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.
