Re Octaviar Ltd (No 7)  QCA 282 (18 September
In March we advised you about the Queensland Supreme Court
decision of Octaviar. The result of that case required a
significant change to practice where a financier held a charge
securing debt under specified "Transaction Documents".
This effectively means that variations of or newly designated
"Transaction Documents" had to be registered under the
Corporations Act within 45 days of their creation. Failure
to do this would result in the charge being void (to the extent of
the increase in liabilities) in the event of a winding up,
administration or deed of company arrangement.
The decision has been overturned by the Queensland Court of
One of the peculiarities of the original decision was that even
though the original charge might have specifically secured
'further liabilities' it was only the introduction of a
liability through a new "Transaction Document" to the
facility agreement that caused the need to register a variation of
charge. The case also raised interesting questions as to what the
affect upon the world of registering a charge was - and what
registration achieved (or should achieve).
Must a newly introduced "Transaction Document' be read
as strictly limited to one that 'advances the purposes of the
relevant facility agreement'
On the facts the parties had agreed that Octaviar's
liability under a further guarantee (which was not otherwise
related to the original facility agreement) would be a
"Transaction Document". The definition of Transaction
Document included (in part):
"Each other document which the lender and the Borrower
or a Security provider agree in writing is a Transaction
The respondent (Public Trustee) argued that this should be read
so that any new 'Transaction Document' must in effect be
for or related to the purposes of the existing facility agreement
and could not introduce any additional extraneous liability.
The Court of Appeal did not accept this argument and supported
the ordinary meaning of the words. Holmes JA stated:
"The fact that it was contemplated that Octaviar
Limited and Octaviar Castle might enter transactions with Fortress
in entirely different capacities from those in which they
contracted under the facility agreement suggests that the
definition of "Transaction Documents" contemplated
transactions quite unrelated to the facility
Had there been a variation of the charge that would require
registration pursuant to the Corporations Act.
Holmes JA essentially confirmed that the purpose of registration
is to alert the world that the assets of a company are charged and
does not extend to an obligation to ensure that a registered
variation is needed so that the amount of those liabilities is also
able to be determined.
He stated that before registration of a variation of charge was
"There must first be a term of the charge, that is,
some right or obligation created by the charge, which can be shown
to have been varied, before the effect of the variation becomes
Unless Octaviar is further appealed (which would seem unlikely),
registration of variations of charges are no longer needed where
new liabilities under a charge are created by the introduction of a
new "Transaction Document".
The need to consider the position of existing documents settled
before Octaviar has also been removed.
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