Discriminating DOCAs: when the courts will terminate a deed of company arrangement that seeks to discriminate against particular creditors.

With rising levels of corporate insolvencies, it is no surprise that the use of the voluntary administration regime for the purposes of putting forward a deed of company arrangement (DOCA) has increased. DOCAs have proven to be a time and cost-effective tool to recapitalise or restructure a distressed business.

In a recent decision by the Supreme Court of New South Wales regarding unfair preference claims - In the matter of Pacific Plumbing Group Pty Limited (in liquidation) [2024] NSWSC 525 – Justice Black provides guidance to liquidators on what is required to recover payments made to a third party on behalf of an insolvent company as unfair preferences.

In particular, the case highlighted that a liquidator has the burden of proof to show that:

Executive Summary

In a recent decision, Anchorage Capital Master Offshore Ltd v Sparkes [2023] NSWCA 88, lenders to the Arrium Group, a company that collapsed, have lost their appeal regarding the personal liability of the Chief Financial Officer and Group Treasurer. The NSW Supreme Court had previously dismissed the lenders' claims, and the Court of Appeal has now affirmed that decision.

The Honourable Justice Black of the NSW Supreme Court has ruled on an application pursuant to s90-15 of the Insolvency Practice Schedule (Corporations) involving the complex interplay between s556 and s561 of the Corporations Act 2001 (Cth) (Act).

On 17 February 2023, Justice Ball of the New South Wales Supreme Court handed down his decision in Kennedy Civil Contracting Pty Ltd (Administrators Appointed) v Richard Crookes Construction Pty Ltd; In the matter of Kennedy Civil Contracting Pty Ltd [2023] NSWSC 99.

Facts

In Re Brew Still Pty Ltd (admin apptd)[2023] NSWSC 256, Black J of the New South Wales Supreme Court declined an application for an adjournment of one month brought by the voluntary administrator appointed to Brew Still Pty Ltd three days prior to the hearing of the winding up application.

Industry participants who are close watchers of the different States’ and Territories’ security of payment regimes may have noticed a divergence between NSW and Victorian security of payment law in relation to failing corporate claimants. A recent NSW case regarding a head contractor’s unsuccessful challenge to the continuation of a deed of company arrangement may perpetuate a divergence in security of payment law in the context of insolvency.

Background – NSW law

A recent decision of the NSW Supreme Court examines whether a 'hopelessly insolvent' subcontractor that executes a holding DOCA to enforce payment claims served on head contractor under the NSW security of payment legislation.

Key takeouts

This week’s TGIF concerns Kennedy Civil Contracting Pty Ltd (Admins Appt) v Richard Crookes Construction Pty Ltd [2023] NSWSC 99, in which the New South Wales Supreme Court determined that an insolvent company’s creditors could properly make a DOCA to maintain the right under security of payment legislation to recover amounts that would have been lost on entry into liquidation.

Key takeaways