Case: Open Telecommunications Ltd (Subject to Deed of Company Arrangement) [2003] NSWSC 1198
Outcome: cited
The ASIC guideline notes that it is usual for the deed of company arrangement to be effectuated and to terminate after creditors' claims against the company have been removed in that way. When the deed of company arrangement terminates, the company ceases to be externally administered, the directors regain full control and it is no longer required to use the endorsement "subject to deed of company arrangement" on its public documents: see s 450E(2) of the Act. The relevant ASIC guideline is entitled 'External administration: Deeds of company arrangement involving a creditors' trust A Guide for registered liquidators appointed under Part 5.3A '. The guide is numbered Regulatory Guide 82 and was published in May 2005. The regulatory guide is quoted as an explanation of the creditors' trust in Ford's Principles of Corporations Law , (Butterworths) Part VII Chapter 26 at [26.200]. Creditors' trusts have been helpfully discussed in Heaver-Wren T, "DOCA Termination through Creditors' Trust Deeds" (2004) 12 Insolv LJ 117-120; see also McKenzie R, "Creditors' Trusts and the ASIC Guidelines" (2005) 17(3) Australian Insolvency Journal 4-6; Proudman D, "Some Issues Surrounding Creditors' Trust Deeds Parts 1 and 2 " (2005) 6 INSLB 1-5 and 31-34. The mechanism has been touched on in the Supreme Court decisions: Ian Charles Francis and Michael Patrick Joseph Ryan as Trustees of The West Australian Shed Commercial Pty Ltd Creditors Trust Deed and West Australian Shed Co Pty Ltd Creditors Trust Deed [2003] WASC 39 (Pullin J); Open Telecommunications Ltd (Subject to Deed of Company Arrangement) [2003] NSWSC 1198 (Hamilton J) and Rupert Co v Chameleon Mining (2006) 24 ACLC 635 (Austin J). 50 In Open Telecommunications Ltd (Subject to Deed of Company Arrangement) [2003] NSWSC 1198 a deed administrator applied to Hamilton J for directions under s 447D of the Act that he would be justified in executing and giving effect to a varied deed of company arrangement and a proposed creditors' trust deed. In discussing the creditors' trust deed, Hamilton J observed (at [4]): The mechanism proposed by the deed administrator is quite ingenious. It is for the adoption of an amended DCA coupled with a creditors' trust deed. This would remove the sums promised to creditors from the ambit of the DCA to the ambit of a deed of trust. When this is done, the DCA could be discharged; the company would no longer be subject to a DCA; and it is likely that it could be restored to the Stock Exchange board and the contemplated additional capital sums raised, both to feed the promised amounts into a scheme for the creditors and to restore the company to viability. Although this would take the management of the money outside the ambit of the CA, it would be held and supervised in the creditors' interests according to the general law of trusts and their position would be thus protected. Even disputes as to entitlement, if they arose, would have a mechanism for their resolution through the provisions of s 63 of the Trustee Act 1925 . His Honour held in that case that there could be no objection on the ground of legality or propriety to the course that the administrator proposed to follow and gave directions accordingly. The arrangement was, of course, subject to approval by the creditors for its implementation.