Supreme Court New South Wales Medium Neutral Citation: In the matter of Duke Contracting Australia Pty Ltd [2017] NSWSC 767 Hearing dates: 13 June 2017 Date of orders: 14 June 2017 Decision date: 14 June 2017 Jurisdiction: Equity - Corporations List Before: Brereton J Decision: (1) Pursuant to (CTH) Corporations Act 2001, s 440D, the plaintiff have leave to begin and proceed with this proceeding. (2) Pursuant to (CTH) Personal Property Securities Act 2009, s 293(1)(a), the number of business days set out in s 62(3)(b) be extended by 70 business days such that registrations numbered 201407300022736 and 201407300022568 made by the plaintiff on 30 July 2014 fall within the time period prescribed by s 62(3)(b) in respect of collateral being Komatsu PC228USLC-8 Crawler Excavator, SN 52106. (3) Liberty is reserved to any person who has a perfected security interest over collateral which includes collateral the subject of the said registrations to apply to set aside or vary order (2). Catchwords: SECURITIES – personal properties – registration – priority – purchase money security interest – where not registered within 15-day period – where registered before grantor enters voluntary administration – whether 15-day period can and should be extended – where failure to register within time due to inadvertence – where no prejudice to unsecured creditors – where only secured creditor affected does not seek to be heard in opposition – period extended. Legislation Cited: (CTH) Corporations Act 2001, s 440D, s 588FL, s 588FM (CTH) Personal Property Securities Act 2009, s 14, s 62(3), s 293 Cases Cited: Accolade Wines Australia Limited, Re [2016] NSWSC 1023 Appleyard Capital Pty Ltd, Re [2014] NSWSC 782; (2014) 101 ACSR 629 Hewlett Packard Australia Pty Ltd v GE Capital Finance Pty Ltd (2003) 135 FCR 206; 47 ACSR 589 OneSteel Manufacturing Pty Limited (administrators appointed), Re [2017] NSWSC 21 Category: Principal judgment Parties: Komatsu Australia Corporate Finance Pty Ltd (plaintiff) Duke Contracting Australia Pty Ltd (first defendant) Darryl Edward Kirk and Bruno Anthony Robert Secatore (second defendants) National Australia Bank Limited (third defendant) Representation: Counsel: N. Mirzai (plantiff) Solicitors: Miller & Prince (plaintiff) File Number(s): 2017/169387 Judgment 1. The plaintiff Komatsu Australia Corporate Finance Pty Ltd ("KACF") provides finance to purchasers of Komatsu mining and earthmoving equipment, which is distributed in Australia by its sister company Komatsu Australia Pty Ltd, using a range of products including finance leases, commercial hire purchase, equipment loan, and lease rental. 2. On or about 16 August 2010, KACF entered into a Master Chattel Mortgage with the first defendant Duke Contracting Australia Pty Ltd ("Duke"), in its own rights and in its capacity as trustee of the Duke Trust ("the Trust"). By the Master Chattel Mortgage, KACF agreed to advance moneys to the borrower from time to time, to be applied for the purpose of acquiring the equipment described in the schedules, and any further items of equipment in respect of which KACF may accept a request for finance under a "Chattel Mortgage Notice" (which upon execution becomes part of the Master Chattel Mortgage); and Duke and the Trust granted KACF a security interest in the equipment. 3. Duke and the Trust issued, and KACF accepted, a chattel mortgage notice, dated 27 April 2014, for the purpose of funding the acquisition of a Komatsu PC228USLC-8 Crawler Excavator, SN 52106 ("the crawler"). By the chattel mortgage notice, KACF was directed to pay the loan amount directly to the supplier of the crawler. KACF paid the supplier on 7 May 2014. By operation of the Master Chattel Mortgage, KACF acquired a security interest in the crawler, and it was a purchase money security interest. [1] 4. On 17 April 2014 – presumably in the course of the transaction – Mr Shane Kennedy on behalf of KAFC registered a financing statement on the PPSR in respect of KACF's security interest in the crawler, against Duke's ACN. The financing statement, which was given registration number 201404170011085, disclosed that it was a PMSI. However, he did not lodge a financing statement against the Trust's ABN, as he was unaware and was not informed of any requirement to lodge a registration against a trust's ABN as well as its corporate trustee's ACN. 5. In or around July 2014, KACF implemented new registration procedures, and became aware that registrations should be lodged against trusts as well as the trustee company. On 31 July 2014, KACF caused to be lodged two further registrations (one under the collateral class "Motor Vehicle", and the other under the class "Other Goods"), against the both the ABN of the Duke Trust and the ACN of Duke. The registrations stated that the interest was a PMSI. However, the registrations were not made before the end of 15 business days after Duke and the Trust obtained possession of the crawler. [2] 6. Duke went into voluntary administration on or about 20 March 2017, and on 29 March 2017 KACF received notice from the second defendant administrators to the effect that its security interest had not been properly perfected. KACF thereafter sought and obtained advice in respect of its position, and as a result first became aware of the requirement that to be entitled to priority as a PMSI, a security interest must be registered within 15 days. 7. As Duke did not go into external administration until well in excess of six months after the 31 July 2014 registrations, with the consequence that KACF's security interest is not liable to vest in Duke pursuant to (CTH) Corporations Act 2001, s 588FL(4), KACF does not need, and does not seek, an extension of the registration time under Corporations Act, s 588FM. However, as a consequence of not having registered its PMSI within the 15-day period referred to in PPSA s 62(3), KACF's security interest is not entitled to the priority enjoyed by a perfected PMSI over any other secured creditor with a perfected security interest over the same collateral. In practice, this means that an AllPAP security interest granted by Duke prior to perfection of KACF's PMSI would have priority over KACF's interest. For this reason, KACF seeks an order pursuant to PPSA, s 293(1)(a), extending the number of business days for perfection of its PMSI by registration, for the purposes of PPSA s 62(3). 8. PPSA s 293 relevantly provides that on application, a court may make an order extending the number of business days in a period specified in paragraph 62(3)(b) (perfection of purchase money security interests), if satisfied that it is just and equitable to do so, [3] and may do so even if the period has ended. [4] PPSA s 293(3), provides that in making an order to extend a period under s 293(1), the court must take into account (a) whether the need to extend the period arises as a result of an accident, inadvertence or some other sufficient cause; (b) whether extending the period would prejudice the position of any other secured parties or other creditors; and (c) whether any person has acted, or not acted, in reliance on the period having ended. 9. As has been noted, Duke is now in voluntary administration. For that reason, leave to proceed against it, under Corporations Act s 440D, is required. Duke's administrators did not appear to oppose such leave. 10. External administration does not foreclose an order extending time for registration under Corporations Act s 588FL, [5] so long as the security interest has been perfected before the relevant insolvency event, [6] as it was in this case by registration on 30 July 2014. There is even less reason why it should preclude an order under PPSA s 293(1)(a) for an extension of the period referred to in s 62(3), since such an order only affects priorities between secured creditors and does not impact on the position of unsecured creditors. Inadvertence 1. I am satisfied (for the purposes of s 293(3)(a)) that the need to extend the number of business days arises as a result of inadvertence. That inadvertence was twofold: first, KACF and its officers were ignorant of the requirement to register against the ABN of the trust as well as against the ACN of the corporate trustee; and secondly, they were ignorant of the requirement to register a PMSI within 15 days and the consequences of not so doing for the priority to which the security interest was entitled. Prejudice 1. The prejudice referred to in s 293(3)(b) is not identical to that referred to in Corporations Act, s 588FM(2)(a)(ii). As explained in Re Accolade Wines Australia Limited, [7] whereas the prejudice referred to in s 588FM(2)(a)(ii) is prejudice to the position of creditors or shareholders from "the failure to register the collateral earlier" – in other words, prejudice attributable to not making a timely registration – which involves comparison of the position of the creditors if an extension is granted, with their position if there had been an effective timely registration, in which respect often there will be no difference; the prejudice referred to in s 293(3)(b) is prejudice from "extending the period", which directs attention not to the impact of the delay in registration, but to the impact of making an order extending the period, and involves comparing the position of creditors if an extension is granted with their position if no extension is granted, and usually there will be a difference because priorities will be disturbed. 2. Unsecured creditors would not be prejudiced, as the collateral to the extent of KACF's security interest is not available to them, regardless of whether it has priority as a PMSI or not, because it is not liable to vest under Corporations Act s 588FL(4). The administrators of Duke, having been served, have not appeared or advanced any evidence or submissions as to any prejudice. 3. The only secured creditor which would potentially be affected is the third defendant National Australia Bank, which has an AllPAPe registration 201407010037471, from which it can be deduced that the registration date was 1 July 2014: after KACF's initial registration, but before the interests were perfected by the 31 July 2014 registrations. As things stand, the NAB security interest is entitled to priority over KACF's PMSI in respect of the crawler. That priority would be displaced if time is extended to the intent that KACF's PMSI should regain priority under s 62(3), and that displacement constitutes prejudice to NAB. 4. However, as explained in Accolade Wines, such prejudice, while not irrelevant, is not conclusive, because otherwise an order would never be made in any case in which it mattered: the essential purpose of granting an extension is to reinstate the priority to which a PMSI would otherwise be entitled over prior AllPAPs (as it will in any event have priority over later AllPAPs), and thus in any case in which the remedy is of any practical utility, there will be prejudice to a prior AllPAP holder. Prejudice will be of significance chiefly where it is coupled with reliance under s 293(3)(c). [8] Reliance 1. The kind of "reliance" contemplated is where a third party has dealt with the grantor – in particular, by taking a security interest over property that includes the PMSI – in the belief that there was no perfected PMSI that would trump its interest. [9] 2. NAB could theoretically have taken its security interest in the belief that the crawler was not subject to a PMSI. However, as its interest is registered against Duke's ACN as well as against the trust's ABN, it is very likely that NAB would have searched the ACN as well as the ABN and would thus have discovered KACF's initial registration, and that it was stated to be a PMSI, in any event. 3. Moreover, a financier contemplating taking a security interest from a borrower is generally chiefly concerned about whether there are other (prior) "AllPAP" (or "AllPAP-except") registrations in favour of another bank or financial institution, because the financier wants to know whether the potential borrower has granted security over all its assets to other financiers who would take priority due to their prior registration, and is typically less concerned about registrations against specific collateral, whether or not they are PMSIs, because usually they are "ordinary course of business" transactions, rather than security for financial accommodation. [10] 4. Thus, it appears improbable that NAB would in fact have materially relied on the relevant period for registration as a PMSI in respect of the trust having expired. 5. NAB has been joined as a defendant and served, and has stated that having reviewed its security position in respect of Duke and the trust, it does not intend to appear nor seek to make any submissions. In those circumstances the Court can all the more readily conclude that any prejudice and reliance on the part of NAB is not such as to require the refusal of KACF's application. Conclusion 1. I am satisfied (for the purposes of s 293(3)(a)) that the need to extend the number of business days arises as a result of inadvertence, that the extension would have no effect on the position of unsecured creditors, and that any prejudice and reliance on the part of the only relevant secured creditor, namely NAB, is not such as to require the refusal of KACF's application. Having regard to those matters, I am satisfied that it is just and equitable to make an order extending the number of business days in the period specified in paragraph 62(3)(b) for the perfection by registration of KACF's PMSI. 2. The Court orders that: 1. Pursuant to (CTH) Corporations Act 2001, s 440D, the plaintiff have leave to begin and proceed with this proceeding. 2. Pursuant to (CTH) Personal Property Securities Act 2009, s 293(1)(a), the number of business days set out in s 62(3)(b) be extended by 70 business days such that registrations numbered 201407300022736 and 201407300022568 made by the plaintiff on 30 July 2014 fall within the time period prescribed by s 62(3)(b) in respect of collateral being Komatsu PC228USLC-8 Crawler Excavator, SN 52106. 3. Liberty is reserved to any person who has a perfected security interest over collateral which includes collateral the subject of the said registrations to apply to set aside or vary order (2). ********** Endnotes 1. See PPSA s 14. 2. See PPSA s 62(3), which relevantly provides that a perfected PMSI has priority over a perfected security interest that is not a PMSI if the PMSI is perfected by registration before the end of 15 business days after the day the grantor obtains possession of the property, and the registration that perfects the PMSI states that the interest is a PMSI. 3. PPSA s 293(1)(a). 4. PPSA s 293(2). 5. Hewlett Packard Australia Pty Ltd v GE Capital Finance Pty Ltd (2003) 135 FCR 206; 47 ACSR 589 at [28]; Re Appleyard Capital Pty Ltd [2014] NSWSC 782; (2014) 101 ACSR 629 at 637-8 [22]-[23]. 6. Cf Re OneSteel Manufacturing Pty Limited (administrators appointed) [2017] NSWSC 21 at [70]-[78]. 7. [2016] NSWSC 1023 at [27]. 8. Re Accolade Wines at [30]. 9. Re Accolade Wines at [30]. 10. Cf Re Accolade Wines at [35]-[36]. 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