Octaviar Ltd, Re; Re Octaviar Administration P/L [2009] QSC 37 (6 March 2009)

CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - CONSTRUCTION AND INTERPRETATION OF CONTRACTS - OTHER MATTERS - where a document is a "Transaction Document" if certain parties "agree in writing [that it] is a Transaction Document for the purposes of this Agreement" - where the inclusion of a document as a Transaction Document could have consequences upon other parties - where parties might have different and unexpressed purposes - whether this is a limiting provision or a provision that merely reflects the effect of an agreement to specifically identify the document as a "Transaction Document"

CORPORATIONS - CORPORATE FINANCE - CHARGES - PROPERTY CHARGED AND CHAREGABLE - where property charged was "all money, obligations and liabilities that are or may in the future become due, owing or payable ... under or in relation to a Transaction Document" - where the inclusion of a document as a "Transaction Document" was subject to agreement in the future - where the parties agreed in writing that a particular document that secured an additional liability was a "Transaction Document" - whether this agreement created a new charge pursuant to s 263 Corporations Act - whether this agreement constituted a "variation in the terms of the [existing] charge" pursuant to s 268(2) Corporations Act

CORPORATIONS - VOLUNTARY ADMINISTRATION - DEEDS OF COMPANY ARRANGEMENT - GENERALLY - where charge is held to be invalid - whether the discretion not to make a declaration of invalidity should be exercised in light of the intended operation of the statutory scheme for company arrangement

Commissioner of Taxation v Comcorp Australia Ltd (1996) 70 FCR 356

Coast Securities No. 9 Pty Ltd v Bondoukou Pty Ltd (1986) 69 ALR 385

Landers v Schmidt [1983] 1 Qd R 188

Re Bank of Credit & Commerce International SA (No 8) [1998] AC 214

Re Charge Card Services Ltd [1987] Ch 150

Sibbles v Highfern Pty Ltd [1987] HCA 66; (1987) 164 CLR 214

Corporations Act 2001, s 266(1), s 266(3), s 268(2), s 269, s 272, s 273, s 282, s 445D, s 445D(1), s 445D(1)(c)

Taxation Administration Act 1953, s 260-5

W Sofronoff QC SG, with G A Thompson SC and D Pyle, for the Public Trustee of Queensland

B O'Donnell QC, with D Clothier, for the administrators of Octaviar Ltd (subject to a Deed of Company Arrangement) (Receivers and Managers appointed) ACN 107 863 436 and Octaviar Administration Pty Ltd (subject to a Deed of Company Arrangement) ACN 101 069 390

A J H Morris QC, with C Jennings for OPI Pacific Finance Pty Ltd

P O'Shea SC, with M Luchich, for Fortress Credit Corporation (Australia) II Pty Ltd and S J Parbery and A M Sims as Receivers and Managers of Octaviar Ltd (subject to a Deed of Company Arrangement) (Receivers and Managers appointed) ACN 107 863 436

P Hoser (sol) for Octaviar Investment Holdings No 3 Pty Ltd, Sunleisure Group Pty Ltd, David Anderson and Paul Manka

P P McQuade for Wellington Capital Ltd as responsible entity of the Premium Income Fund

Blake Dawson for the administrators of Octaviar Ltd (subject to a Deed of Company Arrangement) (Receivers and Managers appointed) ACN 107 863 436 and Octaviar Administration Pty Ltd (subject to a Deed of Company Arrangement) ACN 101 069 390

Russell and Company for OPI Pacific Finance Pty Ltd

Hopgood Ganim (Brisbane) acting for as Town Agent for Baker & McKenzie (Melbourne) for Fortress Credit Corporation (Australia) II Pty Ltd and S J Parbery and A M Sims as Receivers and Managers of Octaviar Ltd (subject to a Deed of Company Arrangement) (Receivers and Managers appointed) ACN 107 863 436

Freehills for Octaviar Investment Holdings No 3 Pty Ltd, Sunleisure Group Pty Ltd, David Anderson and Paul Manka

ATO Legal Services Branch for the Commissioner of Taxation

McCullough Robertson for Wellington Capital Ltd as responsible entity of the Premium Income Fund

[1] The Public Trustee of Queensland, as the trustee for certain noteholders, has brought proceedings for the termination of two Deeds of Company Arrangement under s 445D of the Corporations Act 2001 ("the Act"). The companies which are subject to those Deeds are Octaviar Ltd ("Octaviar") and Octaviar Administration Pty Ltd ("OA"). The applications are made upon several grounds which are said to engage one or more of paras (a), (b), (c) and (f) of s 445D(1).

[2] Within each proceeding, there is an issue as to the effect of a charge which is claimed to be held over the assets of Octaviar by Fortress Credit Corporation (Australia) II Pty Ltd ("Fortress"). The Public Trustee contends that each DOCA is premised upon the validity in all respects of that charge and that, broadly speaking, creditors should have been told that it was invalid before they voted in favour of these Deeds.

[3] Last Monday I ordered that the question of whether Fortress holds a valid charge be determined separately and before the trial of the proceedings. That order was sought by the Public Trustee, and whilst it was opposed by some parties including Fortress, it was not opposed by the administrators. The determination of this question does not involve any substantial issue of fact. The issues involve the construction of certain documents to which Fortress and Octaviar were parties and the interpretation of some of the provisions of the Act relating to the registration of charges.

[4] By a loan agreement dated 31 May 2007 between Fortress and a company called Young Village Estates Pty Ltd, Fortress agreed to lend it money. Octaviar guaranteed that borrower's obligations, by an instrument dated 25 May 2007 ("the YVE Guarantee"). However, no security was then provided by Octaviar in favour of Fortress.

[5] On 1 June 2007 Fortress agreed to make another loan, by the provision of a "cash advance facility", by which a company called MFS Investment Holding No. 17 Pty Ltd (which was later renamed Octaviar Castle Pty Ltd and which I will call "Castle") could borrow up to $250 million. Castle was a wholly owned subsidiary of Octaviar, which guaranteed the indebtedness under this facility. In the case of this guarantee, however, Octaviar provided a security to Fortress. It was a fixed and floating charge, granted by a Deed of Charge which was also dated 1 June 2007.

[6] On or about 29 February 2008, Castle's debt to Fortress was repaid in full. The Public Trustee argues that this had the result that the charge granted by Octaviar to Fortress was discharged.[1] That would be correct if there was no other liability which was then secured by the charge.

[7] However, Fortress and the administrators contend that at least from

22 January 2008, the charge secured also the YVE guarantee. In order to discuss how that is said to have occurred, it is necessary to go to the relevant terms of the agreement with Castle and of the Deed of Charge.

[8] By cl 2.1 of 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". By cl 1.1 of that Deed, the term "Secured Money" was defined to mean:

"... 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 including on account of principal, interest, fees, expenses, indemnity payments, losses or damages and irrespective of:

(a) the capacity of [Octaviar] or [Fortress] (whether as principal, agent, trustee, beneficiary, partner or otherwise);

(b) whether [Octaviar] is liable as principal debtor or as surety; or

(c) whether [Octaviar] is liable alone, jointly or jointly and severally with another person."

[9] Accordingly, an obligation was secured by the charge only if it was under or in relation to a "Transaction Document". That term was not specifically defined within the Deed of Charge. However, it was a term defined in the agreement for the Castle facility of the same date. That agreement was made between Fortress, Castle, Octaviar and a related company, MFS Financial Services Ltd, as another guarantor. The Deed of Charge defined the term "Facility Agreement" to mean that agreement "or any other agreement which the parties agree to be the Facility Agreement for the purposes of this Deed". By cl 1.2 of the Deed, it was provided that "terms not otherwise defined in this Deed have the meaning given in the Facility Agreement".

[10] It is common ground then that the term "Transaction Document" has a meaning according to its definition in the Facility Agreement. It was defined in cl 1.1 of the Facility Agreement as follows:

(c) each other document which the Lender and the Borrower or a Security Provider agree in writing is a Transaction Document for the purposes of this Agreement; and

(d) each document entered into or provided under any of the documents described in paragraphs (a) or (b), or for the purpose of amending or novating any of those documents,

and Transaction Document means any of them and, when used in relation to the Borrower or a Security Provider, means any of those documents to which the Borrower or that Security Provider is a party."

[11] Fortress claims that the YVE Guarantee is within para (c) of that definition. It claims that it is a document which the lender (Fortress) and a Security Provider (Octaviar) agreed in writing was a Transaction Document for the purposes of the Facility Agreement. Clearly Fortress and Octaviar agreed in those terms on 22 January 2008, by a letter of that date from Fortress which was counter-signed by Octaviar (and Castle). It recorded that those parties agreed that "the YVE Guarantee is a Transaction Document for the purposes of the Facility Agreement". On this basis, Fortress says that money owing under the YVE Guarantee is "Secured Money" under the Deed of Charge.

[12] The Public Trustee argues that upon the proper construction

of the Facility Agreement, Fortress and Octaviar were not able to agree

that the YVE Guarantee was a Transaction Document because, he says, the

YVE Guarantee had nothing to do with the Castle facility so that what was agreed on 22 January 2008 was not "for the purposes of" the Facility Agreement in the required sense. Alternatively, the Public Trustee argues that the agreement of 22 January 2008 created a new charge, being a charge to secure for the first time the YVE Guarantee, or it was an agreed variation of the terms of the existing charge, resulting in the addition of a further liability (that under the YVE Guarantee) as a secured liability.

[13] If a new charge was thereby created, that required a notice to be lodged under s 263 of the Act. As no notice was lodged, the Public Trustee argues that by s 266(1), this new charge securing the YVE Guarantee was and is void as a security as against Octaviar's and the deed's administrators. If the agreement of 22 January 2008 resulted in a variation of the terms of the charge granted in 2007, whereby the secured liabilities were increased, then s 268(2) of the Act required a notice to be lodged of that variation. As no notice was lodged, the Public Trustee contends that by s 266(3) the charge is void as a security to the extent that it would secure the YVE Guarantee.

[14] The first question then is whether Fortress and Octaviar were able to agree that this was a Transaction Document "for the purposes of the Facility Agreement". The Public Trustee's argument is that the words "for the purposes of this Agreement" placed a limitation on the ability of Fortress and Castle or Octaviar to make some document a Transaction Document. They could not do so if their purpose was not to promote the performance of the Facility Agreement, and in particular the provision of finance by Fortress to Castle or its repayment with interest to Fortress. It is argued that the loan to Young Village Estates Pty Ltd was quite distinct from the loan or loans to Castle, and that the YVE Guarantee had no possible connection with the performance of the (Castle) Facility Agreement.

[15] The Public Trustee argues that there was a good reason for the parties to agree upon this limitation on what might be made a Transaction Document. According to para (c) of the definition, a document could become a Transaction Document without the concurrence of every party to the Facility Agreement. Yet its inclusion as a Transaction Document could have consequences not only for the parties who had agreed to include it, but also for other parties to the Facility Agreement: hence the need to limit the power under para (c) to documents which had the purpose of promoting the performance of the Facility Agreement.

[16] The arguments for the administrators, Fortress and other respondents supporting them seem to accept that the inclusion of a document as a Transaction Document could have adverse consequences for a party to the Facility Agreement who had not agreed to that inclusion. For example, it was an "Event of Default" under the Facility Agreement if an "Obligor" failed to:

"pay ... interest, fees, costs, charges, expenses or other money (other than Principal Outstandings) payable under a Transaction Document" (cl 12.1(b)),

and "Obligor" was defined to mean "the Borrower and each Security Provider". And a misrepresentation made by an Obligor in or in connection with a Transaction Document was an Event of Default (by cl 12.1(d)). Upon the occurrence of an Event of Default, Fortress could demand in full the amount owing under the Facility Agreement (cls 12.2 and 12.4).

[17] The argument for all respondents (save for the Commissioner of Taxation who was represented at this hearing but who ultimately made no submissions) was that the words "for the purposes of this Agreement" were not words of limitation and that paragraph (c) of the definition of Transaction Documents should be interpreted as if it read:

"(c) each other document which the Lender and the Borrower or a Security Provider agree in writing is, for the purposes of this Agreement, a Transaction Document."

Under their argument, the words "for the purposes of this Agreement" describe the effect of an agreement within para (c), which is that in the operation of the Facility Agreement, the document would be a Transaction Document just as if it had been specifically identified as such in the definition.

[18] The respondents' construction is the better one. It is more consistent with the terms of paragraph (c), where the relevant expression appears to be part of a phrase which describes what a document, the subject of such an agreement, would become. Had the intention been according to the Public Trustee's argument, then the words "for the purposes of this Agreement" might have been expected to appear after the words "Security Provider" or the words "agree in writing". Secondly, the Public Trustee's construction would be problematical in the operation of this provision. Despite any agreement of Fortress and, say, Octaviar that the inclusion of a document as a Transaction Document was made for the purposes of the Facility Agreement, under this construction, there could be a question of fact as to whether the inclusion was for that purpose. Then there is the possibility that Fortress and Octaviar might have different purposes for agreeing to its inclusion. For example, in the circumstances of Octaviar as at 22 January 2008, it might not be unrealistic to suppose that Fortress was looking to improve its position overall against Octaviar's assets by securing the YVE Guarantee, whereas Octaviar was agreeing to the inclusion of the YVE Guarantee because that might result in Fortress allowing some further time for the performance of the Castle facility. (On the previous day, Fortress had waived its right to immediately act upon the Event of Default constituted by the sharp fall in Octaviar's share price). The Public Trustee's argument appears to assume that there would always be but one purpose of a party, and that it would be a common purpose. That cannot be accepted.

[19] It is relevant to consider the potential disadvantage to a party to the Facility Agreement by the inclusion, without its concurrence, of a document under para (c). Nevertheless that consideration does not require the Public Trustee's interpretation to be accepted. Quite apart from this context of para (c), there are many other circumstances in which one party on the borrower's side of the Castle facility might be adversely affected by what was done or not done by another party. For example, by cl 12.1(f)(ii), it was an Event of Default if "an Obligor fails to pay any Indebtedness for an amount in excess of $100,000 when due or within any applicable grace period." The YVE facility was of the order of $53,000,000, and Octaviar had other large liabilities. Accordingly, the position of Castle was already subject to the risk that there could be a default by Octaviar under the YVE Guarantee which would constitute an Event of Default under this Facility Agreement. Further, the Facility Agreement, not remarkably, provided that the obligations of the guarantors would not be affected by dealings between Fortress and Castle. And it is relevant, although not critical, to this question of construction that, as all parties must have known, the other companies on the borrowers' side of the Castle facility were subsidiaries of Octaviar.

[20] The result is that the Public Trustee's first submission must be rejected. Subject to the operation of the Act, it was open to Fortress, Octaviar and Castle to agree, as they did on 22 January 2008, to make the YVE Guarantee a Transaction Document. The Public Trustee accepts that in that case, the YVE Guarantee was thereafter a Transaction Document within the definition of Secured Money in the Deed of Charge and was secured by the charge.

[21] Section 262 required th charge, as originally granted in 2007, to be registered, so that the Act required the lodgement with ASIC of a notice in accordance with s 263. That notice had to set out particulars which included, according to s 263(1)(a):

(iv) a short description of the liability (whether present or prospective) secured by the charge;

(v) whether the charge is created or evidenced by a resolution, by an instrument or by a deposit or other conduct."

Section 263 also required the lodgement of a copy of the instrument or instruments by which the charge was created or evidenced.[2] At one stage, the Public Trustee argued that Octaviar had not complied with that last requirement when lodging its notice and other documents in 2007. The argument was that not only the Deed of Charge but also the Facility Agreement should have been lodged. But the point was later abandoned when it was conceded that this argument was precluded by a certificate issued by ASIC under s 272.

[22] The Public Trustee's case is that something should have been lodged with ASIC after the agreement of 22 January 2008. It is argued that the agreement of that date either created a fresh charge, requiring the lodgement of a notice and the relevant instrument under s 273, or amounted to a variation of the terms of the charge, requiring a notice under s 268(2) which provides as follows:

"(2) Where, after a registrable charge on property of a company has been created, there is a variation in the terms of the charge having the effect of:

(a) increasing the amount of the debt or increasing the liabilities (whether present or prospective) secured by the charge; or

(b) prohibiting or restricting the creation of subsequent charges on the property;

the company must, within 45 days after the variation occurs, ensure that there is lodged a notice setting out particulars of the variation and accompanied by the instrument (if any) effecting the variation ofra certified copy of that instrument."

[23] The consequence for the security, as against an administrator, of not lodging a notice required by s 263 is prescribed by s 266(1) which relevantly provides:

"Certain charges void against liquidator or administrator

(a) an order is made, or a resolution is passed, for the winding up of a company; or

(b) an administrator of a company is appointed under section 436A, 436B or 436C; or

(ba) a company executes a deed of company arrangement;

a registrable charge on property of the company is void as a security on that property as against the liquidator, the administrator of the company, or the deed's administrator, as the case may be, unless:

(c) a notice in respect of the charge was lodged under section 263 or 264, as the case requires:

(d) in relation to a charge other than a charge to which subsection 263(3) applies - the period within which a notice in respect of the charge (other than a notice under section 268) is required to be lodged, being the period specified in the relevant section or that period as extended by the Court under subsection (4), has not ended at the start of the critical day and the notice is lodged before the end of that period... "

[24] The consequence of a non-compliance with s 268(2) is prescribed by s 266(3) as follows:

"(3) Where, after there has been a variation in the terms of a registrable charge on property of a company having the effect of increasing the amount of the debt or increasing the liabilities (whether present or prospective) secured by the charge:

(a) an order is made, or a resolution is passed, for the winding up of the company; or

(b) an administrator of a company is appointed under section 436A, 436B or 436C; or

(ba) a company executes a deed of company arrangement;

the registrable charge is void as a security on that property to the extent that it secures the amount of the increase in that debt or liability unless:

(c) a notice in respect of the variation was lodged under section 268:

(i) within the period of 45 days specified in subsection 268(2) or that period as extended by the Court under subsection (4) of this section; or

(ii) not later than 6 months before the critical day; or

(d) the period of 45 days specified in subsection 268(2), or that period as extended by the Court under subsection (4) of this section, has not ended at the start of the critical day and the notice is lodged before the end of that period."

[25] The Public Trustee's case is that prior to 22 January 2008, this was a charge which secured Octaviar's guarantee under the Castle facility, but the effect of the agreement of that day was that the same property was charged to secure a different liability, which was that of Octaviar under the YVE Guarantee. On the authority of Landers v Schmidt[3] and Coast Securities No. 9 Pty Ltd v Bondoukou Pty Ltd[4] (a decision of the Privy Council which approved Landers), it is said this was a new charge.

[26] Each of those cases involved a question of whether a vendor under an instalment contract had mortgaged the land in contravention of s 73 of the Property Law Act 1974 (Qld). In each case the land was mortgaged by the time the instalment contract was made, but it was a subsequent dealing between the vendor and its mortgagee which was held to be a mortgage in contravention of the section. In Landers, the vendors obtained a further advance from their mortgagee which increased the mortgage debt from $6,000 to $12,000 and for which they executed a memorandum of variation of the mortgage pursuant to s 79 of the Property Law Act. They argued that this variation of the mortgage did not amount to mortgaging the land within the meaning of s 73(1) because the mortgage was:

"fully constituted when the contract of sale was entered into and that a further advance, which one might expect under an ordinary mortgage to have been provided for in the original security cannot be regarded as a fresh mortgage."[5]

Connolly J, with whom Lucas SPJ agreed, noted that s 4 of the Property Law Act defined "mortgage" to include a charge on any property for securing money or money's worth and reasoned as follows:[6]

"What the appellants did on August 26, 1976 was to make the land available for $6,000 for which theretofore it was not available. It follows in my view that whether they mortgaged it in the strict sense they certainly charged it. In Jowitt's Dictionary of English Law the following passage appears:

'Charge' as applied to property signifies that it is security for the payment of a debt or performance of an obligation. It is a general term, and therefore includes mortgages, liens, writs of execution, etc., but is also applied in a restricted sense to cases where the security for a debt or obligation by himself or another person, that personal debt. Thus, if the owner of land agrees that it shall be sucurity [sic] for a debt or obligation by himself or another person, that will charge the land; the principal effect of such a charge is to entitle the grantee "to take proceedings to obtain a sale of the property charged.'"

[27] In Coast Securities No. 9, the same argument for the vendors was rejected for the same reason. The relevant land was subject to a bill of mortgage when the instalment contract was made. Subsequently it was varied by a so-called Deed of Variation, which provided for a further advance of $18.3 million beyond the amount which had been agreed to be advanced originally on the security of the mortgage at the time it was granted. The judgment was delivered by Lord Oliver of Aylmerton, who said:[7]

"Turning then to the argument that there was no infringement of the prohibition in s 73 because the Deed of Variation did not constitute a "mortgage" occurring after the date of the contract but was merely a consensual variation of the pre-existing Bill of Mortgage, their Lordships find themselves wholly unpersuaded that this proposition is tenable quite apart from authority. It is true that the bill of mortgage secured all sums becoming due to the lender but it is, in their Lordships' view, quite unarguable that the advance, pursuant to the deed of variation, of a further $18,300,000 to cover the cost of a new building did not constitute a further charge on the land and thus a mortgage as defined in s 71(2)(c) of the Act. Prior to the deed of variation the land was not charged with this sum. Afterwards it was. This hardly requires to be supported by authority but if any is required it is to be found in the decision of the Full Court of the Supreme Court of Queensland in Landers v Schmidt which is, in all material respects, indistinguishable from the instant case."

[28] The respondents say that these cases are distinguishable because they involved a variation in the terms of the mortgage, whereas in the present case, they argue, there was no variation. If there is that distinction in the present case, then their argument should be accepted, upon the authority of what was said by Mason CJ, Dawson, Toohey and Gaudron JJ in Sibbles v Highfern Pty Ltd.[8] That case also concerned an alleged breach of s 73 of the Property Law Act. The argument was that the vendor had further mortgaged or charged the subject land on each occasion when its mortgage debt was increased by its further overdrawing its current account with the mortgagee bank. Their Honours held that:[9]

"There was not a fresh mortgage or charge on each such occasion but the application of an existing contractual arrangement by way of mortgage or charge in relation to a specific advance."

They distinguished Landers v Schmidt and Coast Securities No. 9 as follows:[10]

"In each of those cases a mortgage over land the subject of an instalment contract was in existence at the time the contract was made but was subsequently varied without the consent of the purchaser by increasing the principal sum secured. The variation was held in each case to constitute a fresh mortgage and an infringement of s 73. Those cases are clearly different from the present one because of the variation of the existing mortgages..."

[29] In this way the question of whether the agreement of 22 January 2008 created a new charge would appear to effectively involve the same question as that under the Public Trustee's argument about s 268, to which I now turn.

[30] The respondents argue that there was no variation to these terms because there was no change to the terms of the Deed of Charge or the Facility Agreement. The agreement of 22 January 2008 was a collateral agreement which resulted in no variation, and all that occurred was a "nomination" under the Facility Agreement.[11]

[31] The effect of the respondents' argument is this: where the parties to a charge agree 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 s 263 or s 268. That is unlikely to have been an intended consequence of the scheme of registration of charges prescribed by Chapter 2K.

[32] This argument equates "the terms of the charge", as that expression is used in s 266 and s 268, with the terms of the instruments which are the Deed of Charge and the Facility Agreement. That premise is open to doubt. Section 268(2) is engaged by a variation of the terms of the charge and where that variation has a certain effect. It does not refer to an amendment of the instrument or instruments by which the charge was created. Yet Chapter 2K clearly distinguishes between an instrument creating or evidencing a charge and the charge itself. For example, that distinction appears within s 268(2).

[33] A definitive element of an equitable charge is the obligation or obligations which it secures. Thus in Re Bank of Credit & Commerce International SA (No 8),[12] in describing what he said were the normal characteristics of an equitable charge, Lord Hoffman noted that:[13]

"A proprietary interest provided by way of security entitles the holder to resort to the property only for the purpose of satisfying some liability due to him (whether from the person providing the security or a third party) and, whatever the form of the transaction, the owner of the property retains an equity of redemption to have the property restored to him when the liability has been discharged."

That an essential element by which a charge is defined is the obligation or liability which it secures could not be doubted. This was the basis for the conclusions in Landers v Schmidt and Coast Securities No 9 that there was a new charge where the same property became charged to secure the performance of a new obligation. In contrast, in Sibbles v Highfern there was no new charge because at all times the secured obligation was the customer's liability for its overdrawn bank balance in whatever amount.

[34] Prior to 22 January 2008, Octaviar's property was not charged in order to satisfy the YVE Guarantee. Its liability under the YVE Guarantee was not even conditionally secured by the charge, as it would have been, for example, if the parties had agreed that upon the occurrence of a certain event or circumstance, rather than by a further agreement between them, that liability would become secured. Nor was this a case where the parties agreed at the outset that any liability of Octaviar to Fortress would also be a liability secured by this charge. The only way in which Octaviar's liability under the YVE Guarantee could have become a secured liability was by another agreement between Fortress and Octaviar. It was by that agreement, made on 22 January 2008, that the parties agreed upon this essential term of the charge for which Fortress contends, which is that Octaviar's property has been appropriated or made answerable for the discharge of Octaviar's liability under the YVE Guarantee.

[35] In my conclusion, the agreement of 22 January 2008 affected the terms of the charge. If the matter were considered outside the statutory context of Chapter 2K of the Act, the agreement would be regarded as creating a new charge, according to Landers v Schmidt and Coast Securities No 9. However, in the context of Chapter 2K, the agreement engaged s 268(2) rather than s 263(1). The agreement increased the liabilities secured by the charge in the sense of s 268(2)(a), in that it added a liability, which was that under the YVE Guarantee, which was previously unsecured. The administrators' argument appears to accept that this would represent an increase in the liabilities secured by the charge in the relevant sense, if it came from a variation in the terms of the charge.

[36] If the case is within s 268(2), no one suggests that there was also a need for the lodgement of documents according to s 263. The result would appear to be that the agreement of 22 January 2008 engaged s 268(2), requiring Octaviar within 45 days thereafter to ensure that there was lodged a notice setting out particulars of the variation, accompanied by the relevant letter of that date or a copy of it.

[37] But Fortress made a further submission as to why s 268 was not engaged. According to this submission, which is not supported by the administrators, the expression "increasing the liabilities (whether present or prospective)" secured by the charge, has quite a different meaning. It was argued that that expression refers to what counsel for Fortress described as "a statement of maximum prospective liabilities", which was said to be required by s 282. That section deals with the priorities between charges, rather than with the validity of a charge in the event of a winding up, administration or a deed of company arrangement. Section 282(3) provides as follows:

"(3) Where a registered charge on property of a company secures:

(a) a present liability and a prospective liability up to a specified maximum amount;

(b) a prospective liability up to a specified maximum amount;

and the notice lodged under section 263 or 264 in relation to the charge sets out the nature of the prospective liability and the amount so specified, then any priority accorded by this Part to the charge over another charge extends to any prospective liability secured by the first-mentioned charge to the extent of the maximum amount so specified, whether the prospective liability became a present liability before or after the registration of the first-mentioned charge and notwithstanding that the chargee in relation to the firstmentioned charge had actual knowledge of the other charge at the time when the prospective liability became a present liability."

The argument sought to relate the expression "increasing the liabilities ... secured by the charge" in s 268(2) to the words "specified maximum amount" in s 282(3). Counsel argued that a prospective liability referred to in s 282 is the same prospective liability which is referred to in s 268, and that if there is no increase in the "specified maximum amount of the prospective liability", then there is no variation in the "increasing liabilities", whether present or prospective, for the purposes of s 268.

[38] This argument cannot be accepted. First, it must be noted that s 268(2) does not use the language of s 282(3). Section 268(2) refers to an increase in the amount of the debt or an increase in the liabilities, and it does not at all appear that the second alternative means only some change to an amount, or more particularly, a "specified maximum amount" which may have been inserted in a notice under s 263 in order to enjoy the priority over another charge under s 282(3). There could well be cases where a variation in the terms of the charge both engages s 268(2) and results in a change to the specified maximum amount within s 282(3). But it is not only in such cases that s 268(2) would be engaged. Further, the acceptance of this submission would leave an important gap in this registration scheme. It would leave the public completely uninformed of a variation to a registered charge, which might have resulted in an important change to the reach of the charge by the addition of a distinct and substantial liability. The position would be that whilst s 263 would require a description of the liability secured by the charge, and a copy of the instrument or instruments creating or evidencing the charge, it would require nothing as to any further liability which later became secured by the charge.

[39] Counsel for Fortress submitted that if I reached the view that the charge was invalid I should stop short of making a declaration to that effect because that would be inconsistent with the intended operation of the statutory scheme for company administration. They cited the judgment of Carr J in Commissioner of Taxation v Comcorp Australia Ltd,[14] where his Honour described administration as "a streamlined alternative to an arrangement or reconstruction under Pt 5.1 of the Law or a winding up in insolvency under Pt 5.4" and emphasised the need for expedition and flexibility in this context.[15] Accordingly, in considering the operation of s 445D(1)(c) and whether information could "reasonably be expected to have been material to such creditors in so deciding...", Carr J said that:

"[this] emphasis on speed is part of the context. Information which is material to creditors considering a scheme of arrangement may not, given all the circumstances and the need for expedition, be reasonably expected to have been material to creditors considering a deed of company arrangement."

I would respectfully agree. But the application of this general approach to the individual case is another matter.

[40] The argument for Fortress is that creditors were told that there was this issue as to the validity of the charge, and that, by the requisite majority in each case, they agreed to go ahead with deeds of company arrangement which are consistent with the charge being valid. That argument will be relevant in several ways in the balance of the hearing of the applications to terminate the Deeds. It will go to whether a ground is made out under s 445D, and whether in that event, the court should exercise its discretion to terminate them. However, it is not inconsistent with the evident legislative purpose of promoting expeditious compromises through the regime of administration, that this charge be declared to be void in consequence of s 266(3). Indeed it is that very context of an administration, and in turn, the execution of a deed of company arrangement, in which s 266(3) is to operate. A declaration that the charge is void may or may not affect the outcome of the applications to terminate the Deeds. But I was persuaded to determine this question in advance of others because of its potential importance for the further conduct and outcome of these proceedings and where the administrators did not oppose that course.

[41] One way in which the invalidity of the charge has the potential to affect the outcome can be seen by referring to a few elements of the respective deeds of company arrangement. Octaviar is a substantial creditor of OA. Pursuant to the deed for OA, a substantial sum is to be paid to Octaviar. By the deed for Octaviar, that sum

is to be paid to the receivers appointed by Fortress, who may deduct at least

$25 million before distributing the balance between Octaviar's creditors. The administrators take the view that this would avoid the impact of a notice

given by the Deputy Commissioner of Taxation under s 260-5 of Schedule 1 of the Taxation Administration Act 1953 (Cth), which was intended to catch all debts owed by OA to Octaviar in order to secure payment of a tax debt exceeding

$58 million. One question in these proceedings ultimately could be whether the Octaviar deed should be allowed to stand upon what is, consistently with this judgment, the false premise that Fortress has a valid charge which defeats the Deputy Commissioner's notice. I emphasise that this would be a matter for argument, but it is an example of the potential impact of the resolution of the present question.

[42] The administrators and other respondents challenged the standing of the Public Trustee to apply for the termination of the deed for OA. On any view the Public Trustee is a creditor of Octaviar and has standing to apply in relation to its deed. The Public Trustee also claims to be a creditor of OA or otherwise entitled to apply in its case as another "interested person".[16] It is unnecessary that I resolve that question at this stage and I was not pressed to do so. The same question as to the charge arises in the application to set aside the Octaviar deed in which the Public Trustee is conceded to have standing.

[43] The Public Trustee has established that there was a variation in the terms of the charge which engaged s 268(2) and s 266(3), there having been no notice in respect of the variation lodged under s 268. Counsel for Fortress said that if I were of the view that the agreement of 22 January 2008 created a fresh charge, requiring notification under s 263, Fortress would apply for an extension of time in which to comply with that section. But they disavowed such an application in the event that s 268 and s 266(3) applied.

[44] It will be declared that the charge on property of Octaviar Limited (subject to a Deed of Company Arrangement) (Receivers and Managers appointed) ACN 107 863 436 in favour of Fortress Credit Corporation (Australia) II Pty Ltd is void as a security on that property to the extent that it would secure the liability of the chargor under what is described as "the YVE Guarantee" in a letter from the chargee to the chargor and others dated 22 January 2008.

[1] In consequence of both a specific provision of the charge and s 269 of the Act.

[3] [1983] 1 Qd R 188.

[4] (1986) 69 ALR 385.

[5] [1983] 1 Qd R 188, 194.

[6] [1983] 1 Qd R 188, 195-6.

[7] (1986) 69 ALR 385, 390.

[8] [1987] HCA 66; (1987) 164 CLR 214.

[9] [1987] HCA 66; (1987) 164 CLR 214, 223.

[10] [1987] HCA 66; (1987) 164 CLR 214, 224.

[11] Written submissions for the administrators, [47].

[12] [1998] AC 214.

[13] [1998] AC 214, 226.

[14] (1996) 70 FCR 356.

[15] (1996) 70 FCR 356 at 379-80.