In the matter of MacDonald Contracting Australia Pty Ltd (in liquidation)

This application arises in the context of the liquidation of the first defendant, MacDonald Contracting Australia Pty Ltd (MCA), and is made pursuant to ss 471B and 500(2) of the Corporations Act 2001 (Cth) and the Personal Property Securities Act 2009 (Cth) (PPSA). The application proceeds on an amended originating process which was filed by the plaintiff, Tarenast Pty Ltd, on 25 March 2024.

The primary form of relief sought by Tarenast is a declaration that a fixed and floating charge granted by MCA as chargor to Tarenast as chargee on 23 April 2009 (2009 Charge) has been continuously perfected for the purposes of s 56 of the PPSA and has not vested in MCA by virtue of the operation of s 588FL of the Corporations Act and/or s 267 of the PPSA.

The second defendant in these proceedings is Darren John Hardy (Liquidator), who was appointed as liquidator of MCA on 3 January 2023. The Liquidator and MCA filed a submitting appearance (save as to costs) in respect of the present proceedings on 22 March 2024.

The application was effectively heard ex parte, with only Tarenast leading evidence and making submissions. Mr S Cominos and Ms Y Truong appeared as counsel for Tarenast, instructed by CT Law. I was greatly assisted by their submissions.

The application raises several complicated issues regarding the operation of numerous provisions of the PPSA and their interaction with provisions of the Corporations Act. As many legal practitioners will have found since the commencement of the PPSA at midnight on 30 January 2012, the PPSA is a convoluted and tangled web of statutory provisions, especially when dealing with cases on the margins like this one.

MCA was incorporated on 7 June 2007. It carried on business as a civil construction contractor, providing services including the drilling and installation of temporary and permanent ground anchors, rock bolting and rock face stabilisation, soil nailing, micro piling and shot concreting.

On 3 January 2023, MCA was placed into liquidation pursuant to a members’ resolution to voluntarily wind up the company and appoint a liquidator. On that same date, the Liquidator was appointed as liquidator of MCA.

From the time of MCA’s incorporation until the date on which it was wound up, Gregory Paul MacDonald was MCA’s sole director and secretary.

On 28 November 2007, Tarenast was incorporated. Tarenast is engaged in the business of hiring out plant and construction equipment. Mr MacDonald has been the sole director and secretary of Tarenast since its incorporation.

Since 2009, Tarenast has provided financial support in the form of loans to MCA to assist MCA to meet its business needs (Tarenast Loans), some of which have been repaid. The balance owing under the Tarenast Loans has fluctuated over the years. The financial statements of Tarenast as at 30 June 2023 indicate that the amount owing by MCA to Tarenast as at that date in respect of the Tarenast Loans was $2,227,571.00.

The Tarenast Loans were secured by the 2009 Charge.

The 2009 Charge is a “Fixed and Floating Charge”, the purpose of which was to secure the repayment of monies by Tarenast to MCA, including the Tarenast Loans, up to a prospective liability of $10 million.

In the 2009 Charge, MCA was defined as the Chargor and Tarenast was defined as the Chargee. In the terms of the 2009 Charge extracted below, “MCA” has been used in place of “the Chargor” and “Tarenast” has been used in place of “the Chargee”.

Relevant terms of the 2009 Charge are as follows:

By its terms, particularly cl 2.2, the 2009 Charge operates as a fixed charge on all present and future property, plant equipment and machinery owned or leased by MCA; debts owing to MCA; and personal property of MCA, and a floating charge on all present and future circulating assets owned by MCA.

On 30 April 2009, the 2009 Charge was lodged with the Australian Securities and Investments Commission (ASIC) for registration on the ASIC Register of Company Charges (ASIC Register), maintained pursuant to the (now repealed) s 265 of the Corporations Act, as was required to be done by the former ss 263 and 264 of the Corporations Act (Tarenast registration).

At midnight on 30 January 2012, on the commencement of the PPSA, the contents of the ASIC Register was transferred to the Personal Property Securities Register (PPSR). As part of that process, the Tarenast registration was migrated to the PPSR. The PPSR Registration Number Search Certificate dated 27 October 2022, numbered 2197650508490002 and exhibited to the affidavit of Mr MacDonald affirmed 11 November 2023 (PPSR Search Certificate) records in respect of the Tarenast registration:

The PPSR Search Certificate identifies MCA and Tarenast — the former by its ACN and the latter by its ABN and organisation name — as grantor and secured party respectively. In the PPSR Search Certificate, under the heading “Secured Party Details”, the following appears:

In November 2022, Mr MacDonald and his wife, Lee-Ann MacDonald, who was employed by MCA and provided administrative assistance to MCA from time to time and continues to provide administrative support to Tarenast, took steps to “find and claim” the Tarenast registration on the PPSR.

Between 14 and 17 November 2022, Ms MacDonald followed the “find and claim” process (as set out on the PPSR webpage entitled ‘Finding and claiming migrated registrations’, located at <https://www.ppsr.gov.au/education-hub/transitional-and-historical-information/migrated-security-interests-and-migrated-data/finding-and-claiming-migrated-registrations>), which involved:

As a result of Ms MacDonald following the “find and claim process”, certain details of the Tarenast registration as they appeared on the PPSR were updated. These changes are detailed in and evidenced by two automated emails from notifications@ppsr.gov.au to Mr MacDonald’s email address, received on 17 November 2022 at 4:55pm, being:

On 18 November 2022, Tarenast as lender and MCA as borrower entered into a Deed of Loan. Pursuant to the Deed, the debt representing the amount owed by MCA to Tarenast under the Tarenast Loans — which was stated to be, as at 30 June 2022, $2,820,380.33 — was converted into a loan on terms as provided.

Clause 7.1(b) of the Deed sets out the parties’ agreement and acknowledgment that:

After MCA was placed into liquidation and the Liquidator appointed as liquidator of MCA in January 2023, the solicitor for Tarenast and Mr MacDonald, Peter Chapman of CT Law, sent a number of emails to the Liquidator. These emails concerned Tarenast’s status as a secured creditor of MCA and were sent over the course of three months. In them, Mr Chapman indicated that the Tarenast security interest:

On 29 March 2023, the Liquidator issued a statutory report in respect of MCA (Liquidator’s report) in which Tarenast was listed among MCA’s secured creditors, the amount owed to Tarenast stated to be $2,227,571.39, and the type of security identified as follows:

In respect of the Tarenast security interest, the Liquidator further noted in his report:

On 19 April 2023, the Liquidator’s solicitors, Kreisson, wrote to Mr Chapman, asserting that:

On 1 May 2023, Mr Chapman responded to Kreisson’s letter articulating Tarenast’s position that the 2009 Charge, being both a transitional security interest and a migrated security interest, has been continuously perfected from the time immediately preceding the registration commencement time (1 February 2012) by virtue of ss 56, 322 and 333 of the PPSA, and did not vest in MCA pursuant to s 588FL of the Corporations Act.

In subsequent letters dated 5 May 2023, 18 May 2023 and 9 June 2023 to Mr Chapman, Kreisson made clear that it disputed that the 2009 Charge had been effectively registered, citing the following reasons:

By December 2023, the stalemate between the parties on the question of whether the Tarenast security interest had been continuously perfected for the purposes of s 56 of the PPSA, or alternatively had vested in MCA pursuant to s 588FL of the Corporations Act or ss 267 or 267A of the PPSA, had not resolved.

On 12 December 2023, Tarenast commenced the present proceedings.

In the following paragraphs, I identify the central issues that arise for determination in these proceedings, set out the applicable legal principles and give my reasoning for my determination.

A threshold question concerns the nature of the security interest created by the 2009 Charge and the consequences that flow under the regime established by the PPSA.

Section 12(1) of the PPSA defines “security interest” and s 12(2) provides examples of transactions generative of security interests. Those provisions are in the following terms:

Section 10 of the PPSA defines “personal property” as property that is not:

Section 10 of the PPSA defines “security agreement” as an agreement or act by which a security interest is created, arises or is provided for, or writing evidencing such an agreement or act.

As I have noted above, the effect of cl 2 of the 2009 Charge (extracted above) in combination with relevant defined terms set out in cl 1.1 is that the 2009 Charge functions as a fixed charge on all present and future property, plant equipment and machinery owned or leased by MCA, debts owing to MCA and personal property of MCA; and a floating charge on all present and future circulating assets owned by MCA.

The 2009 Charge secures, among other things, the repayment of the Tarenast Loans.

Accordingly, on the evidence before me, I am satisfied that the terms of the Tarenast security interest plainly fall within the s 12 definition of a “security interest” in the PPSA — being an interest in “personal property” (in the sense provided for by s 10 of the PPSA) created by a “security agreement” (the 2009 Charge) that works to secure payment or performance of an obligation (namely, repayment of the Tarenast Loans) — and is the very sort of security interest to which the legislature contemplated the PPSA would apply. That conclusion is reinforced by the express inclusion of fixed and floating charges in the list of example transactions set out in s 12(2) of the PPSA that are stated to be capable of creating a s 12(1) “security interest”.

It was suggested by the solicitors for the Liquidator in written correspondence dated 19 April 2023 to Mr Chapman that by virtue of s 322(2)(f) of the PPSA, the Tarenast security interest — as a “transitional security interest” — ceased to be perfected upon the expiry of the 24-month transitional period, being 31 January 2014.

For its part, Tarenast submits that this assertion misapprehends the application of relevant provisions of the PPSA, in that it fails to account for the dual status of the Tarenast security interest as both a transitional security interest and a migrated security interest.

Part 9.4 of the PPSA deals with the transitional application of the PPSA and applies to transitional security interests.

The guide to Part 9.4, contained in s 319 of the PPSA, is in the following terms:

Section 307 of the PPSA defines “transitional security agreement” as:

Section 308 of the PPSA defines “transitional security interest” as:

Section 310 of the PPSA provides that the PPSA only starts to apply to security interests at the registration commencement time (1 February 2012).

Section 322(1) and (2) of the PPSA deal with the perfection of transitional security interests and provide as follows:

Section 322 thus comprises a main rule (subsection (1)), whereby transitional security interests are deemed to have achieved perfection at a time immediately prior to the registration commencement time of 1 February 2012, and a set of exceptions and replacement rules (subsection (2)), pursuant to which deemed perfection ends 24 months after the registration commencement time (i.e. on 31 January 2014), and either a more permanent state of perfection is achieved or the transitional security interest becomes unperfected: see Nicholas Mirzai and Jason Harris, The Annotated Personal Property Securities Act 2009 (Cth) (4th ed, 2023) at [322.5.2].

Importantly for present purposes, s 322(2)(a) provides for perfection by registration under Division 6 — that is, by the creation of a migrated security interest — to which I now turn.

Division 6 of Part 9.4 of the PPSA deals with the migration of personal property interests.

Section 332 defines “migrated security interest” as a security interest in personal property that satisfies the following conditions:

Relevant terms that appear in s 332 bear the following meanings:

I consider that the ASIC Register, which was required to be maintained pursuant to the former s 265(1) of the Corporations Act and which served as a repository of details of company charges up until it was transferred to the PPSR, is a “transitional register” for the purposes of the PPSA. I also consider that pursuant to ss 262 and 265 of the Corporations Act (repealed from 30 January 2012), ASIC was required to record in the ASIC Register particulars of charges lodged including the following (as prescribed by s 265(2)):

Sections 330, 331 and 333 of the PPSA provide:

“Migration time” is defined in s 306(1) as 1 January 2012.

In short, I consider that it is correct to characterise the Tarenast security interest as both a “transitional security interest” under s 308 of the PPSA and a “migrated security interest” under s 332 of the PPSA and conclude, on the basis of that characterisation, that its perfected status survived the expiration of the 24-month transitional period.

My reasons for finding that the Tarenast security interest is a “transitional security interest” are as follows:

My reasons for finding that the Tarenast security interest is also a “migrated security interest” are as follows:

The status of the Tarenast security interest as a “migrated security interest” has consequences for its perfected (or, as it may be, unperfected) status following the expiry of the temporary, transitional period of deemed perfection arising from the terms of s 322(1). Being a security interest that successfully migrated to and was registered on the PPSR, the Tarenast security interest has the benefit of the replacement rule in s 322(2)(a). This means that the Tarenast security interest was perfected soon after its migration to and registration on the PPSR on 30 January 2012. As noted in s 319 of the PPSA, migrated security interests are perfected under Division 2 from immediately before the registration commencement time. In other words, the Tarenast security interest was perfected on 31 January 2012 and survived the temporary period of deemed perfection.

Moreover, the Tarenast security interest did not, after 31 January 2012, otherwise become unperfected.

Section 56(1) of the PPSA provides:

Section 163 of the PPSA sets out situations in which a security interest that has been perfected by registration may, at particular times, lose its perfected status due to its registration losing effectiveness. Section 163 provides:

As stated above, there was no stated registration end time for the Tarenast security interest in the PPSR Search Certificate, and there is no evidence to suggest that any of the other intervening events mentioned in s 163(1) have taken place. That being so (and subject to my determination below concerning purported defects in the registration), the registration of the Tarenast security interest did not cease to become effective, and as such was continuously perfected from 31 January 2012.

It was further contended by the Liquidator (through his solicitors in letters dated 18 May 2023 and 9 June 2023 to CT Law and in his affidavit filed 11 March 2024) that the Tarenast registration suffered from defects which rendered it ineffective pursuant to s 164(1)(a) of the PPSA. The relevant defects are said to comprise the following:

In summary, the Liquidator’s line of reasoning appears to be as follows:

Sections 164 and 165 of the PPSA provide:

In the present case, I am satisfied that none of the circumstances described in s 165 existed at any relevant time. Accordingly, I need only be concerned with the application of the general rule in s 164.

The term “seriously misleading” is not defined in the PPSA. In Future Revelation Ltd v Medica Radiology & Nuclear Medicine Pty Ltd (2013) 283 FLR 122; [2013] NSWSC 1741, Brereton J at [5]–[7] gave consideration to the meaning of the phrase as it appears in s 165, stating:

In Re OneSteel Manufacturing Pty Ltd (administrators appointed) (2017) 93 NSWLR 611; [2017] NSWSC 21, Brereton J at [36]–[41] in obiter (having already determined the issue that arose there on the basis of s 165, rather than s 164) gave the following further analysis which also illuminates the practicalities of searching the PPSR (footnotes omitted):

The factual scenario in OneSteel provides a useful foil for the situation under consideration here. Where in OneSteel Brereton J was called upon to determine whether the omission of the grantor’s ACN from the registration constituted a seriously misleading defect, here I am concerned with the omission of the secured party’s ACN. As Brereton J’s analysis across the two authorities makes clear, it is possible to conduct a search of the PPSR via reference to the former, but not the latter.

Future Revelation and OneSteel indicate that the test for “seriously misleading defect” for the purposes of 164(1)(a) is whether the irregularity in question results in the registration not being discoverable on a search of the PPSR.

In written and oral argument, Tarenast submitted that it is not possible for a search of the PPSR to be conducted using a secured party’s address for service and observed that it would be counterintuitive for a person who is seeking information about security interests registered against an entity with whom they intend to transact to do so via inputting the secured party’s details. I agree that that would be a very strange starting point. I also accept Tarenast’s submission that no facility exists whereby to search the PPSR by reference to a secured party’s details (such as its email address for service, or its organisation identifier number or type), which is supported by Brereton J’s reasoning in Future Revelation at [6]. The result is that the irregularities constituted by the email address defect and the ABN defect could not have meant that the Tarenast registration would not be disclosed on a search of the PPSR and did not render the Tarenast registration ineffective.

I was also taken to provisions in the PPSA and the Personal Property Securities Regulation 2010 (Regulations) pertaining to prescribed data and details that must be included in a financing statement in respect of a security interest that is sought to be registered on the PPSR. In this latter connection, Tarenast observed that for migrated security interests (and thus for the Tarenast security interest), the secured party’s ACN is not a detail that needs to be provided upon registration, and, given the lack of any requirement to provide that detail, its absence from the PPSR cannot — as a matter of logic or principle — amount to a defect in registration.

For the purposes of the PPSA regime, a “financing statement” is the relevant document, in relation to a security interest, that a person seeking to register that security interest may apply to the Registrar to register (s 150(1)(a) PPSA). “Financing statement” is defined in s 10 as:

A “financing statement”, in terms of the details and data it contains, must comply with certain requirements. Section 153(1) of the PPSA relevantly provides:

In terms of prescribed data about the secured party (designated as Item 1 in the table) that needs to be included in a “financing statement”, s 153(1) refers to “the details prescribed by the [R]egulations.” Regulation 5.5(1) in turn refers to Schedule 1 of the Regulations as the source of “matters prescribed for items of the table in subsection 153(1) of the Act”. Turning to Schedule 1, which is headed “Financing statement matters for items of table in subsection 153(1) of Act”, clause 1.3 is in the following terms:

Given that there is no evidence that the secured party (Tarenast) is a body corporate that is a trustee of a trust that has an ABN, I am satisfied that cl 1.3 of Schedule 1 applies in the manner set out below.

I also note that because the Tarenast registration was migrated to the PPSR, no financing statement was lodged by Mr MacDonald or Ms MacDonald in the usual way; rather, as stated above, the Registrar was responsible for registering a financing statement with respect to the Tarenast security interest. As such, in accordance with cl 1.3(4), Item 1 in the table immediately above applies to the Tarenast registration.

As was submitted by Tarenast, the effect of cl 1.3(2) and (3) of Schedule 1 is that, supposing multiple item numbers in the table in cl 1.3 apply to the secured party, the details mentioned in the applicable item number with the lowest integer are the prescribed details that must be contained in the financing statement. Because in the present case Item 1 in the table applies, the prescribed details are Tarenast’s body corporate number or name, as recorded on the ASIC Register.

Consequently, there was no requirement to include Tarenast’s ACN in a financing statement concerning the Tarenast security interest for the purposes of complying with the Regulations. It was sufficient that either Tarenast’s body corporate name or number was provided, both of which details were, as the PPSR Search Certificate demonstrates.

This, in conjunction with the fact that (as stated above and emphasised by Brereton J in Future Revelation) it is not possible in practice to search the PPSR by reference to a secured party’s ACN (or indeed by reference to the secured party’s identity at all), compels the conclusion that the ABN defect would not have prevented the Tarenast registration from being disclosed on a search of the PPSR, and so does not engage s 164(1)(a) of the PPSA.

Accordingly, I reject the argument that the Tarenast registration was ineffective by reason of one or more seriously misleading defects and the argument that as a result the Tarenast security interest vested in MCA immediately prior to the passing of the resolution to wind up MCA on 3 January 2023.

The remaining issue to be determined is whether the Tarenast security interest otherwise vested in MCA by virtue of the operation of s 588FL(4) of the Corporations Act or either of ss 267 or 267A of the PPSA.

Division 2A of the Corporations Act deals with the vesting in a company that is being wound up of PPSA security interests that have not been continuously perfected. Section 588FL provides as follows:

For the purposes of determining the “critical time”, s 513B applies to a voluntary winding up and is in the following terms:

Pursuant to s 588FL, where a company is being wound up, any PPSA security interest granted by the company which was perfected, registered or enforceable against a third party after the latest of certain times as listed in s 588FL(2)(b) will vest in the company for the benefit of creditors generally and the secured creditor will lose the benefit of the security: Northern Managed Finance Pty Ltd v 4 in 1 Wyoming Pty Ltd (2017) 120 ACSR 167; [2017] NSWSC 407, Gleeson JA at [30] and the authorities cited there.

I am satisfied that the Tarenast security interest is not a PPSA security interest to which s 588FL applies. That is because, by virtue of s 588FL(2)(b), the section only covers PPSA security interests for which the registration time postdates the latest of (i) six months after the critical time; (ii) 20 days after the relevant security agreement came into force; and (iii) such later time as the court may fix under s 588FM. Only (i) and (ii) are relevant here.

Set out below, I have considered the application of these times to the present case:

The result is that s 588FL has no application to the Tarenast security interest, and there is no question of it vesting in MCA upon MCA’s winding up by that mechanism.

Sections 267 and 267A of the PPSA constitute an additional mechanism pursuant to which unperfected security interests may vest in the grantor company as a result of its winding up. Those sections relevantly provide as follows:

The alternative path whereby the Tarenast security interest might have vested in MCA pursuant to ss 267 or 267A of the PPSA is also closed. In relation to s 267, that is because the Tarenast security interest, as I have determined above, was not unperfected as at 3 January 2023 (the time at which MCA’s winding up is taken to have begun) and therefore was not susceptible to vesting in the grantor on its winding up. In relation to s 267A, that is because it was not the case, nor was there any suggestion, that the Tarenast security interest had not attached to the relevant collateral at the critical time (being 3 January 2023).

Accordingly, I am satisfied that the Tarenast security interest did not vest in MCA upon the winding up of MCA.

In light of the determinations I have made on the four issues set out above, it is not necessary for me to consider whether Tarenast would have obtained an extension of the time fixed under s 588L pursuant to s 588FM of the Corporations Act.

In these proceedings, Tarenast seeks a declaration that the security interest constituted by the 2009 Charge has been continuously perfected from immediately before 30 January 2012, and that this security interest has not vested in MCA pursuant to ss 267 or 267A of the PPSA or s 588FL of the Corporations Act.

The principles conditioning the court’s inherent and discretionary power to grant declaratory relief are set out in Forster v Jododex Australia Pty Ltd (1972) 127 CLR 421; [1972] HCA 61, where Gibbs J at 435–437 said (citations omitted):

I am satisfied that this is an appropriate case in which to grant declaratory relief. The dispute and the issues arising for determination are real and not theoretical, and notwithstanding the Liquidator did not appear or seek to be heard in the proceedings before me, it is not the case that Tarenast’s application has no proper contradictor. It is clear that the parties, by their respective positions on the status of Tarenast as a secured creditor of MCA, are at a stalemate, and that Tarenast’s rights and interests as a creditor of MCA are at stake in the liquidation. A declaration in the terms sought will sound in real consequences for both parties, and will allow the Liquidator to properly proceed with his task where until now he has been uncertain as to how to do so.

In light of the reasons stated above, I propose to make the following orders: