Corporations Act 2001 (Cth) (Act)
Notwithstanding that the Act makes no provision for the pooling of assets and liabilities of a group of companies in administration, Courts have sanctioned the use of pooling arrangements for groups in administration proposing to execute a pooled Deed of Company Arrangement (DOCA).
Pooling can provide cost benefits to the creditors of a group of companies if the group:
Additional factors supporting a pooling arrangement are groups in which one entity:
A pooled DOCA will be persuasive if the return to creditors of the group as a whole will provide greater return than if the individual entities ratified separate DOCAs or were placed into liquidation.
Detail is key - putting the proposal to creditors
The administrators’ section 439A report must clearly outline the benefits of a pooling arrangement to a group’s creditors, as compared to the likely return to them under the alternatives of single DOCAs and liquidation.
Particular emphasis should be placed in the section 439A report on:
The Court can ratify a pooling arrangement upon application by the administrators under section 447D of the Act. Generally, the application is made after the second creditors’ meeting and once the creditors have resolved to execute a pooled DOCA. The resolution of the group’s creditors will be persuasive to the Court’s ratification of the pooled arrangement.
In making an order to sanction a pooled DOCA, the Court will consider the degree of information given to the creditors, including in the section 439A report. The greater the detail of the benefits and disadvantages (if any), the less likely the Court will find against the proposal.
The Court’s ratification is not required as a matter of course, though provides comfort to the administrators by minimising the prospects of future successful challenges to a pooled DOCA and, in those circumstances, minimising any criticism by the Court in relation to the administrators’ conduct.
Pooling can provide significant benefits to creditors of a group of companies under administration. Whether the Court’s sanction is sought or not, the devil is in the detail and the better informed the creditors are, the less likely a pooled arrangement will be successfully challenged. In time, it is hoped the Act will be amended to expressly provide for pooling in administration.
For further information please contact:
Alison Robertson, Partner, on (08) 9288 6872 / email@example.com or
Claire Petersen, Associate, on (08) 9288 6746 / firstname.lastname@example.org.