The transfer of shares from existing shareholders to the proponent of a deed of company arrangement (DOCA), for no consideration, is often a condition precedent to the effectuation of a DOCA.
Where the shareholder does not consent, a court order under s444GA of the Corporations Act1 can be made, allowing the external administrators to compulsorily transfer the shares to the DOCA proponent provided the court is satisfied that the shareholders’ interests will not be unfairly prejudiced.
In Clifford Stuart Rocke as administrator of Noahs Rosehill Waters Pty Ltd (Subject to Deed of Company Arrangement) v Rosehill Land Investments Pty Ltd  WASC 489, the deed administrators (Deed Administrators) of Noahs Rosehill Waters Pty Ltd (Noahs) applied for orders under s444GA of the Act.
Noahs was a property development company whose main project was the development of a six-stage residential housing property in South Guildford.
The first ranking secured creditor of Noahs proposed to provide further funding to Noahs under a DOCA in order to allow completion of the Project, in exchange for a transfer of shares in Noahs, among other conditions (DOCA).
The Deed Administrators sought leave of the court to transfer the 490 shares held by Rosehill Land Investments Pty Ltd (Rosehill) to the secured creditor’s nominee, as well as subsidiary orders pursuant to s447A(1) of the Act and s90‑15 of schedule 2 of the Corporations Act (444GA Application).
Rosehill, a Noahs shareholder, intervened in the 444GA Application and was ultimately joined as a defendant. Rosehill sought an adjournment to allow it to find finance to payout the secured creditor and provide a better outcome for creditors than the DOCA.
When considering the 444GA Application, Master Sanderson first considered Rosehill’s request for an adjournment and whether there were sufficient grounds to found a reasonable prospect that a better outcome than the DOCA could be achieved.
In making his orders, Master Sanderson applied the case to the principles which govern whether a transfer is unfairly prejudicial, as set out by Vaughan J in Centennial. Those principles being:2
Rosehill argued the Deed Administrators had undervalued the project, but the Master held that, even where he accepted the highest valuation offered by either party, the valuations presented were not enough to cover the amounts owing to existing creditors.
In assessing Rosehill’s proposal to payout the secured creditor for their loan to Noahs, the Master held, even if Rosehill could secure the amount necessary to pay out the secured creditor, there is no explanation of how it would meet demands of other creditors and continue development of the project. As such, Rosehill failed to present a coherent and comprehensive alternative to the plaintiffs’ application.
The Master also recognised that, were the orders sought by the Deed Administrators not made, the secured creditor may terminate the DOCA and force Noahs into liquidation.
Taking into account the authority in Centennial, the Master denied the adjournment sought by Rosehill and gave the requested orders under s444GA of the Act, allowing the transfer of 490 shares in Rosehill to the secured creditor’s nominee.
he orders of Master Sanderson reinforce the decision of Justice Vaughan in Centennial.
Where the deed administrators of a company can show there is no residual value in winding-up for shareholders, absent the possibility of recovery proceedings in liquidation, it is unlikely any opposition to a s444GA application under the Act will be able to establish unfair prejudice.
Further, to establish an alternative proposition to that of the deed administrators’, an aggrieved party must be able to present a coherent and comprehensive alternative at the time of the hearing.