Creditors decide whether to accept a DOCA...or do they?

The recent judgment of the Federal Court in Deputy Commissioner of Taxation v Premiercorp Pty Ltd (Administrators Appointed) [2013] FCA 778 demonstrated the application of section 600A of the Corporations Act 2001 (Cth) in allowing the Court to set aside a creditor approved deed of company arrangement.


This claim was instigated by the Deputy Commissioner of Taxation (DCT) against Premiercorp (the defendant) in relation to a deed of company arrangement pursuant to which the creditors of Premiercorp would receive 1.47 cents to the dollar with the DCT receiving around $2,100 in total.  Premiercorp’s directors would not be investigated by administrators or liquidators for potential insolvency trading as well as the existence of further undisclosed funds that might otherwise be made available to the creditors.

The DCT sought one of two orders from the court:

  • the resolution of the creditors to execute a deed of company arrangement be set aside under section 600A; alternatively
  • that Premiercorp be restrained from executing the deed of company arrangement pursuant to section 447A.


The Court decided that the creditors’ resolution was contrary to the creditors’ interests as a whole as required by section 600A for a number of reasons.

Firstly, it was found that the shareholder and director of Premiercorp had been uncooperative in releasing information regarding his assets and in relation to building contracts that Premiercorp held, potentially obscuring funds that could be available to the creditors.

Secondly, Premiercorp would benefit from any profits accrued over the year of the deed of company arrangement while the creditors would not.

Thirdly, the amount payable to the creditors through the deed of company arrangement was small and to be paid over three months which was found to have the effect of “both discounting their value and heightening the risk of default.”¹ These payments were not regarded as being of commercial benefit. 

Fourthly, the administrators of the defendant recommended that it was in the interests of the creditors for the defendant to be wound up, considering there was a lack of real commercial benefit to the creditors.

In respect to whether Premiercorp should be wound up, the Court found that it would be inappropriate if the director of Premiercorp was returned control of the company considering the potential solvency issues.  Farrell J considered that “it is against the public interest and commercial morality to allow a prima facie insolvent company back into the market place.” 

Premiercorp was ordered to be wound up and the creditors’ resolution in favour of a deed of company arrangement was set aside.

Lavan Legal comment

The creditors’ vote at the second meeting is not the be all and end all, the Court is able to step in and overturn the resolution.  A proposal for a deed of company arrangement, merely because it results in marginally more than a winding up is not “safe” from being impugned.  This is particularly so where it is uncommercial, and where some benefit is retained from the company, its directors and shareholders.

¹ Deputy Commissioner of Taxation v Premiercorp Pty Ltd (Administrators Appointed) [2013] FCA 778, [23].

Disclaimer – the information contained in this publication does not constitute legal advice and should not be relied upon as such. You should seek legal advice in relation to any particular matter you may have before relying or acting on this information. The Lavan team are here to assist.