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Significant-decision-on-Part-15A-voluntary-administration
09 August 2016 | Brief Counsel
​The High Court has issued its first major decision under Part 15A of the Companies Act, rejecting a multi-faceted challenge by Cargill International to the Solid Energy Deed of Company Arrangement (DOCA).
Solid Energy was placed into voluntary administration in August 2015 with Messrs Gibson and Graham of KordaMentha appointed deed administrators. A draft DOCA was circulated and subsequently approved by an overwhelming majority of Solid Energy’s creditors at a watershed meeting on 17 September 2015.
Cargill’s challenge
Cargill argued that the DOCA was invalid for contravention of Part 15A, and was oppressive, unfairly prejudicial or discriminatory. Cargill’s primary complaints were directed at:
Justice Katz found1 that the role of the Participants Committee did not contravene Part 15A. She held that the core role of a deed administrator is simply to ensure due implementation of the DOCA.
In matters falling outside those core functions, creditors are free to agree their own arrangements (subject to the protections contained in Part 15A). Accordingly, a deed administrator’s substantive functions and powers (if any) will derive solely from the terms of the DOCA itself. While it is open to creditors to provide for a deed administrator to assume a managerial role, they are not required to do so:
…as part of the flexibility inherent in Part 15A, it is open to the creditors to agree (and record in a deed of company arrangement) that such decisions are to be made by someone else, for example an investment bank, an industry expert, the board of the company or a creditors’ committee.
There was also no requirement for a creditors’ committee appointed under a DOCA to be perfectly representative (here, the committee comprised the five major lenders and the Crown, as shareholder).
In relation to potential post-administration claims against the deed administrator and Participants Committee members, Her Honour held that creditors were entitled to agree the conditions of the appointment of those who are to perform functions under the DOCA:
Depriving insolvency practitioners of the ability to negotiate and agree reasonable limitations of their liability in highly complex corporate rescue situations would likely undermine the ability to secure the appointment of high calibre and experienced professionals to relevant roles. This would risk undermining the utility of the Part 15A regime.
Her Honour held, consistent with Australian authority, that to determine whether or not a DOCA is oppressive, unfairly prejudicial or unfairly discriminatory to creditors, one must compare the result under the deed to the result which would have obtained under liquidation - not to that which might have been obtainable under a hypothetical alternative DOCA.
The Court’s role does not involve substituting its views for that of the required majority of creditors. Nor does it involve the Court in second guessing the wisdom or sense of fairness of creditors in voting by the required majorities in favour of the proposal.
Although she did not have to decide the issue as it was not pleaded and the respondents were prejudiced by it being raised at a late stage, Her Honour gave a preliminary view that there was nothing inherently objectionable in a DOCA culminating in a solvent liquidation.
1 Cargill International S.A. v Solid Energy New Zealand Limited [2016] NZHC 1817
Daniel Kalderimis; Michael Arthur; Michael Harper; Hamish Foote; Kate Yesberg