In Saraceni v Mentha [No.2]  WASC 336 a director
sought to challenge the appointment of receivers to Westgem
Investments Pty Ltd ("Westgem") under a fixed and
floating charge ("the Charge"). In 2008 Westgem entered
into a Facility Agreement with financiers and executed the Charge,
which charged the "secured property".
The plaintiff contended that:
because there was no definition of "the secured
property" in the Charge, the definition given to that term in
the Facility Agreement ought to be imported into the Charge,
therefore the Charge did not secure anything, because the
definition in the Facility Agreement referred to assets mortgaged,
charged, or otherwise secured at the time the arrangements were
entered into and at that time none of Westgem's assets had been
On this basis it was said that the receiver's appointment
was invalid and ineffective as the Charge did not operate as
security over any of Westgem's assets or undertakings.
The financiers argued against this and:
contended that on its proper construction the Charge secured
all of the assets and undertaking of Westgem;
in the alternative, sought rectification of the charge to
reflect that interpretation.
In reliance upon JJ Leonard Properties Pty Ltd v Leonard
(WA) Pty Ltd (In Liquidation) the director argued, among other
things, that because Westgem was in administration, rectification
would advance the position of the financiers at the expense of the
other creditors and should not therefore be allowed.
Corby J found that on a proper construction the Charge operated
over all of Westgem's assets and undertaking but proceeded to
consider whether, if the court was wrong in that respect, the
Charge could be rectified.
Corby J summarised the JJ Leonard decision as follows:
"In JJ Leonard Properties a deed purported to create a
fixed charge but failed to include a charging clause or a
definition of the expression 'property hereby charged' that
was used throughout the document. Kennedy J had no doubt that the
deed did not reflect the common intention of the parties to charge
certain items of property as security for a loan. However, he noted
that, 'the accepted rule is that rectification will not be
decreed if to do so would prejudice any bona fide purchaser for
value who has acquired an interest in the property dealt with in
the instrument sought to be rectified'. He thought that an
analogous situation arose where the party seeking rectification had
been placed in liquidation as he considered that the unsecured
creditors of the company acquired an interest in the property of
the company at the commencement of a winding up.
"In the present case, the unsecured creditors acquired
an interest in the assets of the company, upon which it now sought
to impose a charge by means of rectification of the deed. If
rectification were granted on the evidence before me, the probable
entitlement in distribution would reduce from just in excess of 40
cents in the dollar to zero. I am not persuaded that it would be
right to assist the plaintiff to improve its position as against
those creditors by granting the relief claimed"
The judgment was affirmed on appeal. Burt CJ noted that
rectifying the deed would have the effect of defeating such rights
as the unsecured creditors had obtained in the property of the
company upon it going into liquidation and so would offend against
the clearly rooted principle of company law that "when
liquidation is commenced, one creditor should not be assisted by
the court to improve its position vis a vis other
In Saraceni Corby J concluded, having considered an array of
issues and authorities, that rectification should be allowed and in
doing so observed that:
liquidation or administration did not of itself represent a
barrier to rectification but the impact upon creditors was one of
the considerations to be taken into account in the court's
exercise of its discretion;
the position of creditors in an administration, and the weight
to be given to their interests, is somewhat different to creditors
in a liquidation because it is relevant to consider 'whether
reconstruction of the company was capable of being achieved or
whether reconstruction was unlikely and insolvency
although rectification would have an effect on the
administration it was also relevant that any creditors who
inspected the register were likely to have concluded that all of
Westgem's assets had been secured in favour of the
The Court also rejected the administrator's argument that
upon his appointment the creditors 'acquired legal or equitable
rights that had priority over any right of' the financiers and
said that this overstated the interest acquired by unsecured
creditors upon the appointment of a liquidator or
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