Federal Court Confirms Post-Restructuring Lending Rights for Secured Creditors

In a significant clarification for insolvency practitioners and secured lenders, the Full Federal Court has confirmed that a deed of company arrangement (DOCA) does not extinguish a secured creditor’s right to enforce security in respect of advances made after the DOCA’s specified date.

The decision in Blackbird First Mortgage Corporation Pty Ltd v Jacobs [2025] FCAFC 136 concerned the administration and subsequent DOCA of Specialised Welding Australia Pty Ltd (Receivers and Managers Appointed) (“the Company”). The Court dismissed an appeal by Blackbird First Mortgage Corporation (“Blackbird”), which had challenged a rival creditor’s right to enforce its security following post-DOCA advances.

Background

The Company entered administration under Part 5.3A of the Corporations Act 2001 (Cth). On 19 June 2023, the company executed a DOCA, which under s 444D(1), binds creditors only in relation to claims “arising on or before” a specified date, which in this case was 7 November 2022.

One of the company’s secured creditors, Mr Grono, had advanced funds under a loan agreement and general security agreement both dated 19 October 2022. These agreements secured the debt owed by the Company. After voting in favour of the DOCA, Mr Grono advanced further funds following its execution and later appointed receivers to the Company’s property when repayment was not made.

Blackbird, another secured creditor, also appointed its own receivers and challenged the validity of the Grono receivers’ appointment. Blackbird argued that the DOCA extinguished the security interests arising under the Loan Agreement and that the post-DOCA advances were “Claims” captured by the DOCA and therefore released.

The primary judge rejected these reasons on the basis that the DOCA did not have the effect of extinguishing security interests with respect to claims falling outside the meaning of “Claims”. The primary judge also concluded that on the proper construction of the Loan Agreement, the advances came into existence before 7 November 2022, and therefore were not released by the operation of the DOCA and the obligation to repay the additional money was not a contingent claim in existence before the specified date.

The Appeal

On appeal, Blackbird contended that the additional advances fell within the meaning of “Claims” as defined in the DOCA and s 444D(1) of the Corporations Act. It also argued that the Loan Agreement, as later varied by a Deed of Variation, operated retrospectively to characterise the later advances as liabilities existing before the DOCA date.

Mr Grono maintained that his post-DOCA advances created new obligations independent of any pre-existing liabilities and that the DOCA could not retrospectively capture debts that did not exist at the specified date.

The Court’s Findings

The Full Court upheld the primary judge’s reasoning and dismissed Blackbird’s appeal, confirming the following key points:

1. Under s 444D(1), a DOCA binds creditors only in respect of claims “arising on or before” the date specified in the deed. The Court held that this provision cannot be extended to debts or liabilities created after that date, even if they relate to an existing lending relationship.
2. A secured creditor’s right to make and enforce post-DOCA advances remains intact unless expressly limited by the deed. The Court reaffirmed that a DOCA does not prevent a secured creditor from enforcing its security for new loans advanced after the DOCA’s effective date.
3. The Court emphasised that parties cannot, by subsequent agreement, create a legal fiction that post-DOCA advances were “owing” prior to the DOCA’s date. The relevant “state of affairs” for identifying claims is fixed as at the DOCA’s specified date.
4. The Court distinguished between contingent liabilities existing as at the DOCA date and new obligations arising under future agreements. Because the Loan Agreement did not oblige Mr Grono to make further advances, no contingent liability existed before 7 November 2022 in respect of those later loans.

As the Court put it, “the seed or source of the obligation to repay the additional advances was the Deed of Variation,” not the original Loan Agreement.

Conclusion

This decision provides clarity for secured creditors engaging in post-restructuring financing. By confirming that new advances made after the DOCA date are not extinguished or bound by the deed, the Full Court has reinforced a practical approach that aligns with the purpose of the Corporations Act, to facilitate the continuation of viable businesses while balancing creditor rights.

The judgment serves as a timely reminder that, while DOCAs bind creditors for pre-existing claims, they do not erase the ability of secured lenders to continue supporting a restructured company with new funding, or to enforce security over those later advances if required.

Key Takeaways 

• Secured creditors who vote for a DOCA are not precluded from enforcing their security for post-DOCA advances, provided those advances are genuinely new and not extensions of pre-existing obligations.
• Administrators and deed proponents must carefully draft DOCAs to specify whether future or ongoing financing arrangements are captured, if that is intended.
• Post-restructuring finance remains legally viable, supporting business recovery and continued trading following execution of a DOCA.
• The decision underscores the commercial importance of clarity in loan documentation, particularly around future advances and contingent liabilities.