High Court rules on Octaviar 

In brief — Octaviar deci­sion con­firms return to stability

The 1 Sep­tem­ber 2010 High Court deci­sion in Pub­lic Trustee of Queens­land v Fortress Cred­it Cor­po­ra­tion (Aus) 11 Pty Ltd [2010] HCA 29 con­firms a return to sta­bil­i­ty in the long accept­ed prac­tices sur­round­ing reg­is­tra­tion and noti­fi­ca­tion of changes to charges over com­pa­ny property.

Last year we report­ed to you that the result of the Queens­land Supreme Court deci­sion in Re Octaviar Ltd; Re Octaviar Admin­is­tra­tion Pty Ltd [2009] QSC 37 (Octaviar) was that except in all mon­eys charges, any increase in lia­bil­i­ties secured by a charge had to be noti­fied to ASIC.

This deci­sion result­ed in hold­ers of secu­ri­ties adopt­ing a more cau­tious approach to reg­is­ter­ing charges and noti­fi­ca­tions to ASIC. On appeal to the Queens­land Court of Appeal this deci­sion was over­turned. The Pub­lic Trustee then appealed the deci­sion to the High Court, where the appeal was unan­i­mous­ly dis­missed, thus quash­ing the first instance deci­sion in Octaviar.

The Octaviar deci­sion at first instance

The case con­cerned a fixed and float­ing charge over the com­pa­ny prop­er­ty of Octaviar Ltd held in favour of Fortress Cred­it Cor­po­ra­tion (Aus) 11 Pty Ltd. The Pub­lic Trustee argued that the charge was invalid under sec­tion 268(2) of the Cor­po­ra­tions Act. Sec­tion 268(2) requires any ​“vari­a­tion in the terms of the charge…having the effect of… increas­ing the lia­bil­i­ties” to be noti­fied to ASIC with­in 45 days of the date of the vari­a­tion. The charge secured all mon­ey owing to a lender under cer­tain defined loan trans­ac­tion doc­u­ments. After reg­is­tra­tion of the charge, the par­ties agreed in writ­ing to include a fur­ther doc­u­ment as part of the loan trans­ac­tion doc­u­ments. This fur­ther doc­u­ment effec­tive­ly increased the lia­bil­i­ties secured by the charge. At first instance the Queens­land Supreme Court held that this fur­ther doc­u­ment was a ​“vari­a­tion” of the charge which required noti­fi­ca­tion to ASIC under sec­tion 268(2) of the Cor­po­ra­tions Act and the fail­ure to noti­fy with­in 45 days meant that the charge was void to the extent of the increased liability.

The Octaviar deci­sion on appeal

The Queens­land Court of Appeal over­turned the tri­al deci­sion. The Court inter­pret­ed sec­tion 268(2) of the Cor­po­ra­tions Act to mean that the oblig­a­tion to noti­fy ASIC was only trig­gered where the terms of the charge doc­u­ment itself are var­ied or changed. The Court took the view that there must be a term of the charge, that is, a right or oblig­a­tion cre­at­ed by the charge, which has been var­ied. As the charge doc­u­ment always con­tem­plat­ed that addi­tion­al doc­u­ments could be includ­ed with­in the def­i­n­i­tion of ​“Trans­ac­tion Doc­u­ments”, the agree­ment in writ­ing to include a fur­ther doc­u­ment as a ​“Trans­ac­tion Doc­u­ment” did not con­sti­tute a ​“vari­a­tion in the terms of the charge”. There was there­fore no need to noti­fy ASIC of the new doc­u­ment which result­ed in the increase of lia­bil­i­ty secured by the charge. The charge was there­fore not void (either in whole or in part).

The High Court deci­sion on Octaviar

In dis­miss­ing the Pub­lic Trustee’s appeal of the deci­sion of the Queens­land Court of Appeal, the High Court unan­i­mous­ly held that the ref­er­ence in sec­tion 268 of the Cor­po­ra­tions Act to ​“a vari­a­tion in the terms of a charge” means, in the case of a charge cre­at­ed by a writ­ten doc­u­ment, a change to the terms con­tained in that writ­ten doc­u­ment. Lat­er occur­ring facts which change the fac­tu­al oper­a­tion of the exist­ing terms of the charge, such as the agree­ment to include cer­tain doc­u­ments as ​“Trans­ac­tion Doc­u­ments”, do not con­sti­tute ​“a vari­a­tion in the terms of a reg­is­tra­ble charge” and are there­fore not some­thing that would require a notice to be lodged at ASIC, even though as a mat­ter of fact the lia­bil­i­ties secured by a charge may have been changed.

Impli­ca­tions of the Octaviar decision 

The deci­sion of the Court at first instance in Octaviar called into ques­tion the well estab­lished prac­tices in the area of reg­is­tra­tion and noti­fi­ca­tion of changes to charges over com­pa­ny prop­er­ty. The deci­sion affect­ed a sig­nif­i­cant num­ber of secured financ­ing arrange­ments where there had been an increase in the lia­bil­i­ties secured by a charge, includ­ing increas­es in facil­i­ty lim­its. Hold­ers of secu­ri­ties can now breathe a sigh of relief that their exist­ing secu­ri­ties will not be deemed void in such cir­cum­stances. From the time of its cre­ation, a charge should be regard­ed as always encom­pass­ing a lia­bil­i­ty that might be or become owing under a doc­u­ment that was or became a ​“Trans­ac­tion Document”.

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