The Court's power to set aside a DOCA that has been fully effectuated then terminated

QBI Corporation Pty Ltd v Plantation Rise Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed) [2010] QSC 102

The facts

The respondent, Plantation Rise Pty Ltd (Company), was a property developer that went into administration on 14 September 2009.  The applicant was an unsecured creditor who claimed to be owed $340,000 by the company.  

The administrator received proofs of debts from unsecured creditors, including one from the applicant, totalling approximately $1.1m.  Of that sum, $725,000 was a debt claimed to be owed to the sole director's wife.

On 14 October 2009, the administrator received a Deed of Company Arrangement (DOCA) proposal from a third party.  Upon execution of the proposed DOCA the third party would pay $20,000 to the administrator on the basis that the sole director of the company and his wife would stand aside for dividend purposes but would be entitled to participate in the vote on the DOCA.  The administrator (in accordance with s439A(4) of the Corporations Act 2001 (Act)) recommended against execution of the proposed DOCA because it was not in the best interests of the creditors.  The company was insolvent and under the proposed DOCA the creditors would receive a lower return than if potential recoveries for voidable transactions and insolvent trading were litigated under liquidation.  The administrator recommended that the company be wound up.

On 19 October 2009, the creditors met and resolved (passed on the voices) that the company should execute the DOCA.  It was also resolved that the administrator's remuneration (which was in excess of $20,000) be approved and that the DOCA give priority to the administrators fees.  The sole director of the company and his wife voted for the motion.  The applicant was the only creditor who voted against it.

On 23 October 2009, the DOCA was executed by the company and the administrator.  All creditor claims against the company were extinguished and released upon the administrator making distributions in accordance with the DOCA.  The DOCA was terminated upon the administrator giving notice to ASIC that the terms of the DOCA had been effectuated.  All of the funds established under the DOCA were applied to the administrator's remuneration with no dividend being paid to admitted creditors.

The application

The applicant sought orders setting aside the creditors' resolution and the DOCA, a declaration that the claims of creditors had not been extinguished and an order that the company be wound up on the grounds that the passing of the resolution in favour of the DOCA was contrary to the interests of the creditors and was effected by votes of related creditors.

ASIC intervened in the proceedings to assist the Court in relation to the questions of law arising on the application.  ASIC submitted that the early effectuation of the DOCA was contrary to the purpose and objects of Part 5.3A, that it was designed to operate to the detriment of the creditors as a whole and that the structure of the DOCA could come to represent a model for abuse of the operation of Part 5.3A.

Her Honour Justice Wilson adopted ASIC’s assessment of what had taken place.


Having adopted ASIC’s assessment, her Honour Justice Wilson then had to consider whether the applicant had standing to bring its application and whether the Court had the power to set aside the resolution and the DOCA, ab initio, under 600A of the Act, alternatively section 447A of the Act, in circumstances where the DOCA had been terminated by performance and the applicant's claim had been released.


Her Honour considered that the purpose of section 600A was best met by an interpretation of 'creditor' as at least including a person who was a creditor at the time the resolution was passed.  That was enough to give the applicant standing to bring an application under 600A.

Her Honour held however that if the related creditors (the sole director of the company and his wife) had not voted then the resolution would have nevertheless passed 2-1.  Counsel for the applicant submitted that if there had been a poll there would have been majority in number in favour of the resolution but not a majority in value and that the chairman of the meeting would have been called upon to exercise a casting vote.  Her Honour rejected that argument on the basis that attention must be focussed on the way the meeting was actually conducted, and no one had actually demanded a poll.

As to section 447A, her Honour held that the applicant clearly had standing because persons who may bring such an application include not only creditors but also 'any other interested person'.

Her Honour then adopted dictum from Lindgren J's judgment in DCT v Wellnora Pty Ltd (2007) 25 ACLA 1257 where his Honour identified section 447A as an alternative source of power (his Honour relied on section 600B in that case) to set aside a DOCA which had been terminated by performance.  Her Honour then considered whether the DOCA could be set aside ab initio.  She determined that because receivers and managers had been appointed before the resolution had passed (by a secured creditor shortly after the company went into administration) and because it was unlikely that the director incurred any obligation on behalf of the company after they were appointed (he became bankrupt), it was unlikely that any rights would have accrued since the DOCA was effectuated so as to make reinstatement of the administration beyond the power given by section 447A.

On that basis, her Honour ordered that the resolution be set aside, that the DOCA be set aside ab initio and that the company be wound up in insolvency.

Lavan comment

Although her Honour made no comment on the actions of the administrator in this case, she did make a point of noting that ASIC was ‘punctilious’ in not levelling any criticisms at the administrator.  Her Honour also made no comment on whether the administrator would be required to disgorge the money he had received in payment of his fees pursuant to the terms of the DOCA.  As the administrator’s remuneration was paid pursuant to the DOCA and the whole DOCA was set aside ab initio it seems a necessary consequence that the money received by the administrator would need to be returned.  Of course, in a winding up, the deed administrator’s fees and expenses would be afforded a statutory priority pursuant to section 556 in any event.

For further details please contact:
Alison Robertson, Partner, on 08 9288 6827 /; or
Chantel Taylor, Solicitor, on 08 9288 6723 /

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.