In an ex tempore judgment two weeks ago, Hammerschlag J granted an extension of time for registration of a circulating security interest under the Personal Property Securities Act 2009 (Cth) (PPSA) – In the matter of Apex Gold Pty Ltd [2013] NSWSC 881.

The plaintiff (RF Capital Pty Ltd as trustee for the RF Capital Trust) brought the application for extension of time under s 588FM(1) of the Corporations Act 2001 (Cth). Subsection 588FM(2) empowers the Court to make the order sought if it is satisfied inter alia that the failure to register it earlier was accidental, due to inadvertence or due to some other sufficient cause. His Honour, applying the reasoning of Black J earlier this year in In the matter of Cardinia Nominees Pty Ltd [2013] NSWSC 32, was satisfied by the affidavit evidence that the failure to register the security interest earlier was accidental or due to inadvertence on the part of the deponent or those acting under her supervision, and that the orders sought should be made (see [13]-[19]). It is notable that his Honour Black J in Cardinia, had reviewed key authorities dealing with the former s 266 of the Corporations Act, as well as UK judgments as to failures to register a security interest (see [14]-[17]), and their discussion of the concept of “inadvertence”.

Background

In 2012, the plaintiff gave financial accommodation to Apex Gold’s parent company Apex Minerals NL. There was an event of default. In January 2012 the plaintiff agreed to forbear from taking action to enforce its security against Apex Minerals in consideration for, amongst other things, Apex Gold providing security.

Thus on 2 January 2013, Apex Gold entered into the Apex Gold General Security Agreement with the plaintiff, under which it granted a circulating security interest to the plaintiff in its collateral, being all of its present and after-acquired property.

On 26 March 2013 the plaintiff registered its circulating security. As events transpired, this was too late, and this application was filed, heard and decided on 25 June 2013.

Consideration

There was evidence before the Court that Apex Gold (and Apex Minerals) may be or may be about to become insolvent, and that the plaintiff intended to exercise powers under its securities to appoint both a voluntary administrator and receivers to both companies.

Broadly, if an insolvency-related event of this nature occurs in relation to a company, s 588FL(2)(b) fixes a time by which a PPSA security interest granted by the company must have been registered under the PPSA failing which, under s 588FL(4), the security interest may vest in the company.

Here, the circulating security interest granted by Apex Gold to the plaintiff was not entered on the PPS Register until 26 March 2013. The last date for registration under s 588FL(2)(b)(ii) (being 20 business days after the security agreement was entered into) was 31 January 2013. The registration was, thus, out of time for the purposes of that section.

Hence the plaintiff brought this application under s 588M for an order fixing a later time (26 March 2013) for the purposes of subsection 588FL(2)(b)(iv).

His Honour gave consideration to what other security interests had been granted by Apex Gold since 2 January 2013. There had been a number of purchase money security interests granted, but between 2 January 2013 and 26 March 2013 there was just one other (non PMSI) security interest granted to a company named Dyno Nobel Asia Pacific Pty Ltd. The orders his Honour made provided for the priority of the Dyno security to be unaffected by his grant of extension of time (at [15]-[17]).

Interestingly, his Honour noted at [18] that he was informed from the Bar table that the company that was the object of the orders sought, Apex Gold itself, had not been given notice of these proceedings. He proceeded to make the orders sought nonetheless, and included an order reserving liberty for Apex Gold (or any liquidator, administrator, deed administrator or unsecured creditor of Apex Gold) to apply to vary his orders within set periods of time.

Lesson

Quite simply, delay in registering PPS security interests at your peril.

As the Explanatory Memorandum to the 2010 amending Bill explains, section 588FL was intended to vary section 266 of the Corporations Act. Section 266 had required that a security interest be registered within 45 days of being created, or before 6 months of the commencement of an administration, liquidation, or DOCA. Section 588FL(2) instead provides (broadly) that if such an insolvency event occurs, a security interest must have been registered within 20 business days of being created, or before 6 months of such an insolvency event (or such later time as ordered by the Court).

I leave you with the examples set out in the Explanatory Memorandum, illustrating how s 588FL was intended to operate. However in reading these examples, note this caveat:  at the time of the EM, the proposal was “20 days”, not the “20 business days” that appears in the Corporations Act –

Example:
           CompanyA grants FinanceA a security interest in its all present
           and after acquired property.  FinanceA registers its security
           interest 15 days after the creation of the security interest.
           CompanyA becomes insolvent 30 days after the security interest
           is granted.  FinanceA would retain their security interest,
           because FinanceA registered the security interest within the
           required 20 day period.
           Example:
           CompanyA grants FinanceA a security interest in its all present
           and after acquired property.  FinanceA registers its security
           interest 25 days after the creation of the security interest.
           CompanyA becomes insolvent 30 days after the security interest
           is granted.  The security interest would vest in CompanyA
           because FinanceA did not register the security interest within
           the required 20 day period or within the six month period prior
           to the critical time.
           Example:
           CompanyA grants FinanceA a security interest in its all present
           and after acquired property.  FinanceA registers its security
           interest 25 days after the creation of the security interest.
           CompanyA becomes insolvent eight months after the security
           interest is granted.  FinanceA would retain its security
           interest because it registered its security interests prior to
           the six month period before the critical time.
           Example:
           CompanyA grants FinanceA a security interest in its all present
           and after acquired property.  FinanceA registers its security
           interest 15 days after the creation of the security interest.
           CompanyA becomes insolvent 5 months and 25 days after the
           security interest is granted.  The security interest would not
           vest in CompanyA because FinanceA registered the security
           interest within the required 20 day period (despite the fact
           that the registration was also made within 6 months before the
           insolvency).