Time is of the essence, especially when “6 months before the critical time” meant the stroke of midnight leading into 10 November 2015 and not 4:18pm!
The well known variety store Overflow, undergoing liquidation, had appointed Todd Kelly and Gerald Williams as liquidators and administrators at 8:00am on 10 May 2016 to wind up its affairs for the benefit of its creditors, NAB and Austwide Consumer Products Pty Ltd. Austwide, being the second ranking secured creditor, had declared that they held a security interest over the sale proceeds of Overflow’s property. This security interest was registered on 10 November 2015 at 4:18pm (Queensland time).
The central issue was whether Austwide registered its security interest six months before administration began, in order to avoid the interest vesting in Overflow according to statute. The court considered whether the registration time for the collateral in which the security interest was granted occurred “after…six months before the critical time” in accordance with s588FL(2)(b) of the Corporations Act 2001 (Cth) and if so, the interest vested in Overflow. Pursuant to s511 of the Corporations Act, the outcome of this issue bore upon the conduct of the winding up of Overflow and was therefore, a question for the court’s determination.
Justice Henry held that the interest of Austwide vested in Overflow for the following reasons. In accordance with the Personal Property Securities Act 2009 (Cth) (PPSA) the interest that was sought to be secured was a security interest as well as a PPSA security interest according to the Corporations Act. Section 588FL(4) of the Corporations Act has the effect that a PPSA security interest, that has been granted by a company that subsequently appoints an administrator, is deemed to have vested in the company immediately before the administrator is appointed if it is a PPSA security interest covered by s588FL(2).
It was held that the meaning of “critical time” in accordance with s588FL(7) was the day of 10 May 2016, when Todd and Gerald had been appointed as administrators. Justice Henry referred to s105 of the Corporations Act and s36(1) of the Acts Interpretation Act 1901 (Cth) to conclude that the day of 10 May 2016 should not have been included in counting 6 months backwards in time and that “6 months before the critical time” was therefore, 12:00am leading into the day of 10 November 2015. In considering the statutory definition of months rather than days (s22(1)(g) of the Acts Interpretation Act), Justice Henry also arrived at the same result. Unfortunately for Austwide, this meant that registration that occurred anytime after 12:00am was after 6 months before the critical time and hence, the security interest vested in Overflow.
Disregarding the statutory provisions about days and months and considering the exact times of day, 6 months before the critical time would have been immediately before 8:00am on 10 November 2015 as the critical time on this alternate reading would have been 8:00am on 10 May 2016. In this case, the registration time of the security interest which was 4:18pm was still too late to avoid the application of s588FL and therefore, s588FL(2) covered the security interest which vested in Overflow. Todd and Gerald sought a declaration to that effect which responded to the issue regarding the conduct of Overflow’s winding up pursuant to s511 of the Corporations Act.
Register your security interests on time. Precision is key!
If in doubt, seek prompt legal advice – the critical time in these cases is often unknown in advance. Contact us
In some circumstances even late registration, with a carefully drafted letter from your lawyer, can be of great assistance. If you would like more information our Brisbane PPSR Lawyers can help. Call us on Ph 07 3252 0011 or email us today to ask about a fixed fee first appointment.