High Court Settles Octaviar Saga

In early 2009, the Queensland Supreme Court held that, in circumstances where the liability secured by a registered charge was determined by reference to "Transaction Documents", 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" and "Octaviar Decision Overturned by Queensland Court of Appeal" published in our April and September 2009 Finance & Markets updates, the High Court has unanimously confirmed that the trial judge was incorrect. In short, the High Court has confirmed that:

3. the charge was not void against an administrator or liquidator pursuant to section 266(3) of the Corporations Act to the extent that it secured the increased liability as a result of the designation.

What does this mean for secured lenders?

In the context of existing facilities secured by a registered charge containing a "designation mechanism", 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 confirming the designation.