Australia: Are Promissory Notes "Debentures" Under the Corporations Act?

Key Point

  • There is now a definitive answer to the conceptual debate about whether a pre-payment option takes a note out of the exclusion in section 9(d) of the Corporations Act.

On 15 June 2006, the Supreme Court of Western Australia, Court of Appeal held by majority that notes issued by Westpoint Group SPV were not securities for the purposes of Chapter 6D of the Corporations Act 2001 (Cth).

The decision sheds light on the approach of the Australian courts to interpreting the definitions of "promissory note" and "debenture" for the purposes of the Act. The findings of Justice Simmonds at first instance on this aspect of the decision are discussed in more detail below.


The case discussed in this paper is Australian Securities & Investments Commission v Emu Brewery Mezzanine Ltd [2004] WASC 241 and the facts are set out below. To part-finance a property development, the Westpoint Group set up an SPV. The SPV was to raise money from the public and on-lend it to the development's corporate trustee. In return, the SPV would receive second-ranking security and a guarantee from a company in the Westpoint Group.

The SPV released offering documents relating to the issue of "promissory notes" with a minimum face value of $50,000. ASIC initiated proceedings against the SPV, seeking various declarations including that the notes were debentures and as such constituted "securities" within the meaning of section 761A of the Act or alternatively that the notes constituted interests in a "managed investment scheme" ("MIS") within the meaning of the Act. ASIC then sought to establish that the provisions of the Act relating to the issue of debentures, including the requirement for investors to receive a complying disclosure document, applied to the issue of the notes.

At first instance, Justice Simmonds in the WA Supreme Court held that the borrowing and the issuing of the notes did constitute an interest in an MIS. As with any MIS question, this matter turned on the specific facts. One particularly interesting point is that the interpolation of the SPV apparently helped the court to its conclusion that this was an MIS.

For the reasons outlined below, Justice Simmonds also held that the promissory notes were not debentures.


This matter was not as simple as merely determining whether the notes fell within the basic definition of "debenture"; section 9(d) of the Act excludes, from the statutory definition of "debenture", promissory notes with a minimum face value of $50,000. The notes issued by Emu were prima facie excluded by this section as they each had a face value of $50,000.

ASIC approached this problem with two alternative arguments:

  • the SPV borrowings fell within the definition of debenture in two different ways - as a promissory note and as a separate undertaking to repay the moneys lent; and
  • the SPV's borrowings were not promissory notes within the meaning of the exception in section 9(d) of the Act.

Undertaking to repay

ASIC submitted that, in addition to the undertaking to repay in the notes, there existed, outside the notes, a separate implied undertaking to repay. This separate undertaking was alleged to have arisen through a combination of the "language" and the "promissory features" contained within the offering documents

Justice Simmonds dismissed this argument, holding that if it were correct, the notes would merely be an additional security to that implied repayment obligation. He held that when the offer documents were examined, it could be seen that the notes were the focus of the borrowing.

Value of the notes

The notes each had a face value of $50,000. ASIC nevertheless contended that the notes did not fall within the section 9(d) exception on the grounds that they were not "promissory notes" within the meaning of the Act. Both parties agreed that the relevant definition of promissory note was that contained in section 89(1) of the Bills of Exchange Act 1909:

"A promissory note is an unconditional promise in writing made by one person to another, signed by the maker, engaging to pay, on demand or at a fixed or determinable future time, a sum certain in money, to or to the order of a specified person, or to bearer." [emphasis added]

ASIC argued that as the notes had a partial prepayment option, they were outside the Bill of Exchange Act definition:

"prepayment of part of the face value of a note would mean that … at the time of the issue of the Notes there was a contingency preventing there being "a sum certain" within the Act."

After noting that there is judicial disagreement on this issue, Justice Simmonds engaged in a lengthy analysis of the relevant authorities and concluded that a pre-payment option (partial or otherwise) does not exclude a note from the definition of promissory note. The Full Court agreed with this conclusion.


ASIC appealed the finding that the notes were not debentures. A majority of the Western Australian Court of Appeal upheld the finding of Justice Simmonds and ruled that the notes were not debentures.

This decision is important both for reasons of practice and principle. It provides the Australian financial industry with a definitive answer to the conceptual debate about whether a pre-payment option takes a note out of the section 9(d) exclusion. At the same time, the Court of Appeal's extensive survey of the case law (with extensive reference to English, Canadian and US law) is an extremely useful summation of the state of the judicial and academic debate on this question.

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

Click to Login as an existing user or Register so you can print this article.

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”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
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).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.