Voluntary Administration, Professional Innovation and Dissenting Creditors — Mighty River International in the High Court of Australia

Abstract

The enactment of Part 5.3A of the Corporations Act 2001 (Cth) introduced a flexible non-judicial mechanism for the administration of companies in distress in Australia. In the place of the courts, the management of a voluntary administration is largely placed in the hands of one or more registered company administrators and the company’s creditors. Part 5.3A created tight timelines for the holding of creditors’ meetings and the preparation of a deed of company arrangement (‘DOCA’), a binding agreement between the company and its creditors governing how the future affairs of the company will be managed. Extensions of these narrow legislative time limits are available only from the court upon application by the administrator. Recent practices in the conduct of large and complex administrations have seen insolvency practitioners utilise the DOCA process to develop an alternative mechanism for obtaining more time. This mechanism, known as the ‘holding DOCA’, allows the deed administrators to maintain the status quo while completing investigations into the company’s affairs and/or exploring options for restructuring, which may be realised through a future variation to the deed. However, the language of pt 5.3A does not specifically provide for a holding DOCA, although its development is arguably consistent with the broader framework of the Corporations Act. In a narrow 3:2 majority decision arising out of the voluntary administration of Mesa Minerals Ltd, the High Court of Australia in 2018 approved the use of the ‘holding’ procedure to allow for extensions of time to finalise investigations by the administrators. It is argued that legislative changes to impose minimum standards for the use of a holding DOCA would be prudent, as this procedure will not always be available. Whilst the High Court decision will be reassuring to insolvency practitioners in the short term, in the longer term, legislative clarification is necessary to remove residual uncertainty in this area.

Keywords: Corporations Law, Corporate Reorganizations, Corporate Groups, Insolvency

JEL Classification: K22