ASICK. From my reading of the court decisions it's common practice to use the 'transaction document' structure. The court's even had a shot at this practice, calling it
I don't know anything about priorities where there is multiple secured creditors. Truth be told, I'm also unaware of any rules around the priorities amongst unsecured creditors. All I 'm going on is Jenny Hutson's presentation in mid 2008, whereby us unsecured creditors were all ranked equally (OPI, PTQ, PIF, Challenger and yes: the ATO).
OCV only had one secured creditor - Fortress. And the amount OCV owed to all those unsecured creditors was huge.
"I can't see the problem for unsecured lenders" - every lender needs to continually assess the borrower's financials to determine the riskiness of the lenders 'asset'. Right? A risk analysis would involving determining the likelihood of collapse AND determining how much would likely be recovered. Right? I.e. if there is a rush for the exits, how much would a lender expect to get back? The High Court's decision in Octaviar IMLO has changed the second part of that risk assesment. This HC decision has made it easier for an equally ranked unsecured creditor to suddenly become a secured creditor IMLO. In my lay casual observer view, the High Court changed the market's understanding of the law. And hence any legislative change needed would be for the purpose of rolling back the changes made to the practical application of the law when the High Court succumbed to Fortess' counsel's 'campaiging from chambers' and then, effectively, legislated from the bench.
While I support the theory that law should be clear and it's interpretation not twisted back and forth by mob rule, this decision went too far. It's Fortress that appears to have twisted the law's interpretation and hence made it inconsistent with the fundamental rule of 'purposive construction'. And the degree to which the law/accounting firms rallied against McMurdo's decision suggests to me that the High Court did possibly bend to the demands of the mob of practitioners. (Think about all that unbilled work the law/accounting firms would have had to do to unpick the incorrect advice they'd previously given). So who's in charge here, the legislature, the judiciary or .... the legal fraternity. The latter is sneaking their way into power without having to carry the accompanying obligations of a duty to the public. But I guess that's probably what happens when we let lawyers corporatise.
To lay me, this decision exposes failings in Australia's practical application of a Common Law system.
"but I can see the problem for lenders who thought they had priority when they otherwise might not have." This applies to secured and unsecured lenders alike. As explained above, the problem is for an unsecured creditor who may have though they had equal priority with other unsecured creditors when they otherwise might not have.
Anyway, that's just my lay casual observer view of the circumstances surrounding this case.
Thanks again Duped.
You said, "... OCV only had one secured creditor - Fortress. And the amount OCV owed to all those unsecured creditors was huge. ..." and went on to decry my comment that I didn't see a problem with unsecured lenders.
I understand the law is applied equally to secured and unsecured lenders, but to be honest, I wasn't thinking so much about 'lenders' but rather 'creditors' or those who transact on a regular basis and get caught out if an amount is owed when things go pear-shaped - I couldn't imagine where a lender would loan large amounts of money without adequate security. If we really sit down and think about it, the real problem is the jokers who run some of these managed funds.
To my mind, the PIF is where it is because of the directors of OCV, not the law
per se. How else could such an outcome be achieved, that is, a large unsecured loan in such circumstances? Ocv always had control over events and it seems that it didn't figure the PIF's money as having any value. Nothing could have been a surprise to the directors of Ocv, but there were big surprises for investors in the PIF.
Which managing entity (arms-length or otherwise) would loan a large amount of money held on behalf of investors to another entity without adequate security? I would say if there are any such lenders around, then there'd be managers included within the large number of frozen managed funds languishing in limbo.
It is the behavior of the directors and managers that really is the problem, and it's a problem with comes about because of the incestuous corporate relations which allows directors/managers to move money about as if it was their own.
"... This HC decision has made it easier for an equally ranked unsecured creditor to suddenly become a secured creditor. ..." - The decision does not make an unsecured lender a secure lender with priority - the priority is either there or it is not.
Whether or not the term 'transaction document' has been kicking around for some time, the case turned on the fact that the loan in question was a 'tranactional document' relative to a registered charge.
Whether the loan was termed or publicized as 'unsecured' does not change the loan's legal nature as a secured loan. So, the loan didn't change from unsecured to secured, it was secured all the time.
Judge-made law is a fact of life - it comes about through judicial interpretion of legislation. If the legislators don't like the judicial interpretation, then its up to them to make legislative changes. Laws are enacted - judges interpret the laws - refinements may be made to the law: a cycle which might take some years.
"... As explained above, the problem is for an unsecured creditor who may have thought they had equal priority with other unsecured creditors when they otherwise might not have. ..." - yes, I agree, it is the upshot - but I'll bet such unsecured loans aren't in the portfolio of well-managed companies/managed funds/trusts (or even reasonably-well managed ones).