On 8 September 2021, Brereton JA, in In the Matter of Antqip Hire Pty Ltd [2021] NSWSC 1122, clarified that s 588FL of the Corporations Act 2001 (Cth) (Corps Act) does not apply to security interests granted by a security agreement made after the “critical time” as defined in s 588FL(7) of the Corps Act.

This is an important decision for commercial financiers lending to distressed entities and insolvency practitioners. Prior to this decision, the judicial authority leant toward s 588FL being read to require financiers lending to companies in administration, liquidation or the subject of a DoCA, to obtain an order under s 588FM extending the registration time of any security interest granted after a company was placed into administration, liquidation or executed a DoCA.

Background

Antqip Hire Pty Ltd and a related company (together, Antqip Companies) went into voluntary administration on 3 February 2014.

In May 2014, the Antqip Companies entered into Deeds of Company Arrangement (DoCA).

In October 2014, the Antqip Companies refinanced their debt with National Funding Group (NFG) with such debt being secured by a General Security Agreement (GSA). NFG registered a number of financing statements on the Personal Property Securities Register, including one covering all present and after-acquired property (AllPAP Registration). Although NFG’s lawyer told it that the AllPAP Registration was made by him with no end date, the lawyer only registered it for 3 years.

In April 2019, NFG discovered that the AllPAP Registration had lapsed and immediately registered a new AllPAP. Unfortunately, the Antqip Companies entered into liquidation within 6 months of the new registration, potentially triggering the operation of s 588FL which would have the effect of vesting the security interests in the Antqip Companies.

NFG applied to the Supreme Court of NSW for an order under s 588FM of the Corps Act, extending the registration time, to prevent its security interest from vesting.

Decision

Brereton JA concluded:
• Section 588FL does not apply to security interests granted by a company after the relevant “critical time” for that company, and in those circumstances was not necessary to obtain relief under s 588FM in relation to such security interests. His Honour disagreed with the reasoning of Davies J in KJ Renfrey Nominees Pty Ltd (atf Renfrey Family Trust) v One Steel Manufacturing Pty Ltd (subject to deed of company arrangement) [2017] FCA 325; (2017) 120 ACSR 117 on this issue: [47]-[48]; [63].
• The words “if the security interest arises after the critical time” in s 588FL(2)(a) only apply to security interests granted before the critical time, but which do not arise until after the critical time: [48]. A security interest subject to the Personal Property Securities Act 2009 (Cth) (PPSA) arises by attachment in accordance with s 19 of the PPSA: [48]-[57].
• If s 588FL did apply to security interests granted after the critical time, then it would be inconsistent with s 468 of the Corps Act, which is concerned with dispositions of property made after the commencement of a court-ordered winding up: [59].
• Because at the time that the companies were placed into liquidation, the companies were still the subject of the DoCA’s, the critical time was 3 February 2014, being the date the companies went into voluntary administration. As such the security interests granted in October 2014 arose after the critical time;
• If s 588FL did apply to the AllPAP interest granted by the Antqip Companies to NFG, the Court would have extended time on just and equitable grounds, because the Deputy Commissioner could not identify any prejudice arising from the AllPAP registration having been re-registered after it had lapsed: [64]-[100].

Key points

This decision helpfully discusses previous authorities in this area and clarifies the law around security interests granted by companies who are in liquidation, administration, or subject to a DoCA. It also reinforces the position that prejudice for the purposes of s 588FM is focused on prejudice arising from late registration, rather than the effect of the order itself (which will inevitably prejudice unsecured creditors by reducing the company assets available to them).