Variation of a secured liability can require registration if contemplated by the original instrument
In Re Octaviar Ltd; Re Octaviar Administration Pty Ltd [2009] QSC 37, the Queensland Supreme Court considered the circumstances in which a variation to a registered charge must be notified to ASIC.
The facts
Fortress Credit Corporation (Australia) II Pty Limited (Fortress) entered into a loan agreement with Octaviar Castle Pty Limited (Castle) (as borrower) and Octaviar Limited (OCV) (as guarantor). The loan was secured by a fixed and floating charge granted by OCV (the OCV charge). The charge was duly registered.
At or about the same time, Fortress also entered into a loan agreement with Young Village Estates Pty Limited (YVE). OCV guaranteed YVE's liabilities under the loan agreement (the YVE Guarantee) but provided no charge to Fortress to secure the YVE Guarantee.
The OCV charge was expressed to secure moneys owing under certain "Transaction Documents" as defined in the loan agreement. The loan agreement allowed the parties to designate certain documents as "Transaction Documents" from time to time.
After entry into the loan and registration of the OCV charge, each of Castle, OCV and Fortress designated the YVE Guarantee as a Transaction Document. The intention of all of the parties in doing so was to provide Fortress with security in relation to the YVE Guarantee.
Within 6 months after designating the YVE Guarantee as a Transaction Document, administrators were appointed to OCV.
The question
The Public Trustee of Queensland (Trustee), who was the trustee for certain noteholders, argued that, as a result of the designation of an additional Transaction Document, either a new charge had been created or there had been a variation of the existing charge. The Trustee argued that, in either case, Fortress’ failure to lodge appropriate notice with ASIC rendered the charge void in the hands of the administrator insofar as it purported to secure the YVE Guarantee.
Under section 266(1) of the Corporations Act, a registrable charge that has not been registered is void against (relevantly) an administrator. Further, under section 266(3), where there has been a variation in the terms of a registrable charge which increases the amount of the debt or increases the liabilities secured then, if the variation was not itself registered under section 268, the charge is void to the extent that it secures the increase.
Fortress argued, essentially, that there had been no new charge created nor any variation made to an existing charge because the OCV charge expressly contemplated that it would secure any liability that the parties might later agree to be secured by it.
The decision
The court found that the addition of a liability which was previously unsecured, namely the liability under the YVE Guarantee, was a variation which had the effect of increasing the liabilities secured by the charge within the meaning of s 268(2)(a) of the Corporations Act.
As a result, a notice setting out the particulars of the variation as well as the relevant instrument (if any) should have been lodged with ASIC within 45 days.
The fact that there was no amendment to either the terms of the charge itself or to the loan agreement between Castle, OCV and Fortress was immaterial. The court noted that s 268(2) can be engaged both upon a variation to the terms of the relevant instruments by which a charge is created and a variation to the liability or obligation which the charge secures.
On the basis of the above, the court declared that, insofar as the OCV charge purported to secure amounts owing to Fortress in relation to the YVE Guarantee, it was void against the administrators of OCV.
The lesson
Provisions in security documents which allow the parties to agree to extend the security to liabilities arising under other documents are relatively common.
However, in circumstances where the use of such a provision has the result of varying the liability or obligation secured by a registered charge, the requirements of s 268(2) may be triggered even though there is no change in the amount secured by the charge or no change to the terms of the relevant security instrument itself.
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