Key Points
- This is the first decision to directly address whether the release of security interests in exchange for payment can be a “compromise of a debt to the company” within the meaning of s 477(2A) of the Act.
- Beach J stated that releasing or modifying security for a debt (without changing the principal, interest or term of the underlying agreement) could be a ‘compromise’ as the release changed the underlying commercial value and recoverability of the debt.
- Liquidators will likely need court or creditor approval to sanction transactions that alter a security for consideration if the commercial value of that alteration may be greater than the prescribed threshold (currently $100,000), in addition to any protective directions under s 90‑15 IPS.
- Beach J also confirmed that legal advice on the merits of a compromise (which is generally required for court approval pursuant to section 477(2A) of the Act) is unnecessary where the reasons for the compromise are purely commercial.
Background
Responsible Entity Services (RES) carried on a financial services business and was the responsible entity for various funds and sub-funds, including the Pleasure Point Mine Fund (PPM Fund).
Between 2019 and 2023, RES advanced funds to Pleasure Point Mine Pty Ltd (PPM) under several loan agreements to assist with the establishment and operation of a mine in Helidon, Queensland, known as the Pleasure Point Mine (Mine). The advances were secured by a general security interest over PPM and a mortgage over the Mine.
RES entered voluntary administration on 26 March 2024 and, subsequently, liquidation on 12 August 2024.
PPM entered voluntary administration on 7 March 2025. On 4 April 2025, the liquidators of RES (Liquidators) were appointed receivers and managers and mortgagees in possession of PPM, pursuant to RES’s security interests.
Following their respective appointments, PPM’s receivers, managers and administrator undertook a joint two-stage sale campaign for the recapitalisation or restructure of all or part of PPM and its subsidiary, BRS Quarries Australia Pty Ltd (BRS).
The sale process culminated in a deed of company arrangement (DOCA) proposed by Swift Mining Resources LLC (Swift). Under the DOCA (and a deed poll granted by the Liquidators), RES would release its mortgage over the Mine and security over BRS’s shares in exchange for $5.975 million (Secured Creditor Amount).
As at September 2025, RES was owed approximately $32 million by PPM and would only receive the Secured Creditor Amount under the DOCA. The Liquidators therefore sought:
To the extent necessary, approval under s 477(2A) of the Act to release the relevant securities in exchange for the Secured Creditor Amount.
Directions under s 90‑15 that they were justified in releasing the relevant securities.
What constitutes a ‘compromise’?
Beach J was asked to consider whether releasing a security (such as a mortgage or charge) in return for payment constituted a ‘compromise’ of a debt for the purpose of s 477(2A) of the Act, in circumstances where the Secured Creditor Amount was the most that RES could recoup under the loan agreements.
As ‘compromise’ has no statutory definition, Beach J stated that the term should be construed consistently with its other uses under the Act, for example, section 477(1) and section 411(1), while bearing in mind the different contexts of a liquidation and scheme of arrangement. He adopted a commercial approach and stated that a compromise of a security should not be restricted to only changing the amount owed or the interest rate and saw “no reason at all to give [‘compromise’] any technical or narrow meaning”.
He observed that if the Court is in doubt as to whether a transaction is a compromise, it should treat it as such. He considered that it is “desirable that the Court maintain some oversight and treat s 477(2A) as prima facie applying in scenarios where it has a doubt”.
Here, the Liquidators had agreed to release valuable security in exchange for the Secured Creditor Amount. The Court recognised this arrangement as a ‘compromise’ for the purposes of section 477(2A) of the Act because, even though it did not change the face value of the principal, interest provisions or term of the loan, it did “affect the security underlying the debt and hence its commercial value in terms of recovery”. Such a change may, he observed, “be more commercially fundamental” than the face value in certain circumstances. Accordingly, he stated that “[i]t would be anomalous to exclude security changes that directly impact recoverability in such a context”.
Given the above, Beach J made clear: changing or giving up security is just as much a ‘compromise’ as changing a fundamental term of a loan or security agreement and if there is any doubt, it is preferable to treat the transaction as a compromise and obtain the necessary approvals.
Is legal advice always necessary in an application under section 477(2A) of the Act?
Generally, legal advice on the merits of a compromise must be presented to the court when it is asked to make an order approving a compromise pursuant to section 477(2A) of the Act. However, in the present case, the Liquidators did not seek merits advice in circumstances where no legal proceedings were on foot, there were no funds presently available in the liquidation and the compromise being proposed was the only transaction available following the sale process.
Beach J sanctioned the actions of the Liquidators and confirmed that courts may be willing to forgo the usual evidence of appropriate legal advice requirements in circumstances where the reasons for compromising are essentially commercially based.
Practical takeaways
The key takeaways from this decision are:
The release of a security for a debt (like a mortgage or charge) in exchange for monetary consideration is a ‘compromise’ requiring court approval.
Where it is unclear, a broad interpretation of ‘compromise’ should be preferred given the desirability of court supervision in this context. Accordingly, seeking approval in uncertain cases is likely to be best practice.
While legal advice on the merits of a compromise is ordinarily required, it may be unnecessary if the underlying rationale is purely commercial.
With contributions from Darcy Cousins, Paralegal.