Fortress Credit Corporation (Australia) II Pty Limited & Anor v William John Fletcher and Katherine Elizabeth Barnet as Liquidators of Octaviar Limited (Receivers and Managers Appointed) (In Liquidation) and...

The parties to this proceeding were Fortress Credit Corporation (Australia) II Pty Limited and another (the applicants) and William John Fletcher and Katherine Elizabeth Barnet, in their capacity as liquidators of Octaviar Limited (in liquidation) (the respondents). The dispute concerned the proper characterisation of certain financial instruments and the priority of claims arising from them in the liquidation of Octaviar Limited. The matter came before the High Court of Australia.

The High Court was required to determine whether the instruments, described as "subordinated loan notes," constituted debt or equity for the purposes of the Corporations Act 2001 (Cth) and, consequently, the priority of the applicants' claims in the liquidation. Specifically, the court had to consider whether the rights of the applicants as holders of these notes were subordinate to the claims of ordinary unsecured creditors.

The High Court reasoned that the terms of the subordinated loan notes, particularly the provisions for deferral of repayment and subordination to other creditors, indicated that they were intended to be treated as debt for the purposes of the liquidation. The court applied principles of contractual interpretation, focusing on the substance of the rights and obligations created by the instruments rather than their labels. It was held that the holders of the subordinated loan notes were entitled to rank as unsecured creditors, but their claims were subordinate to those of other unsecured creditors as expressly provided in the loan documentation. The court therefore dismissed the applicants' appeal.