WA Supreme Court allows junior secured creditor to challenge $36.5M senior mortgage despite administration

The Supreme Court of Western Australia has granted two junior secured creditors leave to pursue proceedings aimed at redeeming a $36.5 million senior mortgage over the assets of two gold mining companies in voluntary administration, rejecting arguments that the litigation would undermine a proposed deed of company arrangement (DOCA). Justice Hill held that the creditors had established a substantial claim to exercise their equitable right of redemption, but declined to permit foreclosure or enforcement against the companies at this stage, confirming that the statutory stay imposed during voluntary administration does not necessarily prevent disputes between secured creditors over their respective rights, particularly where the litigation does not interfere with the administration.

The dispute involves Matsa Gold Pty Ltd and Devon Gold Mining Pty Ltd, subsidiaries of ASX-listed Matsa Resources Ltd, which owns the Devon gold mine in Western Australia. Blue Cap Mining Pty Ltd provided mining services to the companies under a July 2025 agreement and, together with Blue Cap Resources Pty Ltd, held security over their assets.

After alleging unpaid invoices dating from May 2026, Blue Cap demanded payment and threatened to suspend mining services. Deutsche Balaton Aktiengesellschaft (DBA) subsequently paid approximately $22.8 million toward the outstanding debt, although the parties dispute whether that payment discharged the amount owing in full.

On 11 September 2026, Blue Cap appointed Martin Jones, Matthew Woods and Lauren Duncan of KPMG as receivers and managers of Matsa Gold and Devon Gold. The companies appointed Richard Tucker and Jared Palandri of KordaMentha as voluntary administrators the same day.

Following the repayment of facilities held by two other secured lenders, DBA became the first-ranking secured creditor, with approximately $36.5 million secured against Matsa Gold, while Blue Cap moved into second position.

Blue Cap lodged proofs of debt exceeding $67 million, including almost $28 million in outstanding project profit and $36 million in a future mining claim. However, the administrators admitted Blue Cap Mining's claim for voting purposes at approximately $3.26 million and Blue Cap Resources' claim at just $1.

The parties also advanced competing restructuring proposals. Blue Cap submitted a holding DOCA, while Matsa Resources proposed a DOCA offering creditors 100 cents in the dollar, excluding DBA. The committee of inspection supported putting the parent company's proposal to creditors, over Blue Cap's objection.

Blue Cap sought leave under section 440D of the Corporations Act 2001 to require DBA to provide a detailed payout calculation and permit redemption of its senior security upon payment of the amount owing. It also sought broader relief involving enforcement and foreclosure against Matsa Gold and Devon Gold.

Justice Hill accepted that a junior mortgagee has an established equitable right to redeem a senior mortgage by paying the secured debt, even without the borrower's consent. She rejected DBA's argument that redemption could not be pursued separately from foreclosure, finding that Blue Cap had raised a substantial question concerning the interaction between equitable mortgage rights and the statutory protections afforded to companies in administration.

The administrators argued that the litigation could distract them from completing the administration and jeopardise the proposed DOCA. Justice Hill disagreed, finding that the narrower redemption proceedings would not require the companies to participate actively or materially interfere with the administration.

The Court also recognised that refusing leave could prejudice Blue Cap. Under the existing deed of priority, Blue Cap was restricted in exercising enforcement rights and required to vote at creditors' meetings as directed by DBA. Successfully redeeming DBA's security would terminate that agreement, releasing Blue Cap from those restrictions.

Justice Hill further found that the dispute could not be resolved through the proof of debt process because it concerned which secured creditor was entitled to payment, rather than the amount owed by the companies. Permitting the redemption proceedings would not change the companies' overall indebtedness or prejudice other creditors.

The Court accordingly granted leave for Blue Cap to pursue its redemption claims against DBA, including obtaining an accounting of the secured debt, but required separate leave before pursuing foreclosure or enforcement against Matsa Gold and Devon Gold.

Read the decision here.

Stewart Maiden KC of the Victorian Bar and Nicholas Wallwork of Quayside Chambers and the Victorian Bar (instructed by Palisade Corporate) acted for Blue Cap Mining Pty Ltd and Blue Cap Resources Pty Ltd.

Michael Sims SC of Quayside Chambers and Monika Mečević of Fourth Floor Chambers (instructed by Hamilton Locke) acted for Deutsche Balaton Aktiengesellschaft.

Kanaga Dharmananda SC of Quayside Chambers and Samantha Nadilo of Fourth Floor Chambers (instructed by of Fourth Floor Chambers) acted for the receivers, Martin Jones, Matthew Woods and Lauren Duncan of KPMG.

Paul Edgar SC of Quayside Chambers (instructed by Clifford Chance) acted for the joint administrators, Richard Tucker and Jared Palandri of KordaMentha.