Recently, in the Supreme Court of Queensland in Re Octaviar Ltd; Re Octaviar Administration P/L (1), McMurdo J held that increases in liability under a charge constitute a variation to a charge, pursuant to s 268 Corporations Act 2001 (Cth) (CA), even where the original charge document contains express provisions permitting such an increase. The Court determined that failure to notify ASIC of the increased liability, with such increase having occurred within six months of the appointment of voluntary administrators to both companies was void against the companies' then deed administrators.
Facts
By loan agreement, Fortress lent money to Young Village Estates Pty Ltd (YVE). Octaviar guaranteed YVE's (YVE Guarantee) but provided no security in favour of Fortress.
Fortress made a further loan to Octaviar Castle PL (Castle). Octaviar guaranteed this indebtedness and provided a security to Fortress by a fixed and floating charge, granted by a Deed of Charge dated 1 June 2007. This debt was repaid in full on 29 February 2008.
By the Deed of Charge, Octaviar charged to Fortress all of its present and future property 'as security for the due and punctual payment and satisfaction of the Secured Money'.
'Secured Money' was defined as 'all money, obligations and liabilities of any kind that are or may in the future become due, owing or payable, whether actually, contingently or prospectively, by [Octaviar] to or for the account of [Fortress] under or in relation to a Transaction Document'.
A 'Transaction Document' was defined as a document which the Lender and the Borrower or a Security Provider agreed in writing was a Transaction Document for the purposes of the Deed of Charge.
On 22 January 2008, Fortress and Octaviar signed a document (Letter Agreement) which recorded their agreement that 'the YVE Guarantee is a Transaction Document for the purposes of the Facility Agreement'. On this basis, Fortress claimed that money owing under the YVE Guarantee was 'Secured Money' under the Deed of Charge.
Issues and judgement
It was submitted by Fortress that where the parties to a charge agree that it will secure a certain liability, together with any other liability as they might later agree will be secured by it, then any such later agreement would neither create a charge nor vary the existing charge so as to engage ss 263 or 268 CA.
The submission was not accepted. Instead the court decided that as an essential element by which a charge is defined is the obligation or liability which it secures, the Letter Agreement by increasing the liability of the charge affected the terms of the charge, even though it didn't change the terms of the Deed. This in turn, created a variation that evoked the ASIC notification provision pursuant to s 268 CA.
Recommendations
If you have any queries in relation to this matter or any other insolvency matters, please do not hesitate to contact Alison Robertson on 9288 6872 or Wayne Zappia on 9288 6931 respectively.
(1) Octaviar Ltd; Re Octaviar Administration P/L [2009] QSC 37.
