In the decision in Woodhouse, in the matter of Panoramic Resources Limited [2024] FCA 449, handed down this week (1 May 2024) by Feutrill J, the Federal Court of Australia considered the meaning of  ‘Secured Property ‘as defined in a specific security deed and the extent to which phrases such as ‘…in respect of’ could expand the types of collateral the subject of that defined term (and hence the collateral the subject of the specific security deed).

The Court found in favour of the plaintiffs (Panoramic’s administrators –  FTI Consulting), and in doing so emphatically rejected an argument made by the defendants (Receivers and Secured Party) that expressions such as ‘… in respect of’ the secured property gave the definition a very broad meaning. Instead, the Court found that such expressions were simply descriptive and related to the collateral expressly described, and did not expand the scope of the secured property beyond that limited description.

Gilbert + Tobin’s Restructuring & Insolvency, Banking & Projects and Corporate teams acted for the successful plaintiffs in this matter.

Why was Panoramic’s security deed under scrutiny?

Panoramic Resources Ltd (an ASX-listed company) is the parent company of Savannah Nickel Mines Pty Ltd. Savannah is the owner and operator of nickel mines in the East Kimberley region of Western Australia. In early April 2023, Savannah entered into a prepayment (and offtake) agreement with the Secured Party, the terms of which (to grossly over-simplify them) involved the Secured Party making advances to Savannah. These advances were, in practical terms, prepayments for the purchase of nickel concentrate produced from Savannah’s mining operations.

Savannah’s obligations under that contract were secured by, amongst other forms of security, a specific security deed granted by Panoramic in favour of the Secured Party. Panoramic agreed to provide security over all of its present and future interest in an agreed set of assets, including:

• its shares in Savannah
• rights in respect of those shares
• contracts relating to those shares
• intercompany loans provided by Panoramic to Savannah; and
• (critically) “…any proceeds, money, dividends, distributions, return of capital, marketable securities or other property whatsoever now or in the future payable or otherwise distributable in respect of…” the above collateral.

After Savannah found itself in financial difficulties, Panoramic undertook an equity raising, the main purpose of which was to fund the mining operations of Savannah. Those funds were intended to be provided to Savannah by way of intercompany loans, and much of those funds (approximately $19m) were so applied.

Approximately 3 months later, administrators were appointed to Panoramic, and 3 months after that, receivers and managers were appointed by the Secured Party to the assets of Panoramic that were subject to the specific security deed. At the time of the administrators’ appointment, Panoramic held the very precise amount of $21,449,247.12 in one of its bank accounts, with the vast majority of this amount being the remaining proceeds of the equity raise that had not yet been advanced to Savannah.

In addition to claiming the secured property described above (which, in the context of a company in administration had its limitations), the Secured Party claimed that the money held in Panoramic’s bank account – principally the remainder of the equity raise – formed part of the ‘Secured Property’ under the specific security deed, despite the definition of ‘Secured Property’ making no reference to that bank account or amounts in that account (or, indeed, any bank account of Panoramic). Undaunted by this lack of express wording, the Secured Party and receivers of Panoramic claimed that the proceeds in the bank account were “money… payable or otherwise distributable now or in the future in respect of” the secured shares, the rights in those shares, the contracts relating to those shares, or the intercompany loans. That is, they relied on the last limb of the definition of ‘Secured Property’ in the specific security deed, arguing that the equity raising proceeds were ‘in respect of’ the shares held by Panoramic in Savannah or the intercompany loans used by Panoramic to advance the equity raising proceeds to Savannah, including because, in conducting the equity raise the board of Panoramic had formed an ‘intention’ to advance the funds to Savannah (amongst other arguments along these lines).

What did the Federal Court think of this argument?

Not much. The Court did not accept the defendants’ argument and their reading of ‘Secured Property’. The Court did not give the expression ‘… in respect of’ anywhere near the expansive meaning argued by the defendants, having regard to the "… purpose, object and context of the security agreement and the text of the applicable provisions’. The Court also held that money “payable or otherwise distributable” in respect of the encumbered property meant money that was payable or distributable to Panoramic. It did not include funds received by Panoramic from third parties and capable of being paid or distributed to Savannah or others.

The decision was, at its core, based on standard principles of contractual interpretation; in this case, what a reasonable businessperson would have understood was meant by the definition of ‘Secured Property’ and what was covered by that definition, taking into account the wider commercial arrangements between the relevant parties. The Federal Court interpreted the definition in this context, concluding that each limb of the definition was connected to the others, making for a ‘self-contained’ set of collateral that was not intended, and did not, go beyond what was expressly described in it. The meaning of phases such as ‘… in respect of’ used in that defined term, while wide, are still determined and limited to the context in which they are used in the rest of the defined term.

Ultimately, the Federal Court could not find any link between the assets described in the definition of ‘Secured Property’ and the funds held in Panoramic’s bank account – the whole purpose of a specific security deed was to secure the assets specified in the specific security deed and expressions such as ‘in respect of’ did nothing to expand the scope of the security interest beyond the collateral expressly described in it.

This decision is the first, which the writers have been able to identify, to expressly consider the scope of the definition of Secured Property in a specific security deed, an instrument widely used in Australian corporate financing, particularly in energy and resources transactions.  While the outcome is orthodox, insolvency practitioners appointed to corporate entities which have granted specific security over certain property will welcome the decision.  Had the Court found that the words “in respect of” expanded the scope of the property secured, other issues, such as the manner in which registrations made on the Personal Property Securities Register, might have arisen.