Proctor : October 2016
35 PROCTOR | October 2016 In the second of two articles, Kylie Downes QC and Janelle Payne examine the practical considerations associated with an application to set aside a deed of company arrangement. Back to basics Service on ASIC The application does not fall within the list in Rule 2.8 Corporations Proceedings Rules, which lists certain types of applications of which ASIC must be notified, for example, application for reinstatement of the registration of a company. However, if you consider that ASIC may have a particular interest in the outcome, ASIC should be notified. Practical effect of order Section 446B and Reg 5.3.A.07 Corporations Regulations have the effect that, if the court terminates a deed of company arrangement under s445D, then the company is taken to have passed a special resolution that it be wound up voluntarily. The administrator can then become the liquidator, if they consent. If a DOCA is set aside by the court under s600A or relief given under s447A, the court will need to make further orders, such as an order placing the company into liquidation. As noted, termination does not affect the previous operation of the DOCA. Costs Generally, costs will follow the event. 15 However, because the appointment of an administrator is based on a decision that the company is or is likely to be insolvent, an applicant may not recover their costs in practical terms. For these reasons, the applicant will usually seek an order that its costs be costs in the winding up unless there was another party, for example a sponsor, who actively opposed the application. As always, an applicant should be mindful of the risks of an adverse costs order if it does not succeed. In some rare cases, even though the applicant did not succeed, the court has made no order as to costs where it was still reasonable for the applicant to Kylie Downes QC is a Brisbane barrister and member of the Proctor editorial committee. Janelle Payne is a barrister from Burnett Lane Chambers. Notes 1 s445D(2). 2 s445G(1). 3 s447A(4). 4 s600A. 5 Hoath v Comcen Pty Ltd (2005) 53 ACSR 708;  NSWSC 477 at . 6 See Re Beechworth Land Estates Pty Ltd (admin apptd) and Others (No.3) (2015) 298 FLR 233; (2015) 106 ACSR 495;  NSWSC 733 at . 7 ASIC v Midland Hwy Pty Ltd (admin apptd) (2015) 110 ACSR 203;  FCA 1360 at , considering Federal Commissioner of Taxation v Wellnora Pty Ltd (2007) 163 FCR 232;  FCA 1234. 8 Section 58AA Corporations Act. The Family Court also has jurisdiction but this is invoked less often. 9 Khoury v Zambena Pty Limited (1997) 23 ACSR 344; (1997) 15 ACLC 620 (an application under ss600A, 447A, 445G and 445D was filed 13 months after the meeting; Young J stated at 353 in obiter that a month appears to be about the maximum time for entertaining an application to set aside a deed). 10 s445H. 11 s600E. 12 See for example, s600D for interim orders under ss600A, 600B, 600C. 13 Which can be found in Schedule 1A to the Uniform Civil Procedure Rules 1999 (Qld). 14 Rule 2.4(1) of the Corporations Proceeding Rules. 15 Promoseven Pty Ltd v Prime Project Development (Cairns) Pty Ltd (subject to a deed of company arrangement)  QCA 24 at . 16 For example, Deputy Commissioner of Taxation v Pddam Pty Ltd (1996) 19 ACSR 498 at 513; Khoury v Zambena Pty Ltd (1997) 23 ACSR 344 at 354 upheld in (1999) 217 ALR 527;  NSWCA 402 at - and ; see also TNT Building Trades Pty Ltd v Benelong Developments Pty Ltd (Administrators Appointed) (No. 2)  NSWSC 884. 17 For example, TNT Building Trades Pty Ltd v Benelong Developments Pty Ltd (Administrators Appointed) (No.2)  NSWSC 884 at . bring the application, for example, if there was deficiency in the administrator’s conduct but the court declined to exercise its discretion to set aside the DOCA. 16 Generally, there will be no order for costs in favour of the administrator if they do not take an active part.17 Practical considerations Before deciding whether it is worthwhile commencing proceedings, it should be remembered that the administrator is generally entitled to be indemnified out of the company’s property for debts and liabilities they have incurred as administrator, as well as their own remuneration. This means that it can be the case that the costs of fighting about the DOCA can dissipate whatever return might otherwise have been available to creditors. A final word on discretion Even if the court is satisfied that one of the grounds has been made out, it retains a discretion as to whether or not to terminate the DOCA. Therefore, as always, ensure that your client is fully frank in its conduct and material.