Deeds of company arrangement and the “value” of a vote – some important considerations

Allied Express Transport Pty Ltd v Exalt Group Pty Ltd (Administrator Appointed) (No 2) [2013] FCA 477


In May this year, the Federal Court of Australia considered a situation in which a majority of the creditors (in number and value) of Exalt Group Pty Ltd (Exalt) voted in favour of a deed of company arrangement (DOCA), but one group of creditors continued to agitate for a winding up.

In the context of a determination of an application to further adjourn the winding up of Exalt pursuant to section 440A(2) of the Corporations Act 2001 (Cth) (Act), the plaintiffs submitted that the votes of three classes of creditors should be completely disregarded or given less weight.  The classes of creditors were:

  • the employees;

  • certain related parties; and

  • the DOCA proponent, Logistics Partners Pty Ltd (Logistics).

It was claimed that the employees (as priority creditors) voted in favour of the DOCA in order to secure their future employment prospects with Logistics.

It was asserted that the related parties had a “familial” relationship with the principal of Exalt and that the related parties may have been influenced by personal considerations, namely, to allow the principal of Exalt to have a second chance in business.

Finally, Logistics claimed to be a creditor by way of subrogation to the claims of other creditors, all of whom were paid out by Logistics prior to the meeting.  The Court found three issues to assess in relation to the votes exercised by Logistics:

  • whether it was properly admitted to vote as a creditor (First Issue);

  • the purpose for which the debts of the other creditors were paid out, ie was it for the purpose of influencing the vote at the meeting? (Second Issue); and

  • whether regard should be given to the votes of Logistics in considering the interest of the creditors as a collective body (Third Issue).

Court found


Whilst noting that the employees had an interest which is different to commercial creditors, Jacobson J held that some weight should be given to the votes of employees, which should be weighed in balance with other considerations in determining whether it is in the interests of creditors to continue the administration.

Related parties

Giving regard to the minimal return to creditors anticipated under the DOCA, his Honour stated that [at paragraph 27]:

the votes of the related parties must have been largely influenced by considerations other than commercial ones

The votes of the related parties were disregarded on that basis, which had the effect of altering the percentages to approximately 44% in favour of the DOCA and 56% against.


His Honour noted that the First Issue and the Second Issue were of no substantive weight. In relation to the Third Issue, he found that Logistics could not be considered to be a disinterested creditor and its votes should not be taken into account.

Referring to Grocon Constructors Pty Ltd v Kimberley Securities Ltd (2009) 72 ACSR 305, Jacobson J [at paragraph 42] cited (with approval) an interesting comment in relation to evaluating the purported benefit of the DOCA, specifically, that:

No one with an eye to their own financial interests would regard such a return as worth pursuing with any greater vigour than one might expect in picking up a coin found lying on the pavement.

Ultimately the Court held that Exalt should be wound up in insolvency.     

Lavan Legal comment

This is an unusual case on an application to further adjourn proceedings in order to hold off the winding up of a company. In the context of this application, the Court took into account a variety of factors, including (but not limited to) the following:

  • the amount of the purported benefit to the creditors of the DOCA as compared to winding up;

  • the timeframe in which the purported benefit is expected to be realised;

  • the probability that the purport benefit will in fact materialise; and

  • ultimately, the value of a vote of a creditor at a creditors’ meeting giving consideration to the background of the creditor’s relationship to the company in question.

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.