The Supreme Court of New South Wales recently addressed the matters to be taken into consideration when deciding whether or not to grant an extension of time in which to register a security interest, including the reasons for any delay and its duration, the possibility of prejudice to creditors and the financial position of the grantor of the interest.
The proceeding was In the matter of Transurban CCT Pty Limited and Transurban CCT Nominees Pty Limited in its own capacity and as Trustee of the Transurban CCT Trust  NSWSC 1909 and involved a security holder which had registered a security interest on the Personal Property Securities Register. The security holder later became aware that although the security interest did show in searches of the Register, there were potential defects as it was registered in the name of the security holder as trustee but not in the name of the trust itself, and was registered under a single registration in the name of multiple parties when they had joint ownership over some but not all of the collateral.
The security holder brought an ex parte application under s588FM of the Corporations Act 2001 (Cth) for an extension of time to register its security interest.
The court granted the requested extension. While the court declined to determine whether there were in fact defects in the registration, the following observations were made:
- The court's discretion to grant an extension of time is enlivened when the failure to register was accidental or due to inadvertence, it is not of such a nature as to prejudice creditors or shareholders, or other factors suggest it would be just and equitable to grant the extension. In this instance, the bona fide attempt to register the security interest, coupled with the prompt response once the potential deficiencies came to light, amounted to inadvertence that enlivened the discretion.
- The court held that a relevant consideration in granting an extension is the extent to which unsecured creditors may be affected. In determining this, the court should consider the financial position of the company. In this instance, while the court was provided with a signed statement from a director that 'the company, the trustee and the trust are in a positive net asset position', this was found to be of limited value. However, in the security holder's favour, a search of the Register still revealed the relevant security interest, albeit with potential defects. As such, the court held that six months' leave to challenge the decision was sufficient protection for unsecured creditors.
- The court also commented that applications for an extension of time to register a security interest should not be made ex parte, and should instead name the grantor as a defendant. The grantor may then choose to not oppose the process and it may be granted. In this instance the signed statement by a director of the grantor stating that the grantor did not oppose the extension demonstrated the requisite notice.
The court's decision in this case also supports the view that an application for an extension of time to register a security interest under s588FM of the Corporations Actc may be sought irrespective of whether the grantor is in administration or liquidation or not.