In the matter of Ally Fashion Pty Ltd (in liq)

Category: Principal judgment

Parties: DDT Management Pty Ltd (First Plaintiff)
David Dai (Second Plaintiff)
Jeffrey Phillip Marsden in his capacity as joint and several liquidator of Ally Fashion Pty Ltd (in liq) (First Defendant)
Duncan Edward Clubb in his capacity as joint and several liquidator of Ally Fashion Pty Ltd (in liq) (Second Defendant)
Ally Fashion Pty Ltd (in liq) (Third Defendant)

Representation: Counsel:
D R Stack (Plaintiffs)
J R Anderson (Defendants)
Solicitors:
Piper Alderman (Plaintiffs)
Dentons (Defendants)

File Number(s): 2025/98669

JUDGMENT

Nature of the application

1. By Originating Process filed on 12 March 2025, the Plaintiffs, DDT Management Pty Ltd (“DDT”) and Mr David Dai sought two primary orders and consequential orders in respect of Ally Fashion Pty Ltd (in liq) (“Company”). By way of background, the Company was wound up by order made by the Federal Court of Australia on 28 February 2025, with multiple supporting creditors then appearing in support of the winding up application.

2. First, DDT and Mr Dai now seek an order, pursuant to s 90-15 of the Insolvency Practice Schedule (Corporations) (Schedule 2 to the Corporations Act 2001 (Cth) (“Act”)) (“IPSC”), that Ms Vouris and others (“Nominated Administrators”) be appointed as the joint and several voluntary administrators of the Company or that Mr Marsden and others, as joint and several liquidators (“Liquidators”) of the Company:

“be compelled to appoint [Nominated Administrators] as the joint and several administrators of [the Company] pursuant to section 436B(1) of the [Act].”

3. Second, and alternatively, DDT and Mr Dai seek an order under s 447A of the Act that Pt 5.3A is to operate in relation to the Company such that, notwithstanding that it is in liquidation and notwithstanding the terms of s 436A of the Act, Mr Dai as sole director of the Company can pass a resolution of the kind specified in s 436A(1)(a) of the Act and appoint the Nominated Administrators as the joint and several administrators of the Company and cause the Company to appoint them as joint and several administrators by executing an instrument in specified form.

4. Further orders were sought dealing with the conduct of a voluntary administration of the Company, which were consequential on the first and second orders sought, including an order that the winding up of the Company be stayed from the time that the Nominated Administrators were appointed and an order terminating the winding up on execution of a deed of company arrangement by the Company.

5. At the conclusion of the hearing, I was comfortably satisfied that the application should be dismissed with costs in favour of the Liquidators, and I made orders to that effect. These are my reasons for reaching that conclusion and making those orders.

Affidavit evidence

6. The Plaintiffs relied on several affidavits and the Liquidators relied on a single affidavit of one of the Liquidators, Mr Marsden. The relevant witnesses were not required for cross-examination.

7. DDT and Mr Dai read his affidavit dated 12 March 2025. Mr Dai there noted that he had been a director of the Company since 12 March 2020 and was its sole shareholder. He referred to an application made by a creditor to wind up the Company and to an order made by the Federal Court of Australia winding up the Company and appointing the Liquidators on 28 February 2025, about three weeks ago. He noted that the Company was a women’s fast-fashion retailer, which traded under two brands and operated stores under two names located in several Australian States and Territories, and also undertook on-line retailing. His evidence was that, prior to the winding up, the Company employed 1669 staff and traded from 158 retail premises, although the scale of the Company’s operations has since been reduced as noted below. Mr Dai there accepted that the current liabilities of the Company exceeded its current assets; its trade creditors were owed in excess of $52.5 million; its Commonwealth and State taxes were overdue; it had overdue liabilities in respect of superannuation guarantee charge, rent, other expenses; and it owed supplier costs which he quantified as in excess of $41.9 million payable to DDT.

8. Mr Dai also referred to the fact that the Liquidators had permitted Grandline Pty Ltd (“Grandline”), a company associated with Mr Dai, to trade the business under licence, and 51 of the Company’s stores had been closed and the employment of 340 employees terminated since the commencement of the winding up.

9. Mr Dai quantified the debts likely to be proved in the liquidation as in excess of $58 million and attributed a claim in excess of $46.1 million to DDT. He also referred to debts owed to two other creditors who, he claimed, supported a proposal (“DOCA Proposal”) for a deed of company arrangement (“DOCA”) put by Mr Dai. Mr Dai also referred to a meeting with Ms Vouris and to his application for orders that the Nominated Administrators be appointed as voluntary administrators of the Company.

10. Mr Dai exhibited a copy of the Licence Deed with Grandline (“Licence Deed”) to his affidavit (Ex P1, CB 89), which recited that:

“With effect from the Commencement Date, and so as to preserve the value of the Business and the Assets during the Licence Term, the Company agrees to grant the Licence to the licensee on the terms and conditions set out in this document.”

11. The Commencement Date of the Licence Deed was 5 March 2025 and the Licence Term was set out under cl 4.1 of the Licence Deed as continuing to the date of termination of the licence. Clauses 4.3 and 4.4 provided that each of the Company and Grandline could terminate the Licence without cause on no less than two business [days’] notice. As I will note below, the Plaintiffs led no evidence that they intended to terminate the Licence Deed if this application failed, nor was it commercially likely that they would do so, where any consequential closure of the Company’s stores and business would likely defeat their wish to acquire the business on any future voluntary administration and have significant adverse consequences for DDT, which I note below. The Liquidators’ entry into the Licence Deed was approved by the Federal Court under s 477(2)(b) of the Act.

12. Mr Dai exhibited his four-page DOCA Proposal to his affidavit, which contemplated that the Nominated Administrators should be appointed as administrators of the DOCA and that a deed fund would be established comprising a payment of $500,000 upon execution of the DOCA and payments of $3.6 million payable as $150,000 per month over 24 months, commencing four months after the date of execution of the DOCA. The DOCA Proposal also provided that:

“Payment of the DOCA Contributions will be from future trading with security to be provided by the Company.”

That proposal had the consequence that the bulk of the DOCA Contributions would only be received if the Company had the capacity to make those payments in a 24-month period commencing four months after execution of the DOCA, subject to the adequacy of any security that might be provided by the Company, the nature of which was not then identified.

13. The DOCA Proposal also contemplated that control and management of the Company and its property (with specified exceptions) would revert to its Board, namely Mr Dai, upon execution of the DOCA at a point at which only $500,000 of the total deed fund contributions of $4.1 million had been paid and also provided that:

“No other property of the “[C]ompany shall be available to pay creditors’ claims. Instead, the DOCA will be funded by the DOCA Contributions.”

14. It followed that creditors would only receive, under the DOCA Proposal, any amount that was available to them, after payment of the Liquidators’ and Nominated Administrators’ disbursement and fees, from the initial $500,000 contribution to the deed fund and any amounts that were subsequently paid by the Company or able to be recovered under the unidentified security that it would provide. For completeness, the DOCA Proposal also provided that certain creditors, including DDT and two significant creditors, would not receive any distribution from the Deed Fund, and expressly prevented the deed administrators from investigating or pursuing recovery actions under Pt 5.7B of the Act and provided for the release of the Company from all provable debts once the DOCA had been effectuated.

15. Mr Dai also exhibited a copy of the Nominated Administrators’ consent to act and their Declaration of Independence, Relevant Relationships and Indemnities to his affidavit. The Nominated Administrators there provided fuller disclosure than Mr Dai as to the extent of their contact with Mr Dai, Mr Terry Dai and their representatives before they were proposed for appointment, although they expressed the view that those contacts did not affect their independence. The evidence suggests that the Nominated Administrators’ staff were also involved in preparing financial calculations on which Mr Dai relied in the application.

16. The Plaintiffs also relied on an affidavit dated 12 March 2025 of Mr Terry Dai, who is the sole director of DDT. His evidence is that DDT is an importer and wholesale of women’s clothing and employs 24 employees and has an annual turnover of approximately $38 million. He pointed to DDT’s claimed debt in the liquidation of the Company for approximately $46.1 million for unpaid invoices for clothing products sold by DDT to the Company. He expressed the view (admitted with a limiting order under s 136 of the Evidence Act 2005 (NSW) (“Evidence Act”) as his understanding and not proof of the fact) that the DOCA Proposal would be in the Company’s best interests. He also pointed to the likelihood that, if the Company did not continue to trade, DDT would lose its only source of income and would likely enter into liquidation. That, of course, tends strongly against any likelihood that an associated entity, Grandline, would precipitately terminate the Licence Deed so as to force the closure of the Company’s stores and likely force DDT into liquidation.

17. By a second affidavit dated 17 March 2025, Mr David Dai referred to a meeting with Ms Vouris on 7 March 2025 and referred to a document purportedly prepared by Mr Li, an Executive Director working with Mr Dai, which outlined an estimated return to creditors in four scenarios, including a liquidation on a high or low recovery scenario, a liquidation sale of business scenario and an administration and DOCA proposal. It appears that a staff member of the Nominated Administrators’ firm was also involved in preparing that document although the affidavit evidence led by the Plaintiffs does not disclose the fact of or the extent of that involvement. That document was plainly not admissible as a business record and was admitted with a limiting order under s 136 of the Evidence Act as a submission and not as proof of the fact. The Plaintiffs did not seek to identify the assumptions made in preparing that document, still less prove the basis of those assumptions. Mr Dai also there addressed aspects of the service of the proceedings.

18. By a third affidavit dated 20 March 2025, Mr Dai responded, in evidence largely admitted with a limiting order under s 136 of the Evidence Act as a submission, to aspects of Mr Marsden’s evidence and denied the claims that Mr Marsden had noted might be brought against him in a liquidation. Mr Dai also claimed that he did not have the financial means to meet the claims that might be brought against him, but the evidence led in support of that proposition plainly fell far short of a comprehensive statement of Mr Dai’s financial position. Mr Dai also contended, in evidence also admitted only as a submission or as his understanding and not as proof of the fact, that the Company’s inventory would be worth less than estimated by Mr Marsden in a liquidation because of certain trademark arrangements.

19. By a second affidavit dated 20 March 2025, Mr Terry Dai in turn referred to a proof of debt lodged by DDT in the Company’s liquidation, although the liquidator had not yet called for proof of debts at this early point in the liquidation. The attached proof of debt was also not admissible as a business record and was admitted with a limiting order under s 136 of the Evidence Act as proof of the communication and not proof of the asserted facts.

20. The Plaintiffs also read affidavits of service dated 14 March 2025 of Ms Marotta, 17 March 2025 of Ms Murray, 18 March 2025 of Mr Majstorovic and 19 March 2025 of Ms Marotta.

21. The Defendants in turn read the affidavit dated 19 March 2025 of Mr Marsden, who is one of the Liquidators. Mr Marsden set out his substantial experience in insolvency matters. He refers to the investigations which he and Mr Clubb had taken since their appointment as Liquidators and to discussion with Mr Dai and his advisers in relation to the entry into the Licence Deed, the application for Court approval of that Licence Deed and the Liquidators’ investigation of claims available in the winding up. Mr Marsden referred to the circumstances in which that Licence Deed was negotiated with Mr Dai and entered with Grandline. He notes Mr Dai’s advice, prior to entry into the Licence Deed, that it was his intention to close several of the Company’s stores if the Licence Deed was entered into and that he (Mr Dai) was in negotiation with landlords of relevant properties for rent relief or rent reduction.

22. Mr Marsden also referred to the belief that he formed that it was in the best interests of the Company’s creditors to enter that Licence Deed, because it would allow the Company to continue to trade to realise its stock in an orderly fashion, where the alternative to entry into that Licence Deed would mean that the Company’s stores would immediately cease to trade, causing a loss of employment to its employees, and there would likely be a diminution in the value of its stock by reason of the loss of retail outlets from which to sell that stock. Mr Stack, who appears for the Plaintiffs, relies on that evidence for the proposition that the Company’s ability to trade depends on the continuance of the Licence Deed. I accept that proposition, with the qualification that it may or may not be possible for the Company to enter into a licence agreement with a third party with appropriate expertise if Grandline were to exercise its right to terminate the Licence Deed on two business days’ notice. Little turns on that proposition, where Grandline has not threatened to terminate the Licence Deed if this application does not succeed; Mr Dai does not give evidence of any intent to do so, and I should not infer that it intends to do so absent such evidence; and Grandline’s doing so would, as I have noted above, have the highly adverse consequences for an associated company, DDT, to which Mr Terry Dai referred in his affidavit.

23. Mr Marsden then further elaborated on the reasons that he believed it was in the Company’s best interests to enter into the Licence Deed which included that Mr Dai had indicated his intention to seek to restructure or recapitalise the Company’s business; that Mr Dai was considering whether to propose a DOCA; and Mr Marsden “considered that entry into the Licence Deed would allow that potential to be explored where the continuation of the business of [the Company] will provide a better foundation for that to occur, if a suitable proposition emerges”; and Mr Marsden also observed that:

“In the time since my appointment, I received unsolicited approaches from a number of parties expressing an interest in the assets and business of the Company. In my opinion, entering into the [Licence Deed] would have provided me with additional time to undertake an expedited sale process, in conjunction with the ongoing discussions with the director in relation to the possibility of a deed of company arrangement.”

24. Mr Stack emphasis the fact that the Licence Deed was directed to promoting a possible DOCA and I accept that that was one of its purposes; however, it was plainly also directed to promoting the alternative of a potential sale of the Company’s business to third parties, which would in turn promote competitive tension in a sale process and maximise the prospect of a higher return from creditors from that process. Mr Marsden refers to store closures and to issues with Grandline’s compliance with the Licence Deed which it is not presently necessary to address. Mr Marsden also refers to Mr Dai’s failure to complete a director’s report on the Company’s activities and property which he was requested to complete; plainly, that failure did not assist Mr Dai in establishing that the likely return from the Proposed DOCA would be greater than that from a liquidation, where it deprived the Liquidators and the Court of information that was plainly relevant to that assessment.

25. Mr Marsden also sets out a preliminary assessment of the Company’s position, including the position as to employee and creditor claims, and noted an open issue as to the amount that is properly recoverable by DDT against the Company, which Mr Marsden presently assesses as less than the amount claimed by DDT. Mr Marsden also addresses the Company’s assets, including plant and equipment and inventory. He refers to his preliminary assessment that the Company may have failed to maintain books and records in accordance with the requirements of s 286 of the Act since December 2022, which may give rise to a presumption of insolvency for specified purposes, and that the Company may have been insolvent as a matter of fact from late October 2024 and possibly earlier. He also addresses the position as to continuing trading losses and substantial overdue Commonwealth and State taxes, including amounts owing in respect of GST, PAYG tax and the Company’s liability under the Superannuation Guarantee Charge. Mr Marsden in turn sets out several matters that may give rise to claims for breach of directors’ duties and ancillary claims against Mr Dai and third parties including DDT. Mr Marsden also identified other potential claims in respect of insolvent trading, preference payments in substantial amounts and unreasonable director-related transactions, and uncommercial transactions.

26. Mr Marsden in turn outlined a comparison of the potential outcome of a liquidation and the DOCA Proposal, which he recognised was based on information “currently available” when “the liquidation is in its infancy”. Mr Stack submits, and I accept, that significant aspects of the analysis of the outcome in a liquidation included the amount recoverable for the Company’s inventory in a liquidation, potential recoveries for voidable transactions and the amount that could properly be claimed by DDT. The comparison undertaken by Mr Marsden showed a better return from a liquidation on a high case and a lesser return on a low case than under the DOCA Proposal. Mr Stack submitted that the return on the average of the high and low case results for a liquidation was broadly comparable to the return under the DOCA Proposal, but I give little weight to that proposition. First, there is little utility in averaging the high and low case returns on a liquidation when it is not yet known whether they are equally probable. Second, Mr Marsden’s liquidation analysis was expressly made on the basis that no sale of the business occurs. While I accept that, unsurprisingly, Mr Marsden has not led evidence of the prospects of a sale process, when hew has only been appointed as liquidator for about three weeks and any sales process has not yet commenced, that does not support an assumption that a sale of the business is impossible. There is also little utility in a comparison of the potential return on the liquidation and the return on the proposed DOCA without adjusting for the significant risks identified by Mr Marsden as to whether contributions to the Deed Fund would be received.

27. Mr Marsden also points out to the fact that a document on which the Plaintiffs’ relied, in support of the application, which is attributed to Mr Li as I noted above, appeared to have been prepared in part by a member of the Nominated Administrators’ staff. That matter was not disclosed or addressed in the Plaintiffs’ evidence. It is not necessary to address Mr Marsden’s criticisms of the analysis contained in that document where it was plainly not admissible to prove the facts asserted in it and was not admitted to do so.

28. Mr Marsden in turn outlines the matters to which he would have regard in assessing a DOCA, including certainty of the contributions to the deed fund, the timetable for the DOCA, the security for the DOCA, control of the Company and the treatment of non-participating creditors. He points to several issues which, I accept, raise significant concerns as to whether the Company would have the capacity to generate funds from which the contributions to the deed fund would be made under the DOCA Proposal, in future trading over a period of two years. The Plaintiffs have led no evidence that is capable of establishing the Company’s ability to make such contributions, as a matter of fact, in the light of the losses that the Company has incurred in recent trading, which may or may not be reduced by store closures and the reduction in the number of employees, which would likely have both revenue and cost implications. Mr Marsden also points to the significant delay in any payment to priority creditors under the DOCA Proposal and notes that the DOCA Proposal does not identify what security would be given by the Company to secure its obligations under that proposal. He also points to a risk to future contributions to the deed fund under the DOCA Proposal, where the Company would be returned to Mr Dai’s control and the Liquidators have identified possible breaches of directors’ duties in respect of Mr Dai’s previous management of the Company.

29. Mr Marsden’s evidence is that, in summary:

“Due to the insufficient information available, I would not be in a position to make a recommendation to creditors in relation to the [DOCA Proposal]. In order to properly consider the [DOCA Proposal], and make a recommendation to creditors, I would require the following information:

(a) A detailed profit and loss and cashflow forecast, demonstrating [the Company’s] ability to meet the required DOCA contributions.

(b) An outline of a plan [the Company] plans to implement to turn the business around from its loss-making position to a profitable business.

(c) The form of security proposed to be provided.

(d) Confirmation that the secured creditor does not proposed to participate in the DOCA.

30. Mr Marsden’s then observes that:

“I have considered whether I should exercise that power [to appoint a voluntary administrator under s 436B of the Act] in relation to [the Company] and I have reached the view that, at this time, I should not do so. In reaching that view, I have considered:

(a) The matters that I have referred to elsewhere in this affidavit;

(b) The fact that I regard the present [DOCA Proposal] as being unable to be properly considered for lack of information;

(c) The additional costs that would be involved in commencing a voluntary administration which, in the absence of a DOCA proposal that is capable of being properly considered and assessed, does not seem to me to serve any purpose and would very likely be wasteful; and

(d) That, by exercising such power now, that does not close out the possibility that the power might be exercised in the future if a suitable proposal emerges.”

31. I recognise that, as Mr Anderson, who appears for the Liquidators, points out, Mr Marsden’s approach does not have the consequence that voluntary administrators will never be appointed to the Company, or that a DOCA could never be put to creditors in respect of the Companies, but only that such an appointment should not be made now, some three weeks after the liquidation commenced and several days after DDT’s and Mr Dai’s solicitors first requested that the Liquidators take that course.

32. As I noted above, Mr Marsden was not cross-examined to contest his evidence of the relevance of these matters to assessing the DOCA Proposal and it seems to me that they are plainly relevant and highly significant to an assessment of that proposal.

The relief sought under s 90-15 of the IPSC

33. The Plaintiffs first seek alternative forms of relief under s 90-15 of the IPSC, which provides that:

“The Court may make such orders as it thinks fit in relation to the external administration of a company.”

34. It is plain enough that the Company is presently under external administration, and there is no contest that Mr Dai has standing to bring an application under s 90-15 as a director of the Company and DDT has standing to bring that application as a creditor of the Company. I also accept Mr Stack’s submission, largely not contested by Mr Anderson, that the Court’s powers under s 90-15 of the IPSC are wider than the Court’s powers to determine an appeal to the Court in respect of a liquidator’s act, omission of decision under former s 1321(d) of the Act.

35. I accept that it is not necessary, in order to establish the basis for the Court to exercise its power under s 90-15 of the IPSC, for DDT or Mr Dai to establish that there was an error or failure on the part of the Liquidators, but only that the order sought relates to the external administration of the Company and that the Court considers it fit to make that order. I proceeded on that basis in Re Manband Pty Ltd (in liq) (subject to Deed of Company Arrangement) [2018] NSWSC 1282; the Court of Appeal appears to have approved that approach in Glenfyne International Holding Ltd v Glenfyne Farms International AU Pty Ltd (in liq); Glenfyne International Ltd v GI Commercial Pty Ltd (in liq) (2019) 101 NSWLR 358; [2019] NSWCA 304, and the Court of Appeal also there observed that there was no reason to read the power in s 90-15 of the IPSC as subject to implied limitations; and a similar approach was taken by the Court of Appeal in OneT Development Pty Ltd v Peter Krejci in his capacity as liquidator of ENA Development Pty Ltd [2023] NSWCA 120 at [33] and by the Court of Appeal of the Supreme Court of Western Australia in Australian Securities & Investments Commission v Jones [2023] WASCA 130 at [306]. Of course, the fact that an error or a failure on the part of a liquidator is not necessary to establish the Court’s jurisdiction does not have the further consequence that, where a decision is made by a liquidator is apparently correct and appropriate, the Court will nonetheless set it aside. While the Court would have power to do so, it would plainly be less likely to consider it fit to make an order that reverses a decision that is apparently correct and appropriate.

36. The first aspect of the relief sought by the Plaintiffs is an order under s 90-15 of the IPSC that the Court appoint the Nominated Administrators as the joint and several administrators of the Company. Mr Stack relies on the case law to which I have referred above to establish the Court’s power to make this order. Mr Anderson responds that the text and context of s 90-15 of the IPSC do not suggest that the power conferred by that provision is so broad as to allow the Court to expand provisions that deal with the appointment of voluntary administrators in ss 436A-436C of the Act. I recognise that this aspect of the relief sought by DDT and Mr Dai would, in substance, modify ss 436A-436C of the Act to extend the persons who could make such an appointment beyond those specified in those sections to include the Court. Different views have been expressed in the case law as to whether s 90-15 of the IPSC authorises such a modification, and Williams J expressed the view that it does in Re DSHE Holdings Ltd (2021) 152 ACSR 171; [2021] NSWSC 608 at [69]ff. It is not necessary to determine that question here because, even if the Court had power to modify the operation of the Act under s 90-15 of the IPSC, I am comfortably satisfied that it would not do so in these circumstances for the reasons noted below.

37. I now turn to Mr Stack’s submissions in support of the order sought. First, Mr Stack points to the object of the administration process set out in s 435A of the Act and submits that the DOCA Proposal is directed at ensuring that the Company and its business continue in existence. I accept that the entry into the DOCA Proposal would be consistent with those objectives, but it does not follow that any DOCA, however uncertain or inadequate, is preferable to any liquidation. I should also recognise that the continuance of the liquidation, at least at present, is not necessarily inconsistent with the continuance of the Company’s business, where that business is presently being conducted by Grandline under the Licence Deed; the Liquidators have not excluded the possibility of placing the Company in voluntary administration in the future, so as to facilitate the then entry into a DOCA on acceptable terms; and the Liquidators expressly recognise the possibility of sale of the Company’s business to a third party who would continue its operation, in realising the Company’s assets in a liquidation.

38. Second, Mr Stack submits that the estimated return to creditors under the DOCA Proposal is comparable to the potential returns available under a liquidation. As I have noted above in dealing with the evidence, there are at least two significant difficulties with that proposition. The first is that (understandably, given the short time in which the Liquidators have been in office) Mr Marsden’s estimate of the return to creditors on a liquidation expressly does not take account of the proceeds of any sale of the business, whether to interests associated to Mr Dai or to a third party. The second is that Mr Marsden’s calculation of the estimated return to creditors under the DOCA Proposal is qualified, as he rightly recognises, by the significant question whether that return would in fact be received.

39. Third, Mr Stack submits that the Liquidators have refused, neglected or omitted to exercise their power to appoint voluntary administrators under s 436B of the Act. I should recognise, first, that they were only asked to exercise that power by the Plaintiffs’ solicitors on 10 March 2025, two days before these proceedings were commenced; and that the decision that they have reached is fairly described as a decision not to appoint voluntary administrators in the 11 days between that request and the date of the hearing, rather than any final decision not to appoint administrators at some point in the future. As I noted above, Mr Marsden’s affidavit expressly leaves open the possibility that the Liquidators would appoint voluntary administrators at a future point. The real dispute in this application is not whether voluntary administrators should be appointed at some point, where the Liquidators leave open the possibility that that would properly occur in the future, but whether the Court can be satisfied that it should make an order requiring the Liquidators to appoint voluntary administrators now, at a time of DDT’s and Mr Dai’s choice.

40. Fourth, Mr Stack points to the significance of the Licence Deed for the continuing operation of the Company’s business. I accept that that Licence Deed is significant to the operation of that business, but that provides no reason to grant the relief sought by the Plaintiffs, where, as I noted above, they do not seek to establish that Grandline will terminate that Licence Deed if this application is not granted, and there is no reason to think that it would do so given the apparent disadvantages to itself and DDT of its doing so.

41. Fifth, Mr Stack submits that Mr Marsden led no evidence that there is any prospect that the Company and the business could be sold through the liquidation process and submits that, unless the administration process is invoked, the Company and the business will cease to exist. It seems to me that Mr Marsden could not be expected, some three weeks into the liquidation, to express a view as to whether the Company and the business could be sold through the liquidation process, which is a matter which may well emerge from a sale process conducted in an orderly liquidation. I do not accept the proposition that, unless the administration process is invoked, the Company and the business will cease to exist, since there is presently no reason to think that the Licence Deed will not continue, allowing the business to continue to operate, pending any further negotiation between Mr Dai and the Liquidators to reach an acceptable DOCA, or a sale of the business to a third party.

42. Sixth, Mr Stack points to uncertainties in a return on a liquidation, and I have pointed above to uncertainties in the return under the DOCA Proposal. I accept that those uncertainties exist, but they do not provide a basis to require the Liquidators to appoint administrators, some three weeks into the liquidation, other than to pursue further investigations which will potentially narrow the scope of those uncertainties.

43. In summary, Mr Stack identifies several reasons why the relief sought should be granted, as follows:

“In short, the relief sought by the Plaintiffs should be granted because, first, the Business has been operating for 24 years. It is substantial, even in its reduced form, with approximately 100 stores nationwide and 1,300 employees.

Second, if the Business closes, all of those stores will close and all of those employees will lose the employment. Further, the closure would adversely affect many third parties including, for example, the landlords of the 100 stores and the suppliers of [the Company], which, in turn have their own employees, who may suffer.

Third, in circumstances were the [DOCA Proposal] has already been prepared, it is reasonable to expect that the administration of [the Company] will be concluded quickly, in accordance with the legislative scheme provided for in Part 5.3A.

Fourth, the Liquidators do not suggest that they could sell either [the Company] or the Business through the liquidation process. Consequentially, the administration process is the only mechanism available which “maximises the chances of [the Company], or as much as possible of [the Business], continuing in existence”. Further, even on Mr Marsden’s own calculations, the recovery to creditors under the [DOCA Proposal] is not dissimilar to the recovery through the liquidation process. And, as noted above, those calculations rest on a number of variable assumptions.

Fifth, as noted above, the terms of the [DOCA Proposal] are likely to be the subject of further negotiation between the [Mr Dai] and the administrators.

Finally, the very purpose of the relief sought is directed at achieving [the] fundamental objective of Part 5.3A, being, at the very least, to ensure that both [the Company] and the Business continue in existence.”

The Plaintiffs submit that, in all the circumstances, the creditors of [the Company] should be given the opportunity consider the [DOCA Proposal] in its final form and with the benefit of the recommendation of the administrators appointed.”

44. I should also address these matters in turn. As I have noted above, it seems to me that the question to be determined by the Court is whether it sees fit to require the Liquidator to appoint the Nominated Administrators now, at a time of DDT’s and Mr Dai’s choice, rather than leaving the Liquidators to take their proposed course, which leaves open the possibility that administrators may be appointed at a future time. I do not accept that the first matter raised by Mr Stack in summary supports the relief sought. While the Company has been operating for many years, and is substantial, I have noted above that there is no reason to think that the business cannot continue to operate under the Licence Deed at least until the liquidation is further advanced, where the Plaintiffs do not lead evidence that they would terminate that Agreement unless they succeed in this application, and it would be likely contrary to their interests to do so for the reasons noted above. The second matter raised by Mr Stack in summary also does not support the relief sought, since no question of the business closing arises while the Licence Deed is in place.

45. I do not accept the third submission made by Mr Stack in summary, because it seems to me that the significant reservations expressed by the Liquidators as to the DOCA Proposal are well-founded and the uncertainties as to the terms of the DOCA Proposal and whether it would be performed are such that there is no reason to appoint a voluntary administrator quickly, with a view to facilitating the entry into the DOCA Proposal while those difficulties are unresolved. I also do not accept that the fourth matter raised by Mr Stack in summary supports the relief sought, where there is no reason to think that the Liquidators would know whether they could sell the Company or the business through the liquidation process, only three weeks after the liquidation commenced. There is no basis to conclude that the Company’s entry into voluntary administration now, rather than in the future, would be the only means to maximise the prospect that the Company or its business continuing in existence, where that may be achieved by a competitive sale process involving either an improved or more certain DOCA proposal put by Mr Dai or his related companies or, possibly, a sale of the business to a third party following a sale process conducted by the Liquidators. I accept that the terms of the DOCA Proposal could well be the subject of further negotiations but there is no need to appoint voluntary administrators to allow those negotiations to occur, since they can readily take place between Mr Dai and the Liquidators.

46. I also do not accept Mr Stack’s final submission in summary. While I accept that the objective of Pt 5.3A of the Act is to ensure that the business continues in existence, I have noted above that that does not have the consequence that any DOCA, irrespective of its terms or lack of certainty, is preferable to a liquidation.

47. I should, for completeness, note that Mr Anderson also submits that:

Further, public policy considerations weigh against the exercise of discretion which the [P]laintiffs seek. Viewed through the prism of a deliberate legislative choice to allow particular persons to appoint voluntary administrators in particular circumstances, it would be undesirable for company directors (or, perhaps, any other persons with sufficient standing) to arrogate to themselves the selection of the identity of external administrators and mode of external administration once the management of a company is no longer within their control and where the legislature has made a deliberate choice that they should not be able to do so: s 436A(2)). The potential for disruption to the external administration of insolvent estates which would flow from that is manifest.”

48. There is substantial force in this submission, although I do not entirely exclude the possibility that such an order could be made in an appropriate case. The case law has recognised, in other contexts, that the Court will ordinarily give weight to the views formed by an insolvency practitioner in the conduct of an insolvency administration: Re Belmont Sportsman Club Co-Operative Ltd [2018] NSWSC 2 (“Belmont”) at [7]; Bailey, In the Matter of Mega Crane Holdings Pty Ltd (admin apptd) [2022] FCA 733. Similarly, it seems to me that the Court should exercise caution in substituting its view for the view of an experienced insolvency practitioner as to matters involving commercial judgments which arise in the conduct of a liquidation and it generally should not do so unless there is good reason to think that the liquidators’ view is incorrect. Here, the Liquidators are well qualified and experienced and have reached the decision not to appoint voluntary administrators at this point on apparently reasonable grounds, reflecting a careful assessment of the relevant issues. That plainly tends against granting the relief sought by the Plaintiffs.

49. Mr Anderson also submits that:

“One further matter should be mentioned. The evidence suggests that there is a question as to the suitability of the [Nominated Administrators]. That is important because the identity of the [Nominated Administrators] is a specific component of the relief claimed. The [Nominated Administrators] degree of independence, and therefore their suitability, is in issue given their extensive recent pre-appointment involvement in the matter (DIRRI at DD-1, pp 239-241); their apparent role in working with David Dai in connection with the [DOCA Proposal] (see email from Mr Sotelo to Mr Dai dated 12 March 9 2025 at Dai (17.03.2025) Annexure “B”; cf. Dai (17.03.2025) which does not refer to any such fact); and their firm’s apparent role in creating the “Estimated Return Table” at Dai, Annexure “C” (Marsden, [188]-[190]; JPM-1, pp 428-9). None of that has been explained by the [P]laintiffs.”

50. The relief sought by the Plaintiffs, in its several versions, is directed to the appointment of the Nominated Administrators as voluntary administrators, although I recognise that Mr Stack left open the possibility that other insolvency practitioners could be appointed if the Court was concerned as to the independence of the Nominated Administrators. It seems to me that the Court would generally exercise caution in appointing voluntary administrators nominated by a deed proponent in order to assess the adequacy of a DOCA proposed by that deed proponent, particularly where their staff have been apparently involved in the preparation of documents that are then used to support that DOCA. It is not necessary to address that question further, where I am not satisfied that the Court should make the orders sought in any event.

51. For these reasons, even if I had power to do so, I would not grant the first form of relief sought by the Plaintiffs on the merits.

52. The second, alternative, aspect of the relief sought by the Plaintiffs is an order under s 90-15 of the IPSC that the Liquidators be compelled to appoint the Nominated Administrators as joint and several administrators of the Company under s 436B of the Act. It is common ground that the Liquidators have power to make such an appointment under that section and that the Court could make such an order under s 90-15 of the IPSC.

53. Mr Stack submits, in substance, that the Court has the power to make this order and should do so for the same reasons that it should make the order that I have declined to make above. Mr Anderson responds that the Court’s power to require a liquidator to appoint a voluntary administrator under s 436B of the Act is “an exceptional power to be used only in the clearest of cases” and that the Court would, at least, be reluctant to interfere with a discretionary decision of a liquidator, where that decision had not taken into account irrelevant matters, had not failed to take into account relevant matters, and was not made unreasonably or in bad faith. I note, for completeness, that Mr Stack fairly made clear that there was no allegation that the Liquidators had acted in bad faith in this case. I am not persuaded that order should be made on the merits, for the reasons I have set out above.

The relief sought under s 447A of the Act

54. As I noted above, the second order that DDT and Mr Dai sought, in the alternative, was an order under s 447A of the Act that Pt 5.3A of the Act was to operate in relation to the Company such that, notwithstanding that it was in liquidation and notwithstanding the terms of s 436A of the Act, Mr Dai as sole director of the Company could pass a resolution of the kind specified in s 436A(1)(a) of the Act and appoint the Nominated Administrators as the joint and several administrators of the Company and cause the Company to appoint them as joint and several administrators by executing an instrument in specified form.

55. Mr Stack submits, in substance, that the Court has power to make this order and should do so for the same reasons that it should make the orders that I have declined to make. Mr Anderson points, in response, to the persons who may appoint an administrator under s 436A-436C of the Act and submits, and I accept, that those sections do not confer any power on the Court to appoint a voluntary administrator: Belmont at [10]. Mr Anderson submits that this application would fail where the Company is not, and has never been, in voluntary administration and that the Court’s power under s 447A of the Act is only available in respect of a company that is subject to (or, I would add, had previously been subject to) Pt 5.3A of the Act.

56. This aspect of the application raises a possibly novel legal issue as to whether the Court has power to vary the operation of Pt 5.3A of the Act so as to cause it to apply to a company which is not presently in voluntary administration and bring about the appointment of a voluntary administrator that not be authorised under s 436A-436C of the Act. I accept that the case law, including Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270; (2000) 34 ACSR 250; [2000] HCA 30, indicate the power under s 447A of the Act may be exercised in respect of a company that is in liquidation, which has previously been under voluntary administration. There is also authority that, for example, the court has power under this section to extend the time for entry into a DOCA under s 444B(2)(a), even if a company has gone into liquidation as a result of failure to enter into a DOCA within time, or to give effect to a pooling resolution passed by creditors while companies were in administration, even after those companies have been placed in liquidation: Re Edward Gem Pty Ltd (2005) 141 FCR 408; 52 ACSR 365; [2005] FCA 74; Re Dean-Willcocks v Soluble Solution Hydroponics Pty Ltd (1997) 42 NSWLR 209; (1997) 24 ACSR 79; (1997) 15 ACLC 833. However, the parties drew my attention to no case where that power has been exercised in respect of a company that had not previously been in and was not then in voluntary administration.

57. It seems to be to be preferable to defer determination as to whether the Court could exercise such a power to a case where that determination will affect the result, and that is not the case here. For the same reasons that I would not require the Liquidators to appoint the Nominated Administrators, I would not be satisfied on the merits that I should vary Pt 5.3A of the Act, even if I have power to do so, to permit Mr Dai now to appoint the Nominated Administrators, rather than leaving the Liquidators to determine whether to do so at some future point.

58. The other relief sought by the Plaintiffs is consequential upon the appointment of the Nominated Administrators and would not be ordered where the Nominated Administrators are not to be appointed, at least at this point.

Orders

59. For these reasons, I made orders at the conclusion of the hearing dismissing the proceedings brought by the Plaintiffs with costs.

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