further period as is specified in the order. Section 440D(1) of the Act provides that, during the administration of a company, a proceeding in a court against the company or in relation to any of its property cannot be begun or proceeded with except with the administrator’s written consent or with the leave of the Court in accordance with such terms as the Court imposes.

4. The business of the Kestrel Group involves raising funds from wholesale investors and investing the funds in the purchase of interests in other companies.  In pursuit of that business, Nanyang I and Nanyang II together acquired a majority interest in the Company’s issued capital.  The Company is a research and development company, with particular focus on software and hardware for global positioning system products.  Following the investment in the Company, Messrs Carter and Cairns were appointed as two of the four directors of the Company. 

5. The Kestrel Group acquired its equity investment in the Company in 2004.  It added to those investments at various times up to 2008.  In September 2008 investors in the Company reviewed its position to determine whether its business should be sold.  The view was taken that, for the business to be sold at its optimum price, further working capital would need to be provided.  Agreement was therefore reached that entities within the Kestrel Group would make further investments in the Company.  Three agreements were entered into on 11 November 2008.  The first two were convertible note deeds between the Company and Talon A and Talon B. 

6. The third relevant agreement of 11 November 2008 was a charge, whereby fixed and floating security was granted to Talon A and Talon B jointly.  The charge secures advances totalling $3,500,000.  $350,000 of the advances was made on 10 October 2008.  The balance of the advances were made on 11 November 2008 and 13 January and 24 March 2009.  Compliance with s 263 would have required that the notice be lodged no later than 26 December 2008.  However, notice of the charge was not lodged in accordance with s 263;  it was not lodged until 22 January 2009. 

7. Mr Carter accepts that he understood from his business and finance experience that charges are required to be registered with Australian Securities and Investments Commission (the Commission).  While he has had such experience of charges in the past as a director of companies, he has always retained solicitors to act in connection with the technical details of the preparation and registration of a charge with the Commission.  Accordingly, instructions were given by Messrs Carter and Cairns to Holding Redlich, solicitors to act on behalf of Talon A and Talon B.  Shortly after execution of the charge on 11 November 2009, Mr Carter was advised by Mr David Walker of Holding Redlich that the Company would need to pay stamp duty before registering the charge, and that once stamp duty had been paid, it would be necessary to sign the relevant forms notifying the Commission of the charge and that stamp duty has been made.  Mr Walker said that he would send the forms to be signed and that, once he received the forms back, they would be lodged with the Commission. 

8. Mr Carter instructed Mr Walker to arrange for stamping and for the forms to be sent for signature.  On 9 December 2008, Mr Carter received a letter of 9 December 2008 from Holding Redlich, enclosing documents for signature in relation to the charge.  The letter from Holding Redlich requested Mr Carter to return the signed forms at his earliest convenience.  However, for several reasons, he did not notice that request when he received the correspondence. 

9. First, because the documents were signed as counterparts, copies of the 11 November 2008 agreements were sent to both the office of the Kestrel Group, as well as to the Company’s premises in Chatswood.  Mr Carter assumed that the same procedure had been followed in the case of the documents relating to registration of the charge.  Secondly, it was Mr Carter’s understanding that it was the Company’s obligation to lodge the particulars of the charge with the Commission.  Third, even though Mr Carter was a director of the Company, he regarded himself as acting for Talon A and Talon B in relation to the agreements entered into in November 2008.  He did not execute the documents on behalf of the Company, and he did not regard the particulars of the charge that were sent to him as being sent to him on behalf of the Company. 

10. The office of the Kestrel Group was closed from 17 December 2008 until 19 January 2009.  However, Mr Carter returned to the office on 19 December to deal with several loose ends in relation to transactions in which the Kestrel Group was involved.  While in the office on that day, he came across Holding Redlich’s letter of 9 December 2008, enclosing the forms to be lodged with the Commission.  Having come across the documents, it occurred to him that he was not aware as to whether the Company had arranged for notice of the charge to be lodged with the Commission.  He therefore thought that it was quite likely that the notice had not been lodged by the Company. 

11. He therefore decided to sign the forms for the Commission, which he did.  He placed the signed forms into an envelope, which he addressed to Holding Redlich.  However, when he left the office for the Christmas break, he forgot to post the envelope.  He returned to Kestrel Group’s office on 19 January 2009.  He has no recollection of turning his mind to the question of notification of the charge until 21 January 2009, when he received an email from Mr Walker, asking for return of the forms for the Commission.  He sensed the urgency in the communication from Mr Walker, and then realised that he had not posted the envelope containing the relevant documents.  Steps were then put in place for lodging the relevant notice with the Commission, and it was lodged on 22 January 2009. 

12. Mr Carter says that he was not aware of there being any specific time limit for having to lodge particulars of a charge with the Commission.  He says that had he been aware of the time limits, he would have been more diligent in ensuring that the documents were dealt with before leaving for his Christmas vacation.  He would have done that either by following up the Company directly or asking Holding Redlich to do so. 

13. The complication that has arisen is that, on 2 July 2009, the directors of the Company resolved to appoint administrators on the basis that the Company was, or was imminently likely to become, insolvent.  The second defendants, Messrs Barry Taylor and Andrew Needham, were appointed as administrators of the Company. 

14. Mr Carter had assumed that the charge would have been enforceable against the assets of the company.  However, at a meeting with the administrators on 28 July 2009, the administrators informed Mr Carter that the charge may be void because it was lodged outside the 45 day period contemplated by s 263, and the appointment of the administrators came less than six months after particulars of the charge were lodged with the Commission.  That, of course, caused Mr Carter some concern. 

15. In the circumstances that I have briefly described, I am satisfied that the failure to lodge notice of the charge pursuant to s 263 was due to inadvertence, within the meaning of s 266(4). I am satisfied that this is an appropriate case within which to exercise the discretion under s 440D to give leave for Talon A and Talon B to commence and proceed with this proceeding for relief under s 266(4), and I propose to make an order accordingly.

16. The question, however, is whether, in the exercise of its discretion, the Court should make an order pursuant to s 266(4), extending the period for lodging the notice up to and including 22 January 2009. That question involves an examination of the financial position of the Company for the purpose of determining whether or not it would be unfairly prejudicial to the interests of unsecured creditors to accede to this application. That seems to me to involve a consideration of whether or not the unsecured creditors have been prejudiced by reason of the delay in lodging the notice pursuant to s 263.

17. On 5 August 2009 the Court ordered the plaintiffs to send to each creditor of the Company, by email, facsimile or post, a letter in the form attached to that order.  The form of letter was from Holding Redlich, and informed the recipient that the plaintiffs had applied to the Court for orders extending the time for lodgement of notice of the charge given by the Company on 11 November 2008, from 27 December 2008 to 22 January 2009.  The letter informed the recipient that the application was to be listed for hearing today.  The letter also pointed out that, if the Court makes the orders sought, the dividend payable to creditors in any liquidation or under any deed of company arrangement would be affected and it may result in no dividend being payable to unsecured creditors at all, as well as a reduction in the amounts payable to priority unsecured creditors, such as employees.  The letter invited any creditor who wished to be heard to notify Holding Redlich by 12 pm on 12 August 2009. 

18. Mr Bede Haines, a solicitor with Holding Redlich, has deposed to the steps taken to ascertain full particulars of the creditors of the Company and to comply with the order of 5 August 2009. The evidence satisfies me that all reasonable steps were taken to notify all creditors of the Company of the proposed application by the plaintiffs for an order under s 266(4). Three creditors responded to the invitation. One intimated a desire to be heard by the Court. However, no further steps have been taken by any creditor to indicate to Holding Redlich that they wish to oppose the orders. When the matter was called today there was no appearance, except on behalf of the plaintiffs and the Company and the administrators.

19. At the first meeting of creditors held on 14 July 2009, the appointment of the administrators was confirmed.  The second meeting of creditors was held on 6 August 2009.  At that meeting, the chairman, Mr Taylor, one of the administrators, informed creditors present of the circumstances of this application.  Mr Taylor informed the creditors that the Company had granted a charge to the plaintiffs, which was notified to the Commission on 22 January 2009, outside the time contemplated by s 263.  Mr Taylor informed the creditors that the plaintiffs had commenced this application to extend the time for registration.  He indicated to the creditors that, at present, the charge was void but that that position may change depending on the result of the application, and that, if the charge was validated, that would impact on the return to unsecured creditors and priority creditors. 

20. Mr Taylor explained the possible ranges of returns to creditors, depending on whether the charge was void or was validated.  Mr Taylor also adverted to the possibility of a deed of company arrangement and said that he was prepared to support an adjournment of the meeting for 21 days to allow for the further development of a proposal for a deed of company arrangement.  The meeting was, in fact, adjourned to 31 August 2009. 

21. There are, in effect, two categories of creditor who may be affected by the order now sought by the plaintiffs, being preferred priority creditors who are former employees of the company and other unsecured creditors.  Upon appointment, the administrators reviewed the company’s operations and concluded that it was necessary to terminate the employment of 11 of its employees.  On 29 July 2009 the administrators terminated the company’s employment contracts with the remaining 16 employees.  As at 13 August 2009, the balance due to employees, as priority creditors, is some $601,680.  No further entitlements will now be accrued, since their employment has been terminated.  Details of the calculations of the entitlement have been provided. 

22. It is possible that, to the extent that employees do not receive their full entitlement, they will receive compensation under the Commonwealth Government General Employee Entitlements and Redundancies Scheme.  Under that scheme, advances are made where a company goes into liquidation, although there is no legal obligation on the part of the Commonwealth to do so.  Even where there is an administration, the relevant Minister may, in his or her absolute discretion, determine that employees may be eligible for ex gratia payments.  If payments were to be made under that scheme, there are some seven employees whose remuneration exceeded $108,300 per year who would not receive full compensation for unpaid payments in lieu of notice and unpaid redundancy entitlements. 

23. Mr Taylor has estimated that, on the assumption that the charge remains void, all employees will receive 100 cents in the dollar of their entitlements.  Other unsecured creditors will receive between 12 and 33 cents in the dollar.  However, if the order now sought is made, employees will receive between 39 and 54 cents in the dollar, and other unsecured creditors will receive nothing. 

24. Mr Taylor considers that it is unlikely that any debts incurred by the Company between 27 December 2008, when notice should have been lodged under section 263, and 22 January 2009, are still outstanding.  It is possible that unsecured creditors may have advanced credit to the Company on the basis of the register of charges.  However, there is no evidence that any creditor did so.  If it be the fact that any creditor who advanced credit after the date for lodging has now been paid, it is difficult to see how there would be any prejudice to unsecured creditors by the making of the order now sought.  Mr Taylor says that most of the creditors’ accounts, where there was a balance outstanding, were reduced to zero between 27 December 2008 and 2 July 2009. 

25. There is nothing in the material to indicate that any of the employees have suffered any detriment as a consequence of the failure to comply with s 263.  There is nothing to suggest that, had the notice of the charge been lodged in accordance with s 263, they would have had a better or greater entitlement to receive payment in full. 

26. The Company, in fact, received all but $350,000 of $3,500,000 from the plaintiffs on the basis of the charge.  Those funds would not have been advanced had the charge not been made.  Those funds were received by the Company for its benefit, and therefore, for the benefit of unsecured creditors, including employees.  On one view, the unsecured creditors, therefore, would have derived a windfall benefit by the inadvertence that led to the delay in giving notice of the charge.  It is not unfair or inconsistent with the general policy of the law and the rights of creditors that they might be deprived of that windfall gain (see Craig Mostyn & Co v Old Valley Pty Ltd 139 FCR 477 at [52]).

1. In all of the circumstances, I consider that it is appropriate to accede to the plaintiffs’ application.  Accordingly, I propose to make orders as sought by the plaintiffs.  The plaintiffs have joined the Company and the administrators as defendants.  The plaintiffs are seeking orders in the nature of an indulgence.  It is appropriate, therefore, that the plaintiffs should pay the defendants’ costs.  The plaintiffs do not oppose such an order. 

I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.

Associate:

Dated:        14 August 2009

Counsel for the Plaintiffs:	Mr D Robinson SC
Solicitor for the Plaintiffs:	Holding Redlich
Solicitor for the Defendants:	Sparke Helmore

Date of Hearing:	14 August 2009
Date of Judgment:	14 August 2009