Administrators were appointed to a company and as a result, the company entered into a Deed of Company Arrangement (DOCA).
After the DOCA had been entered into, a secured creditor who had abstained from voting on the decision of whether the company should enter into the DOCA, purported to appoint an administrator under its security.
The deed administrators sought a declaration from the Court that the second administration should be terminated (amongst other things).
In holding that the second administration should be terminated, the Court held that:
- The terms of the DOCA extinguished the secured creditor’s debt, even though the secured creditor had abstained from voting on the DOCA proposal.
- Notwithstanding the extinguishment of the debt, s 444D(2) of the Corporations Act 2001 preserved the secured creditor’s right to ‘realise’ or ‘otherwise deal’ with the secured property to which its charge attached immediately prior to the release of claims effected by the DOCA. However, the secured creditor would not have any right to realise or deal with any after-acquired property.
- Given the extinguishment of the debt, the secured creditor was not a creditor at the time it purported to appoint an administrator and would not be considered a creditor for the second administration.
- However, s 444D(2) preserved the secured creditor’s entitlement to appoint an administrator under s 436C of the Corporations Act, as the preservation of the secured creditor’s right to realise or otherwise deal with the secured property extended to the whole or substantially the whole of the company’s property.
This case is a departure from the previous thinking on this matter that a secured creditor (who did not consent) stood outside of the DOCA process. It is significant as while the secured creditor’s right to deal with the secured property to which its charge attached immediately priorto any DOCA being entered into remains, they will no longer be able to recover any after-acquired property.
This case considers Australian Gypsum Industries Pty Ltd v Dalesun Holdings Pty Ltd (2014) 283 FLR 471 which was the subject of a previous TGIF which can be found here.