In Yeo, in the matter of Ready Kit Cabinets Pty Ltd (in liq) v Deputy Commissioner of Taxation  FCA 632, Justice Middleton considered the question of whether a payment made during the course of a DOCA can be recovered as an unfair preference if the DOCA is subsequently terminated and the company goes into liquidation.
The case involved an application by the liquidators (and former administrators and deed administrators) of Ready Kit Cabinets Pty Ltd (in liquidation) (Company) for orders that payments (Payments) received by the Deputy Commissioner of Taxation (DTC) while the Company was subject to a DOCA were recoverable from the DTC as unfair preferences pursuant to section 588FA of the Corporations Act.1
The DCT argued that the Payments were made ‘by, or under the authority’ of the deed administrators of the DOCA (Deed Administrators) within the meaning of section 588FE(2B)(d) of the Act and therefore could not be voidable unfair preferences.
This is the first time that section 588FE(2B) has been considered by a court.
The creditors of the Company resolved that the Company should enter into a deed of company arrangement on 22 November 2013.
The DOCA which was subsequently executed by the Deed Administrators, the Company and the director of the Company (Director) on 11 December 2013 provided that:
Control of the Company was returned to the Director and the Company resumed trading under the DOCA. As a result of the resumed trading, the Company incurred tax liabilities in the amount of $403,000.76. The Payments were payments made to the DCT totalling $304,772.15 in respect of these tax liabilities.
The DOCA was subsequently terminated on 5 July 2017 and the Company was placed into liquidation.
Section 588FE(2B) was introduced into the Act in 2007. The section applies to transactions that occur where the company was subject to a DOCA immediately before being placed into liquidation, and provides that such a transaction will be voidable if it otherwise satisfies the requirements for a voidable transaction and if:
(d) the transaction, or the act done for the purpose of giving effect to it, was not entered into, or done, on behalf of the company by, or under the authority of:
(i) the administrator of the deed; or
(ii) the administrator of the company.
The liquidators noted that the Payments were not made by the Deed Administrators but by the Director on behalf of the Company. The liquidators then argued that the Payments could not have been made ‘under the authority’ of the Deed Administrators as the Deed Administrators did not have any authority or power under the DOCA to make the Payments.
The DTC argued (in effect) that the concept of a transaction ‘by, or under the authority’ of a deed administrator must, as a matter of statutory construction, include transactions that are specifically required to give effect to, and to comply with, the terms of a DOCA.
The DTC argued that this interpretation is consistent with recommendation 51 of CAMAC’s June 1998 Report2 that transactions specifically authorised by a DOCA, but performed on behalf of the company by the directors (or others) who are in control of the day-to-day management of the company under the terms of the DOCA, should not be voidable as unfair preferences.3
The DTC also argued that this interpretation is consistent with the objects of Pt 5.3A of the Act because it maximises the chances of a company, or its business, continuing in existence.
Having considered the text and context of section 588FE(2B), Middleton J found that it should be limited to apply to transactions actually carried out by a deed administrator or by a third party under an authority given to the deed administrator. Middleton J was satisfied that the section could not and should not be extended to all transactions contemplated or required by a DOCA, given that sub-section (d) refers to transactions ‘by or under the authority of the deed administrator’, and not to transactions under the DOCA at large.
Middleton J noted that a deed administrator’s powers and obligations are provided solely from the terms of the DOCA. As a result, in order for a transaction to be validly carried out by or under a deed administrator’s authority, the deed administrator must have the power to carry out that transaction pursuant to the terms of the DOCA.
The terms of the DOCA in this case did not empower the Deed Administrators to conduct the managerial affairs of the Company such as the making of the Payments. Instead, the DOCA expressly returned the managerial conduct of the Company to the Director. As a result, the Payments could only have been made by the Director pursuant to the powers conferred upon him by the Act and the Company’s constitution.
However, it seems clear that Middleton J accepted that there might be situations where a DOCA confers such powers on a deed administrator that these powers affect, override or supersede similar powers of the directors, in which case a director might well be acting under the authority or power granted to the deed administrator.
This is a very interesting decision which will have a clear and obvious impact on how DOCAs are negotiated and drafted going forward.
Proponents should carefully consider the scope of the powers to be conferred upon the deed administrator and whether steps to be taken under the DOCA should be expressly provided for as steps to be taken either by the deed administrator or under the deed administrator’s authority.
Liquidators on the other hand will need to consider the terms of any terminated DOCAs, and whether any payments made under the terminated DOCA might not have been made by or under the authority of the deed administrator.
 2001 (Cth)
 Legal Committee of the Companies and Markets Advisory Committee, Corporate Voluntary Administration Report, June 1998.
 Yeo, in the matter of Ready Kit Cabinets Pty Ltd (in liq) v Deputy Commissioner of Taxation  FCA 632 .