The recent NSW Supreme Court decision in Bondi Beachside Pty
Ltd v Chief Commissioner of State Revenue  NSWSC 21,
highlights the potential difficulties in amending provisions in
respect of 'no-advance' structures.
Back in the days when state governments inflicted mortgage duty
on borrowers who obtained secured debt (and notably, NSW remains
the sole state levying such duty), 'no-advance' structures
developed to facilitate revenue neutrality in respect of such
One particular structure involved financiers subscribing for
loan notes issued by a Special Purpose Vehicle
(SPV). The SPV would loan the money raised via the
notes to the borrower on an unsecured basis. The financier would
sell the notes to the borrower and agree to defer payment of the
purchase price for the notes. The financier would also take
security from the borrower securing the deferred purchase
As the security did not secure an "advance" (for the
purposes of duties legislation), nominal mortgage duty was payable
(i.e. $5 mortgage duty as opposed to potentially hundreds of
thousands of dollars if the security secured an "advance"
for the purposes of the duties legislation).
The NSW Government responded to the above structures by amending
the Duties Act 1997 (NSW) and issuing pronouncements of
the Chief Commissioner regarding the intended approach to
'no-advance' structures, particularly where limits were
increased or payment dates were pushed back. The recent NSW Supreme
Court decision in Bondi Beachside Pty Ltd v Chief Commissioner
of State Revenue  NSWSC 21 illustrates how an extension
of a repayment date can unravel a 'no-advance'
In late 2007, the borrower and lender established a typical loan
note sale 'no-advance' structure and the borrower paid $5
nominal duty on the securities. In mid-2009 the Duties Act
was amended such that additional duty would be payable if
securities secured 'further advances' – calculated by
comparing the amount secured by the securities following the
'further advance' against the amount secured when the most
recent duty liability arose.
In late 2009 the parties entered into variation deeds in respect
of the 'no-advance' structure which, relevantly, extended
the date for payment by the borrower to the lender of the deferred
purchase price under the loan notes.
For various detailed reasons, Justice Gzell considered entry
into the variation deeds constituted a "forbearance",
which (conveniently) is an "Advance" for the purposes of
the Duties Act. Whilst Justice Gzell indirectly suggested
that pre-2009 the structure was effective and the securities were
correctly stamped with nominal duty, the "forbearance"
increased the advances secured from nil in late 2007 to the face
value of the loan notes (approximately $92M).
The result and things to consider
As a result of the above, the borrower will be liable for
mortgage duty on the securities in the vicinity of $370,000
(excluding any interest and penalties) once the Chief Commissioner
issues its amended assessment. Fortunately for the borrower, the
Court held that capitalised interest on the deferred purchase price
(approximately $10M) did not form part of the Advance and duty was
not payable on this amount.
In light of the above, parties should tread lightly when
considering extending or varying any 'no-advance' funding
structure. To ensure securities for existing structures are
enforceable, lenders must consider reviewing 'no-advance'
structures with which they have been involved to ascertain whether
up-stamping is required.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
In the years following the global financial crisis of 2008 many Australian investors lost their life savings as financial products failed and the Australian Stock Exchange shed over 3,000 points.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).