In Colwell (Deed Administrator), in the matter of Wealth Mining Pty Ltd (Subject to Deed of Company Arrangement) v Wealth Resources Pty Ltd  FCA 857, the Federal Court considered whether section 447A of the Corporations Act 2001 (Cth) (Act) could be used to allow a secured creditor to prosecute an application under section 444GA for leave to transfer 100% of the issued shares in the company to the secured creditor.
This appears to be the first time that relief of this type has been granted by the courts.
Wealth Mining Pty Ltd (the Company) was an entity involved in strategic investment and operations in the mining sector and was a wholly owned subsidiary of Wealth Resources Pty Ltd (Wealth Resources).
On or around 23 November 2020, the Company was placed into administration owing its major secured creditor MACA Ltd (MACA) approximately $89.25 million, with additional unsecured creditors of $2.6 million.
MACA subsequently proposed a DOCA pursuant to which (amongst other things) MACA would contribute $450,000 into a deed fund and release and forgive $25m of its debt in return for the transfer of all of Wealth Resources’ shares in the Company to MACA (either with the consent of Wealth Resources or pursuant to an application under section 444GA of the Act).
MACA also agreed with the (then) administrators that it would fund the potential section 444GA application (Application) by way of a payment of $250,000 on terms whereby:
The creditors of the Company voted in favour of MACA’s proposal on 19 March 2021, and the resulting DOCA was executed on 13 April 2021. The DOCA had a ‘sunset date’ of 13 August 2021.
Wealth Resources did not consent to the share transfer to MACA and on 12 June 2021 the deed administrators of the Company commenced the Application for leave to transfer 100% of the shares in the Company to MACA.
Wealth Resources opposed the Application and indicated that it would contest the valuation of the mining tenements owned by the Company and the contention that Wealth Resources’ shares in the Company had no value.
The deed administrators pursued the Application and in fact prepared and filed all of the necessary evidence required from the deed administrators in relation to the Application, but it subsequently became apparent that the deed administrators did not have sufficient funds to complete the prosecution of Application.
Following negotiations between MACA and the deed administrators, MACA filed an interlocutory application for orders pursuant to section 447A of the Act:
MACA’s interlocutory application relied on the broad power of the court under section 447A to make such orders as it thinks appropriate about how Part 5.3A is to operate in relation to a particular company.
The deed administrators consented to and supported MACA’s interlocutory application.
After hearing from the parties, Derrington J ultimately agreed that the orders should be made and observed, amongst other things, that:
It is common for DOCAs to include a requirement for the deed administrators to make an ex parte application for leave to transfer the shares in the company to the proponent of the DOCA pursuant to section 444GA of the Act. These applications are often challenged by shareholders.
This decision once again illustrates the broad operation of section 447A of the Act, but more importantly confirms that it is possible for a secured creditor and DOCA proponent to ‘step into the shoes’ of a deed administrator for the purposes of directly funding and prosecuting the deed administrator’s claim for leave under section 444GA of the Act.
If you would like to know more about the implications of this decision, whether as a deed administrator, a DOCA proponent or a shareholder, the Lavan team is ready to help.