HCA Confirms Validity of Holding DOCAs
In the recent case of Mighty River International Ltd v Hughes, the High Court of Australia considered 2 cases on appeal from Supreme Court of Western Australia. Both involved a contested deed of company agreement (DOCA) entered into between Mesa Minerals Ltd and its creditors.
The case ensued after Mesa Minerals Ltd entered voluntary administration in July 2016. Subsequently, on 20 October the company’s creditors approved a Holding DOCA that ended the voluntary administration but did not introduce a final proposal to restructure the company and avoid liquidation.
Mighty River International Pty Ltd, a minority shareholder in Mesa, disagreed with this decision and thus initiated proceedings. In doing so they asserted that Holding DOCAs were generally not consistent with the wording and intention of the Corporations Act and were consequently invalid.
At trial, Mighty Rivers argued that the DOCA was void and should thus be set aside. In doing so, they relied on section 444A(4)(b) of the Corporations Act, asserting that the DOCA did not specify any property which would be available to satisfy the claims of Mesa’s creditors and did not otherwise make provision for any return to creditors. They also contended that the natural wording of the act suggests some property must be available for distribution, as it fails to include the words “if any” in relation to property. Lastly, they argued that as the court has the power to extend the convening period for meetings of creditors, Parliament must not have intended administrators to be able to extend the period by DOCA.
However, the respondents argued that the relevant provision was not drafted with the intention that administrators would make property available to creditors but rather, to inform creditors of the property available to be distributed. In doing so, they argued that even where there is no property to distribute, the creditors ought to be made aware of this.
Moreover, they asserted that where there is no property to distribute to satisfy creditor claims in a DOCA, creditor claims may be fulfilled through alternate means such as by offering a debt for equity swap; in which creditors forfeit their rights to enforce their debts in exchange for shares in the company.
The High Court of Australia ultimately upheld the previous decision, dismissing both appeals with costs. They are expected to publish their reasons shortly.
