HCA Publishes Reasons for Confirming Validity of Holding DOCAs

The High Court recently released the reasons for decision in dismissing the appeal in Mighty River International Ltd v Hughes & Ors [2018] HCA 38. This decision confirms the validity of employing a certain form of deeds of company arrangement (“DOCAs”), known as a “holding DOCA” as a restructuring tool.

The case centers around a company Mesa Minerals Ltd (“Mesa”), which was placed into voluntary administration and the entry into a deed of company arrangement (“the Deed”).  At the second meeting of creditors, a majority voted in favour of entering into the Deed which, amongst other things, provided for a moratorium on creditors' claims; required the administrators to conduct further investigations and report to creditors concerning possible variations to the Deed within six months; and provided that no property of Mesa Minerals be made available for distribution to creditors.

One of Mesa’s creditors, Mighty River International Ltd (“Mighty River”), disputed the validity of the Deed and subsequently brought proceedings in the Supreme Court of Western Australia alongside another creditor. Mighty River plead four bases for the Deed being void: (i) the Deed was contrary to the object of Pt 5.3A Corporations Act 2001; (ii) the deed invalidly sought to circumvent or sidestep the requirement in s 439A(6) for a court order extending the short convening period during which a second meeting of creditors must be convened by an administrator; and (iii) the deed did not comply with an alleged requirement in s 444A(4)(b) to distribute some property of Mesa Minerals and (iv) the administrators had failed to form the opinions required by s438A(b) and, at the relevant time as per s439A(4).

These arguments were rejected at first instance by Master Sanderson and on appeal to the Court of Appeal where it was held that the Deed was consistent with the object of Pt 5.3A of the Corporations Act 2001 (Cth); that s 444A(4)(b) did not require some property to be made available to pay creditors' claims; and that the use of a "holding" deed of company arrangement was one "gateway" to extend the period for convening a second creditors' meeting beyond the timeframe set by s 439A(5), the other being a court order under s 439A(6). By grant of special leave, Mighty River appealed to the High Court.

Before the High Court, Mighty River made two submissions: First, the Deed was not a valid deed of company arrangement, principally because it was an agreed extension of time that had not been ordered by a court under s 439A(6) and was contrary to the object of Pt 5.3A;  Second, the Deed should have been declared void under s 445G(2) for contravening ss 438A(b) and 439A(4), or s 444A(4)(b), or both.

The Court was split 3:2 with Kiefel CJ and Edelman and Gageler JJ forming the majority. The Majority held that the HDOCA was consistent with Pt 5.3A, was validly executed and conferred genuine rights and duties; did not involve an impermissible side-stepping of s 439A(6) as the side-stepping was merely incidental to the purpose of the HDOCA; was not required to be declared void by s445G(2); and s 444A(4)(b) does not require property to be specified in the Deed.

Naming Wrong Employer Invalidates Fair Work Claim

The recent case of Lili Sinden v HDR Inc. T/A HDR [2018] FWC 5643 provides a reminder that when bringing a claim against employers, any would be applicant must ensure they name the correct entity in their application.

The applicant in this case, Ms Lili Sinden a HR manager, attempted to file a general protections claim under s 365 of the Fair Work Act 2009 against her former employer. Unfortunately for Ms Sinden, she named the US parent company, HDR Inc, as the respondent in her application and not her actual employer HDR Pty Limited. In response the employer raised a jurisdictional objection to Ms Sinden’s claim. Ms Sinden then sought to have the application amended under s 586 of the Act.

Ms Sinden asserted that the Commission could be satisfied that naming HDR Inc was a genuine error as her application correctly identified the trading name, ABN and address of her employer HDR Pty Limited. Ms Sinden further submitted that a number of documents surrounding her employment and termination simply referred to her employer as “HDR” as well as her email signature listing her as an employee of “HDR” and making several references to HDR Inc.

The respondent opposed claiming that this mis-naming was not a simple error, instead contending it was a conscious decision to elicit a strategic benefit in the application. In arguing this point the employer noted several factors including: the applicant’s position as the most senior HR manager for HDR Pty Limited, over 17 years of experience in human resources, frequent contact with the HR Manager for the US, and her regular work included drafting and distributing documents specifying the name HDR Pty Limited.

Having canvassed the evidence, Deputy President Kovacic was not prepared to amend the application to name the correct entity, concluding that it was implausible for Ms Sinden to have made such an error.

New Zealand Set to Reform Insolvency Laws

With the Insolvency Practitioners Bill currently before the New Zealand Parliament, the nation's insolvency laws are set to undergo a significant transformation.

The bill was first introduced to parliament in April 2010, and sought to introduce a ‘negative licensing system’ for insolvency practitioners. In doing so, the initial bill afforded the Registrar of Companies power to ban people from acting as a liquidator or receiver, and endeavoured to strengthen existing provisions relating to the automatic disqualification of insolvency practitioners. However, the bill was put on hold following its second reading in November 2013.

In June, the government revived the Bill, introducing a Supplementary Order Paper and making significant revisions to the original proposal. Submissions on the proposed changes closed on 24 August 2018 and the Bill is now listed before the Economic Development, Science and Innovation Committee of Parliament on 6 September 2018.

If adopted, the reform will:

  • Introduce a coregulatory licensing framework whereby insolvency practitioners would need to be licenced by an accredited body under a new stand-alone Insolvency Practitioners Act;
  • Extend the circumstances in which an insolvency practitioner will be disqualified from acting by reason of the practitioner’s association with the affected company or entity;
  • Impose obligations on insolvency practitioners to provide detailed reports on insolvency engagements;
  • Provide that, at a meeting of creditors of a company or an entity in liquidation or administration, the vote of a related creditor will be disregarded unless the court orders otherwise;
  • Require insolvency practitioners to provide information and assistance to an insolvency practitioner that replaces them;
  • Empower the court to make orders:
    • Compensating any person who has suffered loss as a result of an insolvency practitioner’s failure to comply with any relevant enactment, rule of law or court order; and
    • Sanctioning insolvency practitioners who fail to comply with any relevant enactment, rule of law or court order.

The reform will see the New Zealand system resemble that of the UK, whose insolvency laws are also under major review. It comes after New Zealand rejected the Australian model, where regulation is governed by ASIC and ASFA, with limited statutory regulation by the industry bodies.