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Qld Country Credit Union v Na-Kuraga Ltd

 

[2005] QSC 149

SUPREME COURT OF QUEENSLAND

CIVIL JURISDICTION

HELMAN J

No 103 of 2005

QLD COUNTRY CREDIT UNION

Applicant

and

 

NA-KURAGA LTD

Respondent

CAIRNS

DATE 19/05/2005

JUDGMENT

HIS HONOUR: This is an application filed on 8 March 2005 under s. 266(4) of the Corporations Act 2001 for an order that the period for lodging with the Australian Securities and Investments Commission notice of a fixed and floating charge granted by the respondent to the applicant on 9 March 2004 be extended nunc pro tunc to 25 February 2005.

The charge was to secure a loan by the applicant to the respondent. According to Mr Bradley Seymore, the general manager of the applicant, its solicitors were instructed to act for it “with respect to the preparation and registration” of the charge and a bill of sale which was further security for the loan. The applicant, Mr Seymore swears, expected that its solicitor would attend to filing and lodgement of the security documents “within the appropriate time”, which in the case of the charge was within forty-five days of its creation. Mr Seymore swears that he learnt only in February 2005 that the “unfiled” fixed and floating charge was still in the applicant's possession and had not been “lodged/filed”. Notice in respect of the charge was lodged with the Commission on 25 February 2005.

Mr Trent Glover, now employed in Canberra by the Australian Government Solicitor, was the employee of the applicant's solicitors who had charge of the file concerning the loan and the securities for it. Mr Glover swears that he caused his employer's file to be closed without lodging the required notice with the Commission. He swears that his recollection is that he did so because he understood that the applicant would attend to the lodging of the notice. Having reviewed the file, Mr Glover swore on 4 March this year that he could see no record supporting that understanding and that therefore he believed that the “nontimely registration of the documents was caused by a misunderstanding”. The file shows, Mr Glover swears, that he sent the charge document to the applicant on 16 March 2004 as it had not been executed by the applicant, and the file was then closed without documents having been lodged with the Commission.

On 13 January 2005, an application for a winding-up order in respect of the respondent was filed in this Court, and on 11 March 2005 Messrs Peter Morris and Todd Kelly were appointed as administrators of the respondent. On 14 March 2005 the winding up application was adjourned to a date to be fixed.

If the order sought is not made, the applicant's charge will be void as a security against the administrators, by operation of s. 266(1). If the order is made, the administrators will not have the secured property for distribution to the unsecured creditors of the respondent. The administrators' second report to creditors dated 4 April 2005 shows the respondent's assets as $180,205 (cash at bank, which includes a $105,585 term deposit that the applicant holds as security), $291,792 (debtors), and unknown (plant and equipment), and its liabilities as $154,164, (designated “secured creditor - the applicant, the only secured creditor), $35,434 (employee entitlements), and $522,420 (unsecured creditors).

On behalf of the applicant it was submitted that it had satisfied a threshold requirement for relief in that the failure to lodge the notice within the forty-five days of creation of the charge was accidental or the result of inadvertence. I am satisfied that is so: What happened in this case is similar to what happened In re Kris Cruisers, Ld [1949] 1 Ch 138. In that case Vaisey J explained:

“The solicitors of the chargees thought that the secretary of the company had registered the charge, as he ought to have done, and the secretary of the company thought that the chargees had registered the charge, as they might have done and, between the two of them, each supposing the other had carried out the requirements of the section, they overlooked the fact that neither of them had done so. That seems to me to be inadvertence, inattention, carelessness, but very far removed from the kind of case in which this relief should be refused.” (pp. 141-142)

Satisfaction of a threshold requirement does not, however, assure an applicant of success on an application of this kind. An applicant must persuade the court that the wide discretion reposed in the court should be exercised in the applicant's favour. As Thomas, J.A. observed in Re Freightlines Northern Territory Pty Ltd (in liq.) [2000] 2 Qd. R. 384: “Satisfaction upon ground (a) [The failure to lodge notice accidental or due to inadvertence or some other sufficient cause] may readily be outweighed by other factors including the time involved and the potential prejudice that may have arisen on the part of unsecured creditors in the interim.” (p. 387) What is involved is what Thomas J.A. described as “the critical balancing exercise that must ultimately be performed, when relevant factors are weighed against the detriment of creditors if the time for registration is to be extended (p. 388).

In this case the delay between the expiration of the forty-five days and the lodging of the notice was substantial. In cases other than Freightlines, judges have referred to the question of delay, and have treated the brevity of delay as a factor in an applicant's favour. In Standard Chartered Finance Ltd v. De Barros Nominees Pty Ltd (in liq.) (1989) 7 A.C.L.C. 15 at p. 19, Pidgeon J. said he was influenced by the fact that the time between the due date and the actual date of registration was “not a long one” (approximately two months). In Craig Mostyn & Co Pty Ltd v. Old Valley Pty Ltd (in liq.) (2004) 22 A.C.L.C. 1, 307, French, J. observed:

“In the case in which a chargee has advanced to a failing company and it is accidentally or inadvertently delayed, by a short time beyond a relevant period, to register the charge, the statutory rights of unsecured creditors upon the commencement of the winding up, may be regarded as inflated by reason of that accident or inadvertence. The dimunition by prompt judicial intervention, of what might be regarded as moot elements of those rights, may be neither unfair or inconsistent with the general policy of the law governing the winding up of companies and the rights of creditors.” (p. 1,318)

But just as a brief delay as a result of accident or inadvertence will not necessarily be regarded as a factor preventing the exercise of the Court's discretion in favour of an applicant under s 266(4), so a lengthy period may be regarded as such a factor. A requirement that a charge be registered “is intended to enable persons who are minded to deal with companies to be able, by searching the register, to find out whether the company has encumbered its property or not. In other words, the provisions are intended to protect persons who may become unsecured creditors of the company: Wilde v. Australian Trade Equipment Co. Pty Ltd (1981) 145 C.L.R. 590 at pp. 596-597 per Gibbs J.:

In this case, those dealing with the respondent, by granting it credit or extending credit, were deprived of that protection for an unacceptably lengthy period; and although the initial failure has been explained - adequately I think, but, as was contended on behalf of the respondent, with little reference to detail - the prolongation of the initial inadvertence remains unexplained. One could reasonably conclude that a prudent lender should have established routine procedures to check to see whether lodgements of the kind the subject of the application had been made. If there were such established procedures, an explanation as to why they were not complied with should have been given. If there were no such procedures, that should have been explained.

While there is no evidence that unsecured creditors checked the register of company charges in the relevant period, that factor does not, in my view, outweigh the consideration arising from the length of the delay in lodging the notice. It is for an applicant to persuade the court that there should be relief from the consequences of inaction. In this case, the applicant has failed to do so. For that reason I conclude the application should be dismissed.

The orders are these:

The application is dismissed.

I order that the applicant pay to the respondent its costs of and incidental to the application, to be assessed on the standard basis.

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Editorial Notes

  • Published Case Name:

    Qld Country Credit Union v Na-Kuraga Ltd

  • Shortened Case Name:

    Qld Country Credit Union v Na-Kuraga Ltd

  • MNC:

    [2005] QSC 149

  • Court:

    QSC

  • Judge(s):

    Helman J

  • Date:

    19 May 2005

  • White Star Case:

    Yes

Litigation History

No Litigation History

Appeal Status

No Status