Financial Services Alert - Octaviar Decision Overturned by Queensland Court of Appeal

Today secured lenders can breathe a sigh of relief: the decision in Re Octaviar Ltd [2009] QSC 37 has this morning been overturned by the Queensland Court of Appeal. Readers may recall that in that controversial decision the Queensland Supreme Court held, in circumstances where the liability secured by a registered charge was determined by reference to "Transaction Documents", that a subsequent designation of a "Transaction Document" constituted a "variation" to the registered charge. Failure to notify ASIC of such a "variation" rendered the charge void against an administrator or liquidator to the extent that it secured an increased liability as a result of the designation.

Consistent with suggestions made in our article "Held: Charge Void During Administration" published in our April 2009 Finance & Markets Update, the Queensland Court of Appeal has confirmed that the trial judge was incorrect. In short, it was held that:

1. the subsequent designation of a "Transaction Document" did not constitute a "variation" to the terms of the charge;
2. as there was no "variation" for the purposes of section 268(2) of the Corporations Act 2001 (Cth) (Corporations Act), no notification to ASIC was required; and
3. the charge was not void against an administrator or liquidator to the extent that it secured the increased liability as a result of the designation pursuant to section 266(3) of the Corporations Act.

What does this mean for secured lenders?

Subject to any appeal of the decision of the Queensland Court of Appeal:

1. in the context of existing facilities and following registration of a given charge, if a document is subsequently designated a "Transaction Document" and this has the effect of increasing the liability secured by that charge, there is no requirement to lodge an ASIC Form 311B attaching the relevant documentation with ASIC; and
2. in the context of the provision of new facilities, parties may define the obligations secured by registered charges by reference to "Transaction Documents". Subsequent designation of a "Transaction Document" will not constitute a variation of the terms of the charge.