Supreme Court New South Wales

• Medium Neutral Citation: In the matter of Appleyard Capital Pty Limited; 123 Sweden AB v Appleyard Capital Pty Limited [2014] NSWSC 782
• Hearing dates: 29 May 2014
• Decision date: 12 June 2014
• Jurisdiction: Equity Division - Corporations List
• Before: Brereton J

Decision

Time later than 20 days after date of charge fixed in respect of collateral pursuant to Corporations Act, s 588FM

• Catchwords: CORPORATIONS - charges, debentures and other borrowings - security interests - registration - extension of time - where doubt as to solvency - relevance of interest of unsecured creditors - whether extension should be granted
• Legislation Cited: (CTH) Corporations Act 2001, s 588FL, s 588FM
• Cases Cited: Bevillesta Pty Ltd v Imagine UN Ltd [2009] VSC 50; 69 ACSR 574; Campbell Finance Pty Ltd v Vivstan Packaging (Aust) Pty Ltd (in liq) [1998] 2 VR 340; (1996) 22 ACSR 109; Commercial Banking Co of Sydney Ltd v George Hudson Pty Ltd (1973) 47 ALJR 7323; 2 ALR 1; Douglas-Brown v Standard Chartered Finance Ltd (1990) 2 ACSR 737; Freightlines Northern Territory Pty Ltd (1999) 32 ACSR 573; Hewlett Packard Australia Pty Ltd v GE Capital Finance Pty Ltd [2003] FCAFC 256; (2003) 135 FCR 206; 47 ACSR 589; In re Cardiff Workmen's Cottage Co Ltd [1906] 2 Ch 627; In the matter of Apex Gold Pty Ltd [2013] NSWSC 881; In the matter of Black Opal IP Pty Limited [2013] NSWSC 1225; In the Matter of Cardinia Nominees Pty Ltd [2013] NSWSC 32; Investa Properties Pty Limited v Westpac Property Funds Management Limited [2001] NSWSC 1089; Re a Limited Company (1928) 28 SR (NSW) 364; Re Cinema Art Films [1930] NZLR 500; Re Dalgety & Co [1928] NZLR 731; Re Ehrmann Bros Ltd [1906] 2 Ch 697; Re Dudley Engineering Pty Ltd [1968] 1 NSWR 483; Re Flinders Trading Co Pty Ltd (1978) 3 ACLR 218; Re Guardian Securities Ltd [1984] 1 NSWLR 95; Re Jack Harris Ltd [1977] 1 NZLR 141; Re Joplin Brewery Co Ltd [1902] 1 Ch 79; Re Kris Cruisers Ltd [1949] 1 Ch 138; Re L H Charles & Co Ltd (1935) WN (Eng) 15; Sanwa Australia Finance Ltd v Ground-Breakers Pty Ltd (in liq) [1991] 2 Qd R 456; (1990) 2 ACSR 692
• Category: Principal judgment
• Parties: 123 Sweden AB (plaintiff); Appleyard Capital Pty Limited (defendant)
• Representation: Counsel: A Abadee (plaintiff); Ex parte; Solicitors: Rouse Lawyers (plaintiff)
• File Number(s): 14/ 175007

Judgment

1 The plaintiff 123 Sweden AB, a Swedish corporation, applies for an order under (CTH) Corporations Act 2001, s 588FM, fixing 29 April 2014 as the later date for the purposes of subparagraph 588FL(2)(b)(iv) in respect of collateral in which it was granted a security interest by the defendant company Appleyard Capital Pty Limited on or about 9 February 2013, but which was not registered until 30 April 2014, more than 20 days after the date on which it came into force.

2 On 9 February 2013, the plaintiff (whose principal is a Swedish national, Mr Andersson) agreed to lend $320,000 to Appleyard Capital, whose director Mr Christopher Appleyard was then a friend of Mr Andersson's son. This agreement was recorded in a "Binding Term Sheet" of 9 February 2013, which made provision to the effect that the agreement would be more particularly recorded in, inter alia, a formal loan agreement, to be signed and completed within 30 calendar days; and that Appleyard Capital would register a "full floating charge" with ASIC at its expense for the benefit of 123 Sweden no later than 30 calendar days from the signing of the term sheet, and forward a copy of the registered charge to 123 Sweden.

3 Belatedly, on 7 May 2013 Appleyard Capital delivered an executed copy of a loan agreement to Mr Andersson, which provided for a loan of $500,000 in two tranches, the first of $320,000 by 15 February 2013, and the second of $180,000 by 15 April 2013. In fact only the first was ever advanced, on 14 February 2013. By clause 5 of the loan agreement, Appleyard Capital agreed to grant 123 Sweden a security interest over all its "Secured Property", defined as "all its present and future undertaking, assets and rights". There was no express provision as to which party was responsible for registration; but, also on 7 May 2013, according to Mr Andersson, Mr Appleyard told him that he had "taken care of" 123 Sweden's security interests as required.

4 On 19 February 2014, Mr Andersson received an email from Mr Appleyard, stating that the Appleyard Group no longer had the capacity to pay interest, no longer had any assets of any value, and would likely start to close businesses down in the near future; and requesting that 123 Sweden consider writing off its debt and any future interest in full as "there are no assets for you to recover as an unsecured creditor". As a result, in March 2014, Mr Andersson sought legal assistance, and had inquiries made as to whether the security interest had been registered. He says that it was only about 21 April 2014 that (presumably as a result of advice) he became aware of the requirement for registration, the 20-day time limit, and the ability to apply to the Court to have that time extended. Registration was ultimately effected on 29 April 2014, whereupon instructions were given to apply for an extension under s 588FM.

5 Mr Andersson says that in February 2013, when initial loan agreement was made and the loan advanced, he believed that Appleyard Capital was solvent; however, there is nothing to indicate that he made any inquiry or obtained any information about its financial position to found such a belief. He says that he first became aware that the company might be in financial difficulty when he received the 19 February 2014 email. Since then, he has learnt of a claim by another creditor, CWS Australia, under a loan and guarantee agreement dated 2 May 2013 for a sum of $1 million and interest, in respect of which CWS on 13 November 2013 gave a notice declaring events of default, and on 4 March 2014 demanded repayment in the sum of $1,103,660 inclusive of interest.

6 A search of the PPS Register reveals that prior to receiving the advance from 123 Sweden, Appleyard Capital had granted a security interest to National Australia Bank Limited in respect of "all present and after-acquired property", which had been registered on 11 December 2012; and had subsequently granted a security interest to CWS (Aust) Pty Ltd, also in respect of "all present and after-acquired property", which was registered on 29 May 2013; and a further security interest to the National Australia Bank, again in respect of "all present and after-acquired property", registered on 21 January 2014.

7 Corporations Act, s 588FL, relevantly provides as follows:

Vesting of PPSA security interests if collateral not registered within time

(1) This section applies if:

(a) any of the following events occurs:

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

(ii) an administrator of a company is appointed under section 436A, 436B or 436C;

(iii) a company executes a deed of company arrangement under Part 5.3A; and

(b) a PPSA security interest granted by the company in collateral is covered by subsection (2).

Note: A security interest granted by a company in relation to which paragraph (a) applies that is unperfected at the critical time may vest in the company under section 267 or 267A of the Personal Property Securities Act 2009.

(2) This subsection covers a PPSA security interest if:

(a) at the critical time, or, if the security interest arises after the critical time, when the security interest arises:

(i) the security interest is enforceable against third parties under the law of Australia; and

(ii) the security interest is perfected by registration, and by no other means; and

(b) the registration time for the collateral is after the latest of the following times:

(i) 6 months before the critical time;

(ii) the time that is the end of 20 business days after the security agreement that gave rise to the security interest came into force, or the time that is the critical time, whichever time is earlier;

(iii) if the security agreement giving rise to the security interest came into force under the law of a foreign jurisdiction, but the security interest first became enforceable against third parties under the law of Australia after the time that is 6 months before the critical time--the time that is the end of 56 days after the security interest became so enforceable, or the time that is the critical time, whichever time is earlier;

(iv) a later time ordered by the Court under section 588FM.

Note 1: For the meaning of critical time, see subsection (7).

Note 2: For when a security interest is enforceable against third parties under the law of Australia, see section 20 of the Personal Property Securities Act 2009.

Note 3: A security interest may become perfected at a particular time by a registration that is made earlier than that time, if the security interest attaches to the collateral at the later time (after registration). See section 21 of the Personal Property Securities Act 2009.

Note 4: The Personal Property Securities Act 2009 provides for perfection by registration, possession or control, or by force of that Act (see section 21 of that Act).

...

Vesting of security interest in company

(4) The PPSA security interest vests in the company at the following time, unless the security interest is unaffected by this section because of section 588FN:

(a) if the security interest first becomes enforceable against third parties at or before the critical time--immediately before the event mentioned in paragraph (1)(a);

(b) if the security interest first becomes enforceable against third parties after the critical time--at the time it first becomes so enforceable.

Note: For the meaning of critical time, see subsection (7).

...

(7) In this section:

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

(a) if the company is being wound up--when, on a day, the event occurs by virtue of which the winding up is taken to have begun or commenced on that day under section 513A or 513B; or

(b) in any other case--when, on a day, the event occurs by virtue of which the day is the section 513C day for the company.

8 Broadly, the effect of s 588FL(2) is that when a company is being wound up, an administrator has been appointed or a deed of company arrangement executed, any PPSA security interest which was perfected, registered, or enforceable against a third party after the latest of six months before the critical time or 20 days after the security agreement came into force or such later time as the Court may fix under section 588FM, vests in the company, for the benefit of creditors generally, and the secured creditor loses the benefit of the security [In the Matter of Cardinia Nominees Pty Ltd [2013] NSWSC 32, [11]; In the matter of Black Opal IP Pty Limited [2013] NSWSC 1225, [6]]. Provision for fixing such a later time is made by s 588FM, which provides as follows:

Extension of time for registration

(1) A company, or any person interested, may apply to the Court (within the meaning of section 58AA) for an order fixing a later time for the purposes of subparagraph 588FL(2)(b)(iv).

Note: If an insolvency-related event occurs in relation to a company, paragraph 588FL(2)(b) fixes a time by which a PPSA security interest granted by the company must be registered under the Personal Property Securities Act 2009, failing which the security interest may vest in the company.

(2) On an application under this section, the Court may make the order sought if it is satisfied that:

(a) the failure to register the collateral earlier:

(i) was accidental or due to inadvertence or some other sufficient cause; or

(ii) is not of such a nature as to prejudice the position of creditors or shareholders; or

(b) on other grounds, it is just and equitable to grant relief.

(3)The Court may make the order sought on any terms and conditions that seem just and expedient to the Court.

9 Thus s 588FM confers on the Court a discretion to fix a later time if satisfied of any one of three grounds, namely that the failure to register the collateral earlier was accidental, or was not of such a nature to prejudice the position of creditors or shareholders, or that on other grounds it is just and equitable to do so. The section also permits the Court to make the order on terms and conditions.

10 For the purpose of s 588FM(2)(a)(i), "inadvertence" includes failure to advert to or understand the requirement for registration within the specified period, and innocent error in the sense of failure to register through ignorance of the legal requirement to do so, or of the consequences of not doing so [Sanwa Australia Finance Ltd v Ground-Breakers Pty Ltd (in liq) [1991] 2 Qd R 456; (1990) 2 ACSR 692; Campbell Finance Pty Ltd v Vivstan Packaging (Aust) Pty Ltd (in liq) [1998] 2 VR 340; (1996) 22 ACSR 109; Freightlines Northern Territory Pty Ltd (1999) 32 ACSR 573, 576; In the matter of Cardinia Nominees Pty Ltd [2013] NSWSC 32, [14]-[16]].

11 Mr Andersson had not previously conducted business in Australia. He dealt with Appleyard Capital without the benefit of Australian legal assistance or advice. While the term sheet imposed on Appleyard Capital an obligation to register the security interest, but Mr Andersson says that he was not aware of any legislative or regulatory requirement for registration under Australian law, or the consequences of failing to register within time. Moreover, according to Mr Andersson, Mr Appleyard represented to him that he had attended to registration. I am satisfied that the failure to register the collateral earlier was accidental or due to inadvertence or some other sufficient cause within s 588FM(2)(a)(i).

12 Accordingly, jurisdiction to make the order sought is enlivened. The question then is whether, as a matter of discretion, the order sought should be made and, if so, on what terms.

13 In order to understand what relevant considerations inform the exercise of that discretion - in addition to the matters that enliven the jurisdiction to make an order - it is necessary to appreciate the purpose and effect of an order of this kind. If the collateral is registered within 20 days after the security agreement comes into force, the security interest prevails over the interest of unsecured creditors, even if the company goes into liquidation or administration within six months. However, if it is not registered within that period, and the company goes into liquidation or administration within six months after it is registered, then the security interest vests in the company for the benefit of creditors generally - unless a later time is fixed under s 588FM. In other words, the effect of not registering within 20 days is to expose the secured creditor to the loss of its security if the company goes into liquidation within six months of the actual date of registration, when otherwise the security would have been effective even in the event of liquidation or administration within six months. Essentially, the purpose and effect of an order under s 588FM is to avoid the vesting of the security interest in the company if it goes into liquidation or administration within six months after the actual date of registration, and thereby preserve the secured creditor's security, to the necessary detriment of the unsecured creditors for whose benefit the security interest would otherwise vest in the company. The only utility of such an order is in the event that the company does go into liquidation or administration within six months.

14 Thus in this case, as registration was not effected within the 20-day period, if the company goes into liquidation or administration within six months after the actual date of registration, namely 29 April 2014, 123 Sweden's security interest will vest in the company (for the benefit of creditors generally), unless the order sought is made; however, it does so only in the event of liquidation or administration within that six month period, and will otherwise enure for the benefit of 123 Sweden, notwithstanding that the company goes into liquidation or administration, if it does so more than six months after 29 April 2014. So the purpose of such an order is to protect 123 Sweden from the risk of losing its security if Appleyard Capital goes into liquidation or administration within six months.

15 Notwithstanding the historic practice of sometimes imposing a so-called "Joplin condition", to the effect that the extension is without prejudice to the rights of parties acquired prior to the time of actual registration [see Re Joplin Brewery Co Ltd [1902] 1 Ch 79; explained in Re Ehrmann Bros Ltd [1906] 2 Ch 697; and see Re Dudley Engineering Pty Ltd [1968] 1 NSWR 483], an s 588FM order has no effect on the priority of security interests registered before the plaintiff's charge inter se, as their priorities are established under Pt 2K.3. Under the present legislation, making the order sought will not afford 123 Sweden's security interest any priority over other security interests already registered before 29 April 2014, including those registered since February 2013. As the secured creditors will not be affected, there is no need to make an order or impose a condition in that respect, nor any utility in doing so [Re Guardian Securities Ltd [1984] 1 NSWLR 95, 97; Douglas-Brown v Standard Chartered Finance Ltd (1990) 2 ACSR 737, 740; Bevillesta Pty Ltd v Imagine UN Ltd [2009] VSC 50; 69 ACSR 574, 581 [28]].

16 However, an s 588FM order operates to the detriment of unsecured creditors, if the company goes into liquidation or administration within six months, because it avoids the consequence that the security interest would otherwise vest in the company for their benefit. As Bray CJ explained in his dissenting judgment in Re Flinders Trading Co Pty Ltd (1978) 3 ACLR 218, in England, the interests of unsecured creditors have been regarded as irrelevant, at least unless a winding up has commenced, on the basis that the purpose of the power to extend time is the protection of secured creditors, not of unsecured creditors. That view has not prevailed in Australasia. In Re a Limited Company (1928) 28 SR (NSW) 364, Long Innes J referred to the possibility - adverted to but discounted by Buckley J in In re Cardiff Workmen's Cottage Co Ltd [1906] 2 Ch 627 - that the purpose of requiring registration within a limited period was to ensure the means of notice to those who contemplated giving credit to the company, and that unsecured creditors might have become creditors subsequent to the issue of the subject debenture and might have searched the register and given credit to the company on the faith that the debenture did not exist; but, unlike Buckley J, considered that it was not a complete answer to that concern that a new debenture could be created now. Long Innes J held that, where the circumstances so required (which, it seems, means where there is a sufficient risk of potential insolvency) terms should be imposed for the protection of the unsecured creditors. In that case, his Honour suspended operation of the order to enable creditors to intervene, and directed that notice be given to creditors, including by publication of an advertisement. His Honour said:

... I am by no means sure that on a forced sale its assets would be adequate to meet the claims in full of its creditors. Under these circumstances, although it has been contended that I ought not establish a precedent by making an order which no other Judge has apparently yet considered it necessary to make, I think this is a case in which the unsecured creditors ought to have an opportunity of showing cause why an order should not be made which may conceivably be to their detriment. It may be that none of them will desire, or should they desire, will be able, to show sufficient reason why the order should not be made; but that constitutes no justification for denying them the opportunity.

17 In Re Dudley Engineering Pty Ltd, Street J (as he then was) disagreed with the English view (as expressed by Vaisey J in Re Kris Cruisers Ltd [1949] 1 Ch 138 (at 140) that the solvency or insolvency of the company was irrelevant, but in so doing stressed that it did not mean that solvency or insolvency was a governing consideration, but only one of the overall complex of facts upon which the court must exercise its discretion. His Honour added (at 486):

It is clear on the cases culminating in Re Kris Cruisers Ltd ... that the mere fact that the grant of an extension of time will prejudice ordinary unsecured creditors is not sufficient either to require a refusal of the extension or the insertion of a condition protecting the rights of unsecured creditors.

18 This view was cited with approval in Re Jack Harris Ltd [1977] 1 NZLR 141 (at 142); see also Re Dalgety & Co [1928] NZLR 731.

19 In Commercial Banking Co of Sydney Ltd v George Hudson Pty Ltd (1973) 47 ALJR 7323; 2 ALR 1, Walsh J and Stephen J each expressed the view that the unsecured creditors if any, or some person representing them, ought to be afforded an opportunity to be heard, because they would suffer real prejudice by the late registration when the debenture would otherwise be void. Those observations support the view that the interests of unsecured creditors are a relevant consideration and that they ought to be given, or reserved, an opportunity to be heard; but they say nothing as to whether their interests necessarily outweigh the interests of the secured creditor.

20 In Re Flinders Trading Co, the difference between Bray CJ and the majority (Mitchell and Walters JJ) was that the Chief Justice, while accepting that the interests of unsecured creditors were not irrelevant, was of the view that prejudice to them was but one of several considerations and did not dictate that the extension of time should be refused. While the majority were of the view that, even where it was mere inadvertence that led to failure to register a charge within the prescribed time, if it appeared that the company was insolvent, or there was insufficient evidence of solvency, the court ought not extend time. Mitchell J thought that it followed from CBC v Hudson that even in a case of mere inadvertence, the argument that an extension merely put the mortgagee in the position in which it would have been had there been no inadvertence, should not prevail over the claims of unsecured creditors where there was a danger that they would not be met in full owing to insolvency. Walters J agreed, adding that regard must be afforded to the rights of unsecured creditors who have become such since the date of the debenture and whose interests could be prejudicially affected if late registration were permitted, and that the position of a liquidator could be greatly prejudiced if time were extended unconditionally. His Honour concluded that if there was insufficient evidence of solvency, or the company was insolvent and a winding up imminent, the Court should not as a matter of discretion extend time or "putting it at its very lowest" should hesitate long before doing so (at 235).

21 In Re Guardian Securities, McLelland J held that in the absence of evidence of solvency and the likelihood of solvency being maintained, an extension should not be granted unless steps are taken to protect the interests of unsecured creditors, which might involve joining one or more as representative parties, or giving directions as to notification of the application with a view to their being heard in opposition if so desired, or making the order but reserving the right to apply at a later time to discharge or vary the order. As to the principles that should guide the court in resolving any contest between the interests of the secured creditor and those of unsecured creditors, his Honour observed (at 98):

Where the application is based on ground (a) or (c) rather than on ground (b), it is not essential to prove that the failure to lodge notice within the prescribed time is not of a nature to prejudice the position of creditors, but it does not at all follow that the interests of unsecured creditors are to be disregarded in such a case or that the possible or probable effect on their interests of an extension of time, is not a relevant matter. The solvency of the company is a relevant but not a governing consideration as Street J said in Re Dudley Engineering Pty Ltd ...

22 In Hewlett Packard Australia Pty Ltd v GE Capital Finance Pty Ltd [2003] FCAFC 256; (2003) 135 FCR 206; 47 ACSR 589, the Full Federal Court by majority (Branson and Allsop JJ; Whitlam J dissenting) upheld an order made after the company had gone into administration, where the failure to register was attributable to inadvertence, notwithstanding that this would be to the detriment of unsecured creditors. The majority held that an extension order could be made even after the company went into liquidation or administration, although an extension would almost invariably be refused, and would be granted only in exceptional circumstances, after the commencement of a winding up. Branson J, observing that a rule of practice or guide to the exercise of the discretion that had evolved over the years should not lightly be disregarded, continued:

[28] One such rule of practice or guide is 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": see Douglas-Brown (as liq of De Barros Nominees Pty Ltd (in liq)) v Standard Chartered Finance Ltd(1990) 2 ACSR 737 ; 8 ACLC 993 at 998 per Malcolm CJ and Rowland J; see also Campbell Finance Pty Ltd v Vivstan Packaging (Aust) Pty Ltd[1998] 2 VR 340 per Batt J; Morris v Woodings (1997) 25 ACSR 636 per Wheeler J; Re Lloyd Anthony Furniture Pty Ltd; Ex parte Walker (1996) 19 ACSR 478 per Branson J. This rule of practice reflects the fact that the validation of a charge that would otherwise be void against the liquidator will reduce the assets available to satisfy the claims of unsecured creditors. The chargee will thus be assisted by the court at the expense of the unsecured creditors. However, as Allsop J explains, "exceptional circumstances" in the above context are simply circumstances sufficient to justify defeating the rights of unsecured creditors, which they acquired when the liquidation commenced, in the assets the subject of the charge: see Re Anglo-Oriental Carpet Manufacturing Co[1903] 1 Ch 914 at 918. To put the matter another way, "exceptional circumstances" are simply circumstances sufficient to render it just and equitable to grant relief notwithstanding that the grant of relief will defeat rights of unsecured creditors.

[29] The requirement that the court be satisfied that it is just and equitable to grant relief has, as it seems to me, the following practical consequences. If an application for an extension of time within which to lodge notice of a charge is made where none of the events referred to in s 266(1)(a), (b) or (ba) has occurred, the starting position is that the security is valid but could be rendered void if, in the events that happen, the notice is not lodged within the time frame specified by s 266(1)(c). For this reason, as it seems to me, consideration should ordinarily be given to the financial position of the company. If the financial position of the company is apparently secure, in the sense that the company is solvent and no threat to its solvency can be identified, the court will readily be satisfied that it is just and equitable to grant relief. The financial position of the company means that a "critical day" is unlikely to arise in the foreseeable future. The chargee would therefore face little risk of losing its security if, without approaching the court, it were to obtain a fresh charge and lodge it within the relevant period, or alternatively, if it were to lodge a notice in relation to the existing charge outside the relevant period. Consequently the grant of relief would be unlikely to affect any person adversely.

[30] However, if the financial position of the company is insecure, the court will ordinarily assess the extent of the risk that a grant of relief might adversely affect a person with an interest in the assets of the company in the course of determining whether the court is satisfied that it is just and equitable to grant relief. If liquidation, or an administration founded on insolvency, seems imminent, the risk that, for example, unsecured creditors could be adversely affected by a grant of relief would be high. Where insolvency is a remote and distant possibility only, that risk would be low.

23 Thus an order can be made, even after liquidation, so long as the circumstances are such as to render it just and equitable to grant relief, notwithstanding that the grant of relief will defeat rights of unsecured creditors.

24 In Bevillesta Pty Ltd v Imagine UN Ltd, Robson J summarised many of the considerations that emerge from the cases (at [28]), and referred with approval to remarks of Sangster J at first instance in Re Flinders Trading Co to the effect that the court's concern for the position of the unsecured creditors varied according to a scale whereby, at one end, where the position had been crystallized by a winding up order, the court would generally not extend time; approaching that end, the court would be reluctant to extend time if a winding up appeared to be imminent; at the other end, the court would grant an extension if satisfied that the company was solvent. But between those points, the course was less clear (at [31]).

25 The Australian authorities establish that the interests of the unsecured creditors are a relevant consideration, so that the court must have regard to the financial position of the company as at the time of the application for extension. If the company is shown to be financially secure, then it is unlikely that a "critical day" will arise in the foreseeable future and the grant of relief will not likely affect any person adversely [Hewlett Packard, [29]]; indeed, if solvency is established that is likely to be the end of the matter [Investa Properties Pty Limited v Westpac Property Funds Management Limited [2001] NSWSC 1089, [31]]. But otherwise, where the Court is not satisfied that there is no risk that unsecured creditors could be adversely affected, the unsecured creditors (or their representative) are entitled to be heard against the making of an order, though this may sufficiently be achieved by suspending the operation of the order, or by imposing a term reserving leave to apply to set it aside in the event of a liquidation or administration ("a Guardian Securities condition") [Re Guardian Securities, 97; see also Re Cinema Art Films [1930] NZLR 500, 502-3; Re L H Charles & Co Ltd (1935) WN(Eng) 15; Bevillesta v Imagine, 58].

26 But what is far less clear is the significance to be given, in a case where solvency is not established, and a fortiori where insolvency appears likely, to the circumstance that making an s 588FM will adversely impact the interests of the unsecured creditors or, in the words of McLelland J in Re Guardian Securities, "the principles that should guide the court in resolving any contest between the interests of the secured creditor and those of unsecured creditors" (at 97). On the one hand, Hewlett-Packard demonstrates that it is open to make an order, notwithstanding detriment to the unsecured creditors. On the other, Re Flinders Trading Co holds that an order ought not be made in those circumstances, even on the ground of inadvertence, and in this respect, Re Flinders Trading Co was referred to with approval by Black J, obiter, in Cardinia Nominees (at [21]), where his Honour said that an order for extension would not generally be made, even where it would merely put the secured creditor in the position in which it would have been had there been no inadvertence, if there was a danger that claims of unsecured creditors would not be met due to the insolvency, or likely insolvency of the company. Further, if the scale referred to by Sangster J and Robson J be the correct approach, an order would ordinarily be refused where insolvency appears likely.

27 However, on reflection, and with great respect, I do not think CBC v Hudson requires or supports the conclusion that Mitchell J derived from it; it required notice to and (implicitly) consideration of the interests of unsecured creditors, but not that they be determinative. Nor do I think that the prima facie requirement to register within time should be given such weight as Walters J suggested: it must be born in mind that the only utility of obtaining an extension is so that, in the event of liquidation or administration, the security interest which not vest in the company but persist for the benefit of the secured creditor to the prejudice of the unsecured creditors. An approach that regarded an adverse impact on the interests of unsecured creditors as practically conclusive would be inconsistent with the above-cited statements of three of the most eminent equity judges of this court of the last century in Re a Limited Company (Long Innes J), in Re Dudley Engineering Pty Ltd (Street J), and in Re Guardian Securities (McLelland J), and with the decision of the Full Federal Court in Hewlett Packard. Moreover, if the interests of the unsecured creditors were given such influence as Re Flinders Trading Co suggests, the jurisdiction created by the section would be devoid of practical utility, as the only cases in which an order would be made would be cases in which there was no need for one because the company was manifestly solvent, and would not go into administration or liquidation within six months.

28 In practice, the strictures of Re Flinders Trading Co have not been applied, and it has been commonplace, even when it appears that the company may be insolvent and liquidation or administration is imminent, to extend time subject to a "Guardian Securities condition" reserving leave to any liquidator or administrator appointed within six months to apply to set the order aside. This course, or one similar to it, was taken in Re a Limited Company (Long Innes J), where solvency was dubious; in Re L H Charles (Clauson J), where liquidation was in contemplation; in Re Cinema Art Films (Myers CJ); in Re Guardian Securities (McLelland J), where there was "no evidence whatsoever as to the solvency or otherwise of the company creating the charge" (at 98); and in Bevillesta (Robson J), where the evidence of solvency was inconclusive. In recent times in this court, such orders have been made in Cardinia Nominees (Black J), where again the evidence of solvency was inconclusive; in In the matter of Apex Gold Pty Ltd [2013] NSWSC 881 (Hammerschlag J), where administration was imminent; and in Black Opal IP (Brereton J), where there was some but less than comprehensive evidence of solvency

29 The purpose of giving the court a discretion to fix a later time is to relieve a secured creditor from the consequences of accident or inadvertence. In the event of insolvency this necessarily involves detriment to unsecured creditors who would otherwise benefit from the vesting of the security in the company. It would be contrary to the purpose of the section to treat the risk that unsecured creditors could be adversely affected by making an order as a dominant consideration. The fact that absence of prejudice to creditors is an alternative ground for relief [s 588FM(2)(a)(ii)] indicates that it was not intended that relief from accident or inadvertence be granted only where there is no prejudice to creditors, as Bray CJ observed in Re Flinders Trading Co (at 220). The cases to which I have referred show that, despite the majority view in Re Flinders Trading Co, courts have not infrequently been prepared to grant extensions of time, even in a context where liquidation or administration is in contemplation, though reserving leave to any liquidator or administrator to apply to set the order aside.

30 Thus, although I accept, as the authorities make clear, that the presence or absence of prejudice to unsecured creditors is a relevant discretionary consideration, relevant prejudice is not necessarily established merely by showing that the dividend to unsecured creditors will be less if the security interest does not vest in the company; the unsecured creditors may well have been in no different a position had the security interest been timely registered. The type of prejudice that is of particular relevance is prejudice attributable to the delay in registration, rather than prejudice from making the order (which is inevitable). This is the type of prejudice contemplated the legislation (see s 588FM(2)(a)(ii), which refers to prejudice from the failure to register earlier, not from making the order), and referred to by Buckley J in In re Cardiff Workmen's Cottage Co Ltd; by Long Innes J in Re a Limited Company (see also Re Flinders Trading Co, 225 (Bray CJ); 234 (Mitchell J)); and by McLelland J in Re Guardian Securities (at 98). The period of delay in effecting registration is relevant, because the shorter the delay the less likely that the failure to register within time will have had any impact. The significance of the passage of time is mainly related to the possibility of competing interests having arisen, in particular through others having dealt with the company on the footing that the collateral was unencumbered.

31 Accordingly, while the interests of unsecured creditors are relevant, the mere fact that if the extension is granted they will be deprived of the benefit of the security interest vesting in the company, and thus receive a lesser dividend, is no objection to making an order. It would be otherwise if the position of the unsecured creditors was detrimentally affected by the delay in registration, for example if they traded with the company on the faith of a register that showed no security interest.

32 This is not a case in which the interests of the unsecured creditors can be disregarded on the basis that there is no risk of insolvency. Indeed the present case, while not one of actual liquidation, would closely approach that end of the scale described by Sangster J and Robson J: there is a high degree of likelihood that Appleyard Capital is insolvent and will go into liquidation or administration within six months. The February 2014 email, coupled with the events of default declared by CWS and the demand for repayment of in excess of $1 million, provide strong indicia of insolvency. 123 Sweden accepts that there should be a Guardian condition. Accordingly, the essential issue is whether an extension should be granted, subject to such a condition; or whether 123 Sweden should be left exposed to the risk that, if the company goes into administration or liquidation within 6 months, it will be deprived of its security. The difference is not immaterial: if the former course is taken, it does not follow that in the event of liquidation or administration the order would be set aside: 123 Sweden's security would prevail against the liquidator or administrator unless, on application, a liquidator or administrator persuaded the court that it should yield to the interests of the unsecured creditors.

33 123 Sweden dealt with the company and advanced funds to it on the basis that it would be secured. Under the term sheet, it was the company's responsibility to effect registration. If Mr Andersson's evidence be correct, the company assured 123 Sweden that it had attended to the necessary steps. While it was a relatively long time - in excess of a year - that 123 Sweden's interest remained unregistered, and it seems likely that the financial position of the company deteriorated between the date when the security interest came into force and the ultimate date of registration, that deterioration may well have occurred regardless of whether the security interest was promptly registered. The period that elapsed was attributable to 123 Sweden's ignorance of the requirement for registration and the effect of non-registration, and - if the evidence of Mr Andersson remains uncontradicted - to deception by Mr Appleyard. Significantly, given the subsistence of the registered NAB and CWS security interests during the period while 123 Sweden's collateral remained unregistered, it seems unlikely that unsecured creditors would have traded with the company on the faith that the collateral was unencumbered; the contrary possibility will be sufficiently accommodated by the imposition of a "Guardian" condition, so that in the event of liquidation or administration within six months the opportunity for creditors to establish that they have been so prejudiced will be preserved. In those circumstances, there seems to be no good reason why the unsecured creditors should enjoy a windfall through the vesting of the security interest, on account of the plaintiff's inadvertence and the defendant's failure to perform its contractual obligation of attending to registration.

34 The present application was made ex parte. This is highly undesirable and all the more so where, as in this case, serious allegations made against the defendant are to be relied upon. In any event, unless and until the company goes into administration or liquidation, the company represents the interests of its contributories and creditors, and, when a secured creditor makes an application of this kind, the company should be joined as a defendant and given notice of the application. Such an approach is consistent with the views expressed in the High Court in CBC v Hudson. In this case, which in this respect should be regarded as exceptional, and in order to avoid the incurring of additional costs, I propose to make the order sought, but reserve leave to the company to apply to have it set aside.

35 The Court orders that:

(1) Upon the undertaking of Sebastian Cassie, solicitor, to pay the appropriate filing fees, 123 Sweden AB have leave to file an originating process in the form initialled by me, dated this day and placed with the papers, subject to the joinder of Appleyard Capital Pty Limited as defendant;

(2) The originating process be returnable on 23 June 2014 at 0945 in the Corporations Judge Motions List;

(3) Time for service of the Originating Process be abridged to 13 June 2014;

(4) Pursuant to Corporations Act, s 588FM, 29 April 2014 be fixed as the later time for the purposes of subparagraph 588FL(2)(b)(iv) in respect of the collateral being all of the present and after-acquired property of the defendant referred to in registration number 201404290045242 in the Register established under the (Cth) Personal Property Securities Act 2009.

(5) In the event that within 6 months of 29 April 2014 a winding up of the defendant commences, or an administrator of the defendant is appointed under Corporations Act s 436A, 436B or 436C, or the defendant executes a deed of company arrangement, the liquidator, administrator, deed administrator and any unsecured creditor of the defendant has liberty to apply to discharge or vary order 4;

(6) The defendant has liberty to apply within seven days of service on it of this order to discharge or vary order 4.

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Decision last updated: 13 June 2014