Extension of time for lodgement of notices regarding changes to charges under section 266(4)(a) of the Corporations Act

Extension of time for lodgement of notices regarding changes to charges under section 266(4)(a) of the Corporations Act

Dempsey Resources Pty Ltd v Continental Coal Ltd, [2009] FCA 1157, Federal Court of Australia, Gilmour J, 12 October 2009

(a) Summary

This case concerned the exercise of the court’s discretion to extend the time limit for lodging notices of change of detail in respect of certain charges with the Australian Securities and Investments Commission (ASIC). The court found that the reason the applicants had failed to lodge the notices within the time period, in this case, was because of inadvertence. As such, the case came within section 266(4)(a) of the Corporations Act 2001 (Cth) (Act), which gave the court discretion to extend the time period for lodgement of the notices.

(b) Facts

In January 2009, LinQ Capital Ltd (LinQ Capital) lent Continental Coal Ltd (Continental) $6 million. A Loan Facility Agreement (Facility Agreement) was entered into between these parties and also LinQ Finance No 2 Pty Ltd (LinQ Finance), who was the Facility Agent and Security Trustee and was responsible for administering the loan and acting as a conduit for all payments.

At the same time, Continental and LinQ Finance entered into three security agreements (Security Agreements) which secured the money owed to LinQ Finance under the Facility Agreement.

On 3 April 2009, an amendment deed (Amendment Deed) was prepared to facilitate the participation of new financiers. The Amendment Deed enabled the amount under the Facility Agreement to be increased by the execution of an Increased Commitment Deed (ICD).

On 20 April 2009, Dempsey Resources Pty Ltd (Dempsey) executed the Dempsey ICD, making it a financier under the Facility Agreement.

Perpetual Corporate Trust Limited (Perpetual) executed the Perpetual ICD, also making it a financier under the Facility Agreement, which was dated 5 June 2009 to reflect the date on which it advanced funds under the Facility Agreement.

LinQ Corporate lodged notices alerting ASIC to a change in the terms of a charge, however it did this after the time period for lodgement had expired. The applicants’ argued that this was due to inadvertence, and, as such, the court should use its discretion to extend the time period for lodgement. Continental did not oppose the application.

(c) Decision

Justice Gilmour exercised the court’s discretion under section 266(4)(a) of the Act and extended the time period for the applicants to lodge the notices with ASIC.

(i) Relevant law

Section 268(2) of the Act provides that where there is a variation in the terms of a registrable charge having the effect of increasing the amount of debt or increasing the liabilities secured, or prohibiting or restricting the creation of subsequent charges on the property, then the company which created the charge is obliged to lodge a notice of such variation within 45 days of the variation having been made.

A failure to lodge a notice does not automatically destroy the security. However, under section 266(3) of the Act, it does render the charge void as a security against the liquidator or administrator of the company or the administrator of a deed of company arrangement. The charge is otherwise a valid security but, in certain circumstances, it is postponed in priority in favour of a registered charge.

Section 266(4)(a) of the Act gives the court a discretion to extend the period for lodging a notice of a charge if it is satisfied that the failure to lodge a notice in respect of a charge, or in respect of a variation in the terms of a charge, was due to inadvertence.

(ii) Analysis

In this case, Gilmour J held that, in determining whether the court should exercise its discretion under section 266(4)(a), the following factors were important considerations:

  • the period of delay in lodging the notice;
  • the solvency of the company in regard to which the charge is registered;
  • whether there were any other registered charges on the property; and
  • whether there was remediation of the default within a reasonable time.

(iii) Application of principles

In regard to the Dempsey ICD, the notice was registered late due to a misunderstanding between directors. A director of LinQ Corporation, Mr Brewer, had given the ICD to a director of LinQ Finance, Mr Durack, assuming he would register the notice, but without specifically instructing him to do so. Mr Durack assumed the registration would be taken care of by Mr Brewer, who had conducted the matter. Because of this misunderstanding, the parties did not realise the notice had not been registered until the time period had expired, at which point Mr Brewer promptly rectified the oversight.

In regard to the Perpetual ICD, Mr Brewer was busy organising an equity raising at the relevant time, and failure to lodge the notice was an oversight which was rectified immediately by Mr Brewer upon realisation of the mistake.

Justice Gilmour held that in both instances, the oversight was due to inadvertence within section 266(4)(a) of the Act. His Honour noted that the notices were both lodged only a short amount of time beyond the time period, being 9 days and 55 days respectively.

In addition, Gilmour J noted that Continental was not in any form of external administration and that it had net assets of $7,269,734.

As remedial step were taken promptly by Mr Brewer, Gilmour J determined that the court’s discretion should be exercised to extend the time period for the lodgement of notices.

 

 

Co-authored by Sarah Bitcon.

Published by SAI Global on behalf of Centre for Corporate Law and Securities Regulation, Faculty of Law, the University of Melbourne with the support of the Australian Securities and Investments Commission, the Australian Securities Exchange and the leading law firms.