High Court decision in Mighty River confirms the validity of holding DOCAs under 5.3A

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This week on Wednesday 12 September 2018, the High Court of Australia, by a majority judgment (3:2 Kiefel CJ, Edelman and Gaegler JJ concurring), handed down their decision in Mighty River International Limited v Hughes [2018] HCA 38. The majority of the Court held that holding DOCAs, which are deeds of company arrangement that provide additional time for administrators to undertake their investigations, are consistent with the object of Part 5.3A of the Corporations Act 2001 (Cth) and do not contravene any provision of that Part.

This decision is significant for insolvency practitioners because it confirms the flexible approach that can be applied under Part 5.3A of the Corporations Act 2001 (Cth).

Ruling in the High Court

The High Court found that holding DOCAs are consistent with the objects of Part 5.3A of the Corporations Act on three bases, namely:

  1. the operation of a holding DOCA aims to fulfil the object of Part 5.3A by maximising the chance of a company's survival or otherwise providing a better return to creditors than would result from liquidation;
  2. the history of schemes of arrangement shows that there is a valid purpose for the Deed to provide for a moratorium on claims while the company's position is further assessed by the administrators; and
  3. the provision of a short convening period before the second creditors' meeting, thus reducing the period of the statutory stay under 440D, is for the protection of creditors — that speed and efficiency is not undermined if creditors subsequently enter into a deed of company arrangement to provide for a longer moratorium period than would otherwise have been the case.

Further, the High Court also found that section 444A of the Corporations Act 2001 (Cth) does not require that a holding DOCA make any assets available for distribution to creditors.

A link to the High Court judgment can be found here.

A significant decision for insolvency practitioners

This case is a significant decision for all insolvency practitioners because it confirms that a flexible approach can be applied under Part 5.3A of the Corporations Act 2001 (Cth). It also gives comfort to administrators and creditors that holding DOCAs proposed under Part 5.3A of the Corporations Act 2001 (Cth) will not be set aside.

Tean Kerr and Alex Rusten, Authors

All information on this site is of a general nature only and is not intended to be relied upon as, nor to be a substitute for, specific legal professional advice. No responsibility for the loss occasioned to any person acting on or refraining from action as a result of any material published can be accepted.

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