Acme Ltd (A) Is a Corporation (Corp). Whenever the Debtor Is a Corp, the Corporation Law

LAWS 2210

SEMESTER 1 2000

QUESTION 1

MARK: 76

QUESTION 1a

Acme Ltd (A) is a corporation (corp). Whenever the debtor is a corp, the Corporation Law must be considered. As such, all sections below refer to the Corps Law.

Mega Bank (MB)

MB holds a floating charge over widgets. This is registerable (s262(1)(a)). MB has registered this charge. Liability is prospective and governed by s282. As the liability is specified on the register, MB is secured for the full amount irrespective of later securities (s282(3)).

Fis (F)

Dealings involving land are not registerable (s262(8)), but this agreement only covers the plant - it relates to personal property. If this is a security transaction, it is a charge on personal chattels and registerable (s262(1)(d)). However, this may not be a security interest. This is determined by looking at the substance of the transaction. F now owns the plant although A continues to use it. However, there is no agreement that A will ever own the plant again. If the lease was a sufficiently long period, this may imply a security arrangement - more information is needed. If this is a security, it is unregistered registerable security and so void against the liquidator (s262(1)).

Ntcs Ltd (N)

N has a Romalpa clause. Each Romalpa clause turns on its own construction. The first major question arising from this clause is what N has an interest in. The clause seeks to maintain title over any product created with the nuts, namely the widgets. A retention of title clause can be transferred from the original product to other substitutes, if those substitutes are identifiable (Puma). Here, the widgets are an identifiable substitute. This is consistent with the High Court's decision proceeds from manufactured items could be traced in Associated Alloys. N has security over widgets. The next question is whether this security extends to the proceeds of the widgets. In this case the proceeds have not been set aside in a separate account - they are untraceable. As a result, N can have no right to them (Chattis). Furthermore, a right to the proceeds must be expressed or implied in the clause (Chattis). None is apparent here.

The second key question is whether this interest is registerable in Assoc. Alloys - the High Court held that proceeds being held on trust were not charges for the purposes of s9 of the Corps Law, and so unregisterable. The issue is whether this is, in substance, a trust. The clause states it is a trust. In Assoc Alloys, this was sufficient, but more evidence is probably needed.

Finally, it must be noted that Romalpa is purchase money securities. There is debate over whether this should give it super priority as it ensures debtors will always be able to get goods from new suppliers without disadvantaging previous creditors. However, this would lead to increased risks on floating charges.

Liz (L)

L has a legal lien created by contract. It is legal as she has possession of the share certificates. This lien is general - it covers all debts owed to her. A lien arising by operation of law is not registerable (s262(2)(a)), but this arises under contract. However, it probably also constitutes a pledge of a marketable security, and is not registerable (s262(2)(b)).

Kim (K)

K has an assignment of book debts. Whether this is a security depends on substance - the fact K went to register it suggests that it is. K lodged prospective registration. However, as she failed to register properly within 30 days of this, that was deleted from the register (s265(5)). The date of registration was, instead, March 2000. K failed to register within 45 days of creating the security, and at least 6 months before liquidation began, and so her security is void against the liquidator (s266(1)).

Who Gets What?

(1) The Widgets

Both MB and N have claims on the widgets. If N's Romalpa clause was registerable, under s280(1)(c), MB's registered charge has priority over it. MB gets the widgets. If it was not registerable, Corps Law priorities do not apply (s279(1)). MB's floating charge is a legal interest. It is unclear if N's Romalpa is legal or equitable, but it is most likely equitable if it is seen as a trust and thereby unregisterable. MB's floating charge did not crystallise until liquidation. The result is a prior equitable and subsequent legal interest. The legal prevails if there is no notice - MB had no notice and so gets the widgets.

(2) The Plant

If F's transaction was not security, the plant belongs to F. If it was, it was unregistered and the plant goes to the liquidator.

(3) Telstra Shares

If the lien was unregisterable as appears in the case, L gets the shares over the liquidator as the security is valid.

(4) The Book Debts

K's failure to register at least 6 months before liquidation means the liquidator gets the book debts.

QUESTION 1b

Had Acme been a sole trader, Adam Chan (AC) in NSW, the Corporation Law would not apply. Instead, the Bills of Sale Act may be relevant to some of the transaction.

(1) The Widgets

MB would obviously not have registered with ASIC. For the purposes of this question, it will be assumed MB registered under the Bills of Sale Act. The competition for the widgets would still be between MB and N, with N failing to register. If Romalpa is registerable, the consequence of this is that the security is void (s5C). Romalpa is probably registerable under this Act. Unlike the Corps Law's requirement of a charge, the Bills of Sale Act requires an interest in property to be given (s3). The ability to use the widget would be an interest in property. As a result, N would have no interest and MB would get them. If Romalpa is not registerable, the result would be the same as if Romalpa were not registerable under the Corps Law.

(2) The Plant

The issue is once again if this were a security transaction. If it is, it would be a registerable one as property has been transferred (s3). If it were not, the Bill of Sales Act would not apply, and F would own the plant.

(3) Telstra Shares

Whether or not the lien is registerable, which it probably is not as possession rather than property has been transferred, shares do not constitute personal property under the Act (s3) and so this transaction is not registerable. L gets the shares over the liquidator.

(4) Book Debts

Unlike under the Corps Law, book debts are not registerable under the Act as they are money and so not a personal chattel (s3). It must be assumed from this that K did not register these book debts. Even if she did, it is irrelevant as the registration must be void. The consequence of this is that K is secured and so gets the book debts ahead of the liquidator.