TGIF 17 October 2025 - Blackbird swoops in effort to extinguish secured creditor’s rights under DOCA

This week’s TGIF considers the recent Full Federal Court decision of Blackbird First Mortgage Corporation v Jacobs [2025] FCAFC 136. The Full Federal Court considered whether a DOCA prevented a secured creditor from exercising enforcement rights in relation to new advances. 

Key takeaways

• Secured creditors should prudently review the terms of a deed of company arrangement (DOCA) to identify any restrictions on enforcement rights with respect to pre-existing debts and new advances.
   
• Subject to the terms of the DOCA, carefully constructed loan agreements and security documents can preserve a secured creditor’s enforcement rights for new advances made post entry into the DOCA.
   
• Future obligations created after the administration date are not automatically contingent liabilities released under a DOCA.

Background

Mr Grono advanced monies to Specialised Welding Australia Pty Ltd (Specialised) under a loan agreement dated 19 October 2022 (Loan Agreement). The Loan Agreement was secured by a General Security Agreement (GSA). 

On 7 November 2022, Specialised was placed into administration. It was resolved by the creditors that Specialised enter into a DOCA. As a secured creditor, Mr Grono voted in favour of Specialised entering into the DOCA. The DOCA was executed on 19 June 2023.  

After the DOCA was entered into, Mr Grono made further advances to Specialised pursuant to a Deed of Variation dated 23 September 2023. Specialised failed to repay the outstanding balance of the loan (as varied) and Mr Grono appointed receivers and managers to the property of Specialised under the GSA on 18 July 2024. 

Blackbird First Mortgage Corporation Pty Ltd (Blackbird) was also a secured creditor of Specialised. Blackbird challenged the appointment of receivers and managers by Mr Grono, on the basis that the DOCA prevented Mr Grono from taking enforcement action. Blackbird claimed that:

• Mr Grono’s claims for repayment of the new advances could not be pursued under the terms of the DOCA;
   
• the repayment of the new advances was a 'contingent liability'  under the DOCA, which also could not be pursued; and
   
• all of Mr Grono’s enforcement rights under the GSA were extinguished upon execution of the DOCA.

Blackbird failed at first instance and appealed the primary judge’s decision. Blackbird’s appeal was dismissed by Feutrill, Vandongen and Longbottom JJ. 

Decision

The Full Federal Court determined that: 

• new advances made by Mr Grono after entry into the Deed of Variation fell outside the scope of the DOCA; and
   
• the DOCA did not prohibit Mr Grono from taking enforcement action under the GSA.

In arriving at their decision, the Full Federal Court determined that:

• The DOCA released creditors’ claims against Specialised that would have been provable in a winding up and which arose before the administration date of 7 November 2022.
   
• The advances made by Mr Grono under the Deed of Variation were not debts that existed at the administration date as the variation did not purport to have retrospective effect.
   
• The Deed of Variation changed the contractual position of Mr Grono and Specialised from the date of the variation (23 September 2023).
   
• The obligation for Specialised to repay the monies advanced under the Deed of Variation was not a contingent liability on or before 7 November 2022. This is because Mr Grono was not obligated to advance any further monies to Specialised as of 7 November 2022. The obligation on Mr Grono to advance further monies only arose under the terms of the Deed of Variation made on 23 September 2023.
   
• It would be inconsistent with the overarching purpose of Part 5.3A of the Corporations Act 2001 (Cth) to treat hypothetical variations to a Loan Agreement as claims released by the DOCA.
   
• The debt owed to Mr Grono under the Deed of Variation was secured by the GSA. The DOCA did not prevent Mr Grono from dealing with his security interest in relation to the funds advanced pursuant to the Deed of Variation.

Conclusion

Many companies under a DOCA require additional funding to continue to trade. Whether new lending or further advances after entry into a DOCA are released or security interests are extinguished, will be governed by the terms of the DOCA and the lender’s transaction documents. 

This case is a reminder that creditors should carefully identify and assess any restrictions imposed on enforcement of security interests under a DOCA. Creditors should vigilantly prepare facility documents to ensure, where possible, that advances made post administration fall outside the scope of a DOCA and security rights are retained. Creditors should also consider whether clearly and separately documenting new advances and security obligations post administration will increase protection and reduce risk.