Trustees encouraged to utilise court powers

By Leah Chick and Olga Abwi.

Key Points:
Trustees for debenture holders are encouraged to seek court assistance.

The recent case of ASIC v Bridgecorp Finance Limited [2006] NSWSC 836 was the first time that an application has been made to the Court under section 283HB of the Corporations Act. Section 283HB is located in Chapter 2L of the Corporations Act which governs an offer of debentures to investors that require disclosure under Chapter 6D of the Corporations Act ("Debenture Holders").

Under Chapter 2L, a debenture issuing entity ("Borrower") must enter into a trust deed and appoint a trustee that complies with section 283AC of the Corporations Act. Chapter 2L, together with the trust deed, imposes certain duties and obligations on a trustee to act for the benefit of the Debenture Holders. A trustee has the assistance of section 283HB available to it in performing its fiduciary role. Section 283HB(1) provides that the trustee (or ASIC) may bring an application to the Court to make various orders, including:

• an order that any security for the debentures be immediately enforceable (section 283HB(1)(c));
• an order to appoint a receiver of any property constituting security for the debentures (section 283HB(1)(d)); and
• relevantly, any other order that the Court considers appropriate to protect the interests of existing or prospective Debenture Holders (section 283HB(1)(g)).

Justice Barrett in the Bridgecorp case stated that section 283HB(1)(g) empowers the Court "to make any order that appears to it to be calculated to safeguard" the interests of Debenture Holders. Justice Barrett went on to say that the relevant interest of Debenture Holders is in "receiving the payments due to them under their debentures as and when those payments become due". He also expressed the view that section 283HB(1)(g) is intended to "confer a broad remedial and protective jurisdiction" on the courts.

Justice Barrett suggested in the Bridgecorp case that trustees should consider making use of section 283HB. In the Bridgecorp case, the trustee for the Debenture Holders was not a party to the application under section 283HB but Justice Barrett did not view this absence as a significant matter as the debenture trustee was closely involved in formulating the proposals which were presented to the Court by ASIC and the Borrower. However, absent of any ASIC interest or involvement, Justice Barrett would expect that trustees may bring a matter to the Court such as that raised in the Bridgecorp case so that trustees "may be more active in the protection of debenture holders".

For further information, please contact Leah Chick and Olga Abwi.