In April 2009, Channel Nine's A Current Affair
program aired two damaging exposes which were highly critical of
the management of the Fairmont Resort at Leura and the standard of
its accommodation and facilities.
Material adverse change
As a result of the programs, the secured creditor became
concerned about the operation and maintenance of the resort, and
formed the view that a material adverse change had occurred. The
secured creditor issued a notice of event of default based on a
material adverse change provision in its security.
The customer and the guarantors, concerned that the secured
creditor would seek to appoint a receiver to the resort, applied to
the court for an injunction restraining the secured creditor from
enforcing its security.
The customer and the guarantors maintained that it would be
unconscionable for the secured creditor to seek to enforce its
security in circumstances where:
the customer disputed the accuracy of the A Current
Affair reports; and
the required repayments were being made on the facility as and
when they fell due.
The secured creditor opposed the injunction and sought to
enforce its security on the basis of the material adverse change,
contending that it was irrelevant whether the material contained in
the A Current Affair programs was true.
Court appointed receiver
At the suggestion of the court, and with the agreement of the
parties, a court appointed receiver was appointed to the resort on
11 December 2009.
Having investigated the affairs of the resort, on 22 February
2010, the court appointed receiver reported to the court that he
had serious concerns about the operation of the resort, and the
existence of risks to public health and safety due to poor
maintenance of the fire safety and air-conditioning systems.
The court determined that the secured creditor was entitled, at
its absolute discretion, to conclude that events had occurred which
had resulted in an adverse material change in the business, assets
and financial position of the resort.
Having reached that conclusion, the secured creditor was
entitled to exercise its rights on default, including by appointing
a receiver to the resort. The position of the secured creditor was
assisted by the court appointed receiver's report, which
confirmed concerns the creditor had about fire safety and the
overall condition of the resort.
The danger of adverse publicity
The case is unusual as it is the first time that the court has
upheld material adverse change on the basis of a broadcast
It highlights that the publication of adverse reports in the
media as to a customer's affairs may be used by a lender as a
basis for calling default and appointing a receiver.
The issue of recording telephone calls was recently considered in the Federal Court in Furnari v Ziegert  FCA 1080.
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