A recent Queensland Supreme Court case clarifies that a financier who is a first registered mortgagee and chargee is able to exercise its power of sale to sell assets to a buyer free of subsequent security interests.

In St George Bank Limited (St George) v Perpetual Nominees Limited (Perpetual) & Another [2010] QSC 57, it was confirmed that a first registered chargee is able to pass clear title in property to a buyer without requiring the consent of subsequent chargees. This principle is known as 'passing through subsequent charges' or 'selling through subsequent security interests'. This issue has not been tested in a court in Australia before.

In this case, St George held a first registered fixed and floating charge over the assets of SP Hotel Investments Pty Ltd (SP Hotel), as well as first registered mortgages, granted by SP Hotel, over the properties on which the hotel business was run. Perpetual and LJK Nominees Pty Ltd (LJK) held subsequent charges and mortgages in relation to the same assets. After SP Hotel defaulted by failing to pay required interest repayments, St George sought to exercise its power of sale.

The question for the court was whether on exercise of the power of sale the buyer took the property and the business and assets of SP Hotel free of any security interest of Perpetual and LJK.

The court confirmed that the receivers and managers were able to deliver good title to the land and the business and assets to the buyer and sell through subsequent security interests without obtaining releases from Perpetual and LJK.

The decision provides financiers with further certainty regarding the ability to pass through subsequent security interests and provide clear title to prospective buyers.