In the decision of Allied Express Transport Pty Ltd v Exalt Group Pty Ltd (Administrator Appointed) (No 2)  FCA 477, Exalt Group Pty Ltd (Exalt) sought an adjournment of a winding up application under s440A(2) of the Corporations Act on the basis that the creditors had voted by a majority in favour of a resolution that Exalt enter into a DOCA.
However, some creditors who voted against the DOCA (Opposing Creditors) opposed the adjournment on the basis that the requirements for an adjournment under s 440A(2) had not been satisfied. Section 440A(2) provides that the Court is to adjourn a winding-up application if the Court is satisfied that it is in the interests of the company's creditors for the company to continue under administration rather than be wound up.
The Opposing Creditors argued that a proper analysis of the votes in favour of the DOCA required the Court to either disregard or give less weight to the votes of the following classes of creditors:
- Employees who had voted in favour of the DOCA in order to secure their future employment prospects with the DOCA entity, Logistics Partners Pty Ltd (Logistics);
- Related parties who had a familial relationship with the principal of Exalt and may, therefore, have been influenced by personal considerations; and
Logistics, the DOCA proponent, because:
- it claimed to be a creditor by way of subrogation to the claims of other creditors;
- it had paid out the debts owed to other creditors for the purpose of improperly influencing the votes; and
- its votes shouldn’t be considered at all if regard is had to the interests of the creditors as a collective body.
SHOULD THE VOTES OF EMPLOYEES BE DISREGARDED?
The Court found that, whilst employees have an interest which is different from commercial creditors due to their interest in remaining employed, their interests are relevant and their votes should not be disregarded.
SHOULD THE VOTES OF RELATED PARTIES BE DISREGARDED?
Having regard to the minimal return to creditors that was anticipated under the DOCA, the Court found that the votes of related parties must have been largely influenced by considerations other than commercial ones and should be disregarded.
This meant that 44% of the remaining votes were in favour of the DOCA, with 56% against.
SHOULD THE VOTES OF LOGISTICS BE DISREGARDED?
The Court held that even if Logistics was properly admitted to vote and did not act improperly, it couldn’t be considered a disinterested creditor. It was clear to the Court that Logistics was inextricably bound with a desire to keep Exalt on foot to enable it to propound the DOCA. As such, its votes should be disregarded.
This meant that more than 60% of creditors (in value) voted against the DOCA.
WAS IT IN THE CREDITORS’ INTERESTS TO CONTINUE IN ADMINISTRATION?
The Court found that it was not in the interests of the creditors to continue with the administration and the proposed DOCA would not provide a real commercial benefit to the creditors. The return of 2 cents minimum and 12 cents maximum payable in three years time was extraordinarily low and was merely optimistic speculation.
His Honour refused to grant the adjournment sought and ordered Exalt to be wound up.
This decision shows that the votes of related parties and conflicted creditors that support a DOCA may be disregarded when assessing whether it is in the interests of the creditors to continue in administration for the purposes of s440A(2).
The Court will not simply rubber stamp an uncommercial DOCA. In order for the DOCA to continue, the administration must provide real benefits to the creditors.