Octaviar decision overturned

Further to our article Secured Lender beware: Octaviar the Court of Appeal of the Supreme Court of Queensland has heard, and unanimously allowed an appeal against the first instance decision in Re Octaviar Ltd; Re Octaviar Administration Pty Ltd [2009] QSC 37 (6 March 2009) (Octaviar).

First Instance decision

In Octaviar the court had found that where a charge was drafted to secure all money owing by a chargor in respect of a ‘Transaction Document’ and an additional document was subsequently designated as a ‘Transaction Document’, that designation constituted a variation of a charge that required a notice of variation be lodged with the Australian Securities and Investment Commission (ASIC) pursuant to section 268(2) of the Corporations Act. This decision was of considerable concern to lenders as it did not reflect market practice.

The Court of Appeal has decided that where a charge secures liabilities in respect of Transaction Documents, that may be designated as such in the future, that it is not necessary to lodge a notice of variation with ASIC pursuant to section 268(2) of the Corporations Act, unless there is an amendment to the terms of the charge itself. This decision is in line with the previous market practice.

It is not yet known if the Court of Appeal decision will be appealed to the High Court.

Accordingly, it may be preferable that:

• if the charge secures obligations under a specific document, and the liability under the charge has been increased (via the designation of additional documents), ASIC should be notified as soon as possible and
• lenders consider using an “all moneys” charge for future transactions, until it is known whether an appeal to the High Court will be made.

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