In the matter of Antqip Hire Pty Limited (subject to deed of company arrangement) (in liquidation) [2020] NSWSC 487

Antqip Hire Pty Limited (subject to deed of company arrangement) (in liquidation) (First Defendant) Antqip Pty Limited (subject to deed of company arrangement) (in liquidation) (Second Defendant) Richard Albarran (Third Defendant) Blair Pleash (Fourth Defendant) David Ingram (Fifth Defendant) Anthony Russell (Sixth Defendant) Representation: Counsel: Mr DR Stack (Plaintiffs) First Defendant (No appearance) Second Defendant (No appearance) Mr S Golledge (Third, Fourth, Fifth Defendants) Mr M Condon SC (Sixth Defendant)

Solicitors: Piper Alderman (Plaintiffs) Bartier Perry Lawyers (Third, Fourth, Fifth Defendants) Sage Solicitors (Sixth Defendant) File Number(s): 2019/198553

Judgment

1. HER HONOUR: This case concerns two companies which executed deeds of company arrangement (DOCAs) in 2014 then resolved to go into voluntary liquidation in 2019, having incurred additional indebtedness of $5 million to a secured creditor in the intervening period. The issue is whether the DOCAs precluded the companies from appointing a liquidator and whether the deed funds are held on trust for the creditors who approved the DOCAs or must be transferred to the liquidators for the benefit of secured creditor and, indirectly, for the benefit of the sole director and shareholder of the companies, Anthony Russell, who is guarantor of the companies' obligations to the secured creditor.
2. Alan Walker and Ozem Kassem, the liquidators of Antqip Pty Limited (subject to deed of company arrangement) (in liquidation) and Antqip Hire Pty Limited (subject to deed of company arrangement) (in liquidation) seek orders determining whether they were validly appointed as liquidators; that the DOCAs be, to the extent necessary, amended or declared void and of no effect and, in any event, terminated; and, that monies held by the deed administrators, the third to fifth defendants, Richard Albarran, Blair Pleash and David Ingram, be paid to the liquidators. In turn, the deed administrators seek declaratory relief that monies paid to them under the DOCAs are held on trust by them as deed administrators for the benefit of the creditors to be distributed in accordance with the terms of the DOCAs notwithstanding the winding up of the companies. Mr Russell was joined to these proceedings on his application for leave to be heard. Mr Russell supported the liquidators' position.
3. Sadly for unsecured creditors, including the Australian Taxation Office (ATO) which is owed $10 million, I have concluded that the companies' appointment of liquidators was valid and the deed funds should be paid to the liquidators. This will be an unpalatable result for unsecured creditors, who either voted in favour of the DOCAs proposed by Mr Russell or have otherwise been bound by the DOCAs by force of the Corporations Act 2001 (Cth) for five years. The deed creditors have not got what they bargained for so long ago, which was a greater dividend than if they voted to place the companies into liquidation at the time. The wait has not been worth it as unsecured creditors would have received between 8 cents and 14 cents in the dollar if they had placed the companies in liquidation in 2014 but will likely receive nothing now. The deed proponent has effectively terminated the DOCAs for his own benefit, being to reduce his personal exposure to the secured creditor under his personal guarantee by remitting the deed fund to the secured creditor and leaving the unsecured creditors with nothing. A great deal of time and expense has been wasted in the meantime.
4. This case underscores how important it is for the second report to creditors to explain the commercial risk inherent in approving entry into a DOCA where there is a delay in the constitution of the deed fund and a continuing exposure to the ongoing trading fortunes of the company in the meantime.

Leave to proceed

1. The liquidators sought leave nunc pro tunc to bring these proceedings, which leave was not opposed by the defendants. Section 444E(3) of the Corporations Act 2001 (Cth) provides: 444E Protection of company's property from persons bound by deed (1) Until a deed of company arrangement terminates, this section applies to a person bound by the deed. … (3) The person cannot: (a) begin or proceed with a proceeding against the company or in relation to any of its property; or (b) begin or proceed with enforcement process in relation to property of the company; except: (c) with the leave of the Court; and (d) in accordance with such terms (if any) as the Court imposes.
2. An officer of a company is "a person bound by the deed": section 444G. The liquidator of a company is an officer (section 9) and thus bound by the DOCAs: Parker, in the matter of Strongest Link Pty Ltd (in liq) (2008) 169 FCR 559; (2008) 250 ALR 118; [2008] FCA 1007 per Lander J at [34]. As such, the liquidators are persons to whom section 444E applies.
3. Leave may be granted nunc pro tunc: Adelaide Brighton Cement Limited, in the matter of Concrete Supply Pty Ltd v Concrete Supply Pty Ltd (subject to deed of company arrangement) (2018) 124 ACSR 389; [2018] FCA 315 at [19]; Re QMT Constructions Pty Ltd [1999] QSC 2; [2000] 1 Qd R 284 at [22]. The principles relevant to an application for leave are essentially the same as for leave under section 471B of the Corporations Act: see Concrete Supply at [22] to [25]. Relevantly, the question is whether the claim sought to be agitated may be readily dealt with under the proof of debt procedure, or whether the company will be harassed or have its assets wasted by permitting litigation to proceed against it whilst under a DOCA.
4. Given the nature of the issues sought to be resolved in these proceedings, I consider it appropriate that leave be granted. These proceedings are of short compass and concern foundational questions which must be resolved by a Court to enable all parties to know whether the affairs of the companies are governed under the DOCAs, a winding up, on what terms, and by whom. These issues cannot be resolved under the DOCAs or in the ordinary course of a liquidation.

Facts

1. The facts are not in issue. In 2001, Antqip was incorporated and carried on business in the construction industry, specifically, wet and dry plant hire, civil contracting, tilt tray services and courier services. In 2009, Antqip Hire was incorporated and provided commercial labour hire services to related companies including Antqip. Since 2010, Mr Russell has been the sole director, secretary and shareholder of both companies.
2. On 3 February 2014, the deed administrators were appointed as administrators of each company under section 436A of the Corporations Act. On 28 February 2014, the administrators issued a report under section 439A of the Corporations Act recommending a proposed DOCA put forward by Mr Russell. For each company, the proposal was that a deed fund would be established from which dividends would be paid to priority and ordinary unsecured creditors. In the case of Antqip, the contributions would come from the future trading profits of Antqip and a related entity, Antqip Plant Hire Pty Ltd. In the case of Antqip Hire, the contributions would come from inter alia the future trading profits of Antqip Plant Hire.
3. Under each DOCA, claims of Mr Russell and related creditors, including former director Asha Ingegneri and "any entity associated with [Mr Russell] or his relatives", would be subrogated to the claims of third party creditors. Related creditors would not be entitled to receive any dividend unless and until third party creditors were paid in full. As to creditors, the administrators reported: 1. Antqip owed some $12.9 million to creditors of which $2.3 million was owed to secured creditor, Bibby Financial Services Australia Pty Limited, and $10.6 million was owed to unsecured creditors including trade creditors ($915,902), the ATO ($5,283,427), the Office of State Revenue ($196,942) and related party loans. 2. Antqip Hire owed some $2.5 million to unsecured creditors including the ATO ($2,523,366) and Office of State Revenue ($251,751).
4. On 10 March 2014, the creditors of the companies resolved to adjourn the second meeting of creditors for 25 business days to further investigate the companies' assets and director penalty notices issued by the ATO to Mr Russell. The minutes record that the ATO sought further information on the ownership of 103 assets formerly recorded in the asset registers and objected to the following clause in the proposed DOCAs: Any dividend paid to the ATO will be first applied to the reduction of the Director's personal liability to the ATO.
5. On 4 April 2014, the administrators issued a supplementary report under section 439A of the Corporations Act, again recommending entry into the DOCAs. The report compared the return to unsecured creditors under the DOCAs and in a liquidation scenario: 1. For Antqip, ordinary unsecured creditors would receive 22 cents in the dollar under the DOCA scenario or between 14 cents and nil in a liquidation scenario. 2. For Antqip Hire, priority creditors would receive 33 cents in the dollar in a DOCA scenario or between 8 cents in the dollar and nil in a liquidation scenario, whilst ordinary unsecured creditors would receive no dividend in either scenario.
6. On 14 April 2014, the second meetings of the creditors of the companies were re-convened and creditors voted in favour of the companies executing the DOCAs. On 8 May 2014, the companies executed the DOCAs and the deed administrators were appointed. Whilst the provisions of the DOCAs are examined in detail at [28] to [37], it is sufficient to note that the terms of the DOCAs were relevantly identical. Control of the companies reverted to Mr Russell. The Antqip DOCA (as later varied in December 2014) required Antqip to pay $3,318,633 into the deed fund whilst the Antqip Hire DOCA required Antqip Hire to pay $400,000 into the deed fund. Secured creditor, Bibby Financial Services, was defined as an "Excluded Secured Creditor" and excluded from the operation of the DOCAs.
7. According to Mr Walker, it appears that the companies ceased trading after entry into the DOCAs. As such, one source of funds for the deed fund contributions evaporated, being Antqip's future trading profits Over the next five years, from May 2014 to April 2019, $3,165,633 was paid into the Antqip deed fund, that is, all but $153,000 of what was required under the Antqip DOCA. For Antqip Hire, $400,000 was paid into the deed fund, being all that was required to be paid.
8. In late 2014, the companies refinanced. On 26 October 2014, the companies executed a Deed of Charge in favour of National Funding Group Pty Ltd. In December 2014, a further report was issued to creditors recommending that the Antqip DOCA be revised. The secured debt then stood at some $3.3 million. The return to ordinary unsecured creditors under the revised DOCA was projected to be 19 cents in the dollar under the DOCA and nil in a liquidation scenario. Creditors approved the deed of variation. On 9 March 2015, a deed of variation of the Antqip DOCA was executed, replacing Bibby Financial Services Australia with National Funding Group as the "Excluded Secured Creditor". On 13 March 2015, the companies executed a further Deed of Charge in favour of National Funding Group. On 21 August 2016 and 24 April 2019, National Funding Group registered security interests on the Personal Property Securities Register against collateral held by the companies.
9. By May 2019, as mentioned, $153,000 remained to be paid into the Antqip deed fund. On 27 May 2019, Mr Russell, as sole shareholder of both companies, passed resolutions that the companies be voluntarily wound up under Part 5.5 of the Corporations Act and appointed the liquidators. The next day, on 28 May 2019: 1. The liquidators wrote to the deed administrators notifying of their appointment and requesting that the balance of the companies' bank accounts be transferred to the liquidators' bank accounts. Mr Pleash says that this is the first he knew that Mr Russell was considering appointing liquidators to the companies. 2. National Funding Group appointed Mr Albarran and John Vouris of Hall Chadwick as receivers of the assets of the companies. (The receivership was short-lived and came to an end on 13 June 2019.) 3. National Funding Group also registered a number of security interests against collateral held by the companies.
10. On 5 June 2019, the deed administrators filed an annual administration return in respect of the companies. According to these reports, the position of the companies and the deed fund was as follows: Antqip Antqip Hire Assets Nil Nil Liabilities $19,011,295 $11,769,786 Remuneration unpaid $166,431 $104,292 Cash at bank $1,828,323 $41,788

How the level of secured debt came to more than double since 2014 is not the subject of evidence but appears to have come as something of a surprise to the deed administrators.

1. On 26 June 2019, the liquidators commenced these proceedings seeking declarations that their appointments were valid and orders terminating the DOCAs. On 28 June 2019, the liquidators served a notice to produce on the deed administrators for any books and property of the companies. The liquidators also requested a complete listing of time costs incurred by the deed administrators in the administration and deed administration of the companies, together with details of any amounts the deed administrators were owed by the companies and any correspondence issued to creditors since the liquidators' appointment. The deed administrators queried the basis on which the liquidators sought this information and further correspondence ensued.
2. In a similar vein, shortly before the hearing Mr Russell issued a notice to produce to the deed administrators seeking a wide range of documents said to bear upon the Court's discretion as to whether the deed administrators should be appointed trustees for the purposes of distributing the deed funds in the event that the Court determines that there is a trust. Mr Russell has expressed concerns as to whether part of the deed funds were misapplied. It would thus appear that Mr Russell has some criticisms of the deed administrators' performance.
3. On 19 July 2019, the deed administrators issued a circular to creditors for each company advising that, "contrary to the terms of the DOCA[s]", liquidators had been appointed to the companies by Mr Russell and were requesting that the DOCA fund be paid to the liquidators. Creditors were asked if they wished to be heard in the proceedings, to become a party or to provide their views on whether the DOCAs should be terminated so that these comments could be conveyed to the Court. The deed administrators noted: Dividends to Creditors In the event the orders sought by the Liquidators are approved by the Court, ie. the DOCA be terminated and the Company be placed into liquidation and the DOCA fund be available to the Liquidators, the return to creditors is likely to be reduced compared to that under DOCA scenario given the following: • The secured creditors may claim security over the assets of the Company pursuant to their respective registered secured interests; • Related party creditors will lodge claims in the Liquidation; and • Liquidators' fees and disbursements are costs of Liquidation to be paid out of the Company's assets in priority to ordinary unsecured creditors.
4. Mr Pleash provided an analysis of the dividends payable under the DOCAs compared to the dividend likely if the DOCAs are terminated and the funds returned to the liquidators for distribution in a liquidation. Mr Pleash's analysis may be summarised as follows. Antqip Antqip Hire Priority creditors $250,712 $2,985,904 Return under DOCA 100 cents 13 cents Return in liquidation Nil Nil Unsecured creditors $9,281,676 (DOCA) $11,576,676 (liquidation) $1,928,351 Return under DOCA 14 cents Nil Return in liquidation Nil Nil Secured creditors $7,040,219 $7,040,219 Return under DOCA N/A N/A Return in liquidation 12 to 25 cents Nil

Thus, the only creditor who stands to benefit from termination of the DOCAs is the secured creditor. The deed administrators noted that Mr Russell is the guarantor of that debt, relying on an affidavit of Mr Russell's solicitor in which Mr Russell was described as "a guarantor of obligations of the defendants".

1. A comparison of the lists of creditors in the winding up with the list of deed creditors indicates that there are no creditors who would be entitled to make a claim in the liquidation of either company who were not creditors at the time of the appointment of the voluntary administrators in 2014. Thus, all creditors are bound by the terms of the DOCAs. The only substantial difference in the makeup of the body of creditors as between the DOCAs and the windings up is that Mr Russell and related party creditors are excluded from claiming any dividend under the DOCAs but would be included for dividend purposes in the liquidations. As the deed administrators put it, termination of the DOCAs would benefit those related party creditors who voted for the DOCAs in 2014 and agreed to postpone their claims, presumably so that the creditors would compromise their claims. That may be right as a matter of theory but, as I understand Mr Pleash's analysis, ordinary unsecured creditors including related creditors will receive no dividend in a liquidation in any event. The secured creditor alone will benefit.
2. The largest creditor of the companies is the ATO, which is owed some $10 million. Unsurprisingly, the ATO has advised that "the ATO would be supportive of the scenario that is most likely to provide the best overall financial return on its debt". In the circumstances, the Commissioner considers it would be in the interests of the creditors bound by the DOCA for the deed funds to be utilised in accordance with the terms of the DOCA for DOCA creditors.
3. Mr Russell submitted that no or little weight should be afforded to the position taken by the ATO. It was said that the ATO's statement of support was qualified and expressed with some hesitation, identifying a concern that one of the deed administrators (Mr Albarran) and one of his partners had been appointed receivers by National Funding Group. The ATO also expressed reservations regarding the estimates provided by the administrators as to what might occur in the context of a liquidation, and Mr Russell submitted that the ATO was right to express those reservations: the spreadsheet provided to the ATO recorded conclusions which were unverifiable because the underlying calculations were not provided, for example, fees and disbursements for the liquidators in Antqip were estimated to be $900,000 to $1.22 million. The ATO was also said to have expressed concern about the priority claims which might be made by National Funding Group, and Mr Russell submitted that the deed administrators' response that National Funding Group would not be entitled to pursue priority claims against the deed funds depended upon the correctness of the proposition that the deed funds are held on trust for the companies' creditors. Finally, Mr Russell submitted that there are a large number of small creditors, none of who manifested support for the continuation of the administrations.
4. The deed administrators correctly point out that the queries raised by the ATO were promptly answered by the deed administrators, subsequent to which the ATO expressed its final view set out at [24]. The deed administrators submitted that, in deciding whether to accede to the liquidators' application supported by Mr Russell, the Court should take into account the interests of affected creditors who are in the best position to decide how their own interests are served: Bathurst City Council v Event Management Services Pty Ltd (2001) 36 ACSR 732 per Santow J at [13]. It is common for the Court to receive evidence of the views of creditors on applications such as this, and the Supreme Court (Corporations) Rules 1999 permits creditors to seek to intervene and be heard. The ATO is the largest unsecured creditor and, as a well resourced, commercially sophisticated creditor, is well able to identify where its commercial interests best lie. Whilst there are other creditors, they have chosen not to participate in the application apart from Mr Russell, who has an interest at odds with those of unrelated creditors.
5. It is self evident that a creditor will support an outcome which confers the greatest return to them. The ATO is owed a large sum indeed. I accept the veracity of the ATO's comments. I assume the secured creditor would, if asked, express a view in favour of termination of the DOCA as National Funding Group stands to benefit from payment of the deed fund to the liquidators. Ultimately, the views of creditors do not assist greatly in the tasks presently before the Court.

The DOCAs

1. Section 444A(4) of the Corporations Act specifies matters which must be set out in a DOCA which, by section 444A(5), is also taken to include the prescribed provisions set out in Schedule 8A to the Corporations Regulations 2001 (Cth) in accordance with regulation 5.3A.06 unless the DOCA provides otherwise. Here, the DOCAs by and large followed the framework set out by section 444A(4) and Schedule 8A, with some embellishments and variations. Clause 1.1 of the DOCAs defined "Creditor" and "Subordinated Creditor" as: (emphasis in original) "Creditor" means any person … whose claim against the Company would have been a provable debt if the Company had been wound up and any person … having any debt or claim … due or which may become due by the Company as a result of anything done or omitted to be done by or on behalf of the Company on or before [3 February 2014] excluding any [Excluded Secured Creditor]; "Subordinated Creditor" means any person … referred to in Item 7 of the Schedule hereto. The Excluded Secured Creditor is National Funding Group. As to Subordinated Creditors, Item 7 of the Schedule specified Mr Russell, Ms Ingegneri, David Russell, Isaac Russell and any other "related entity" to the companies as defined by section 9 of the Corporations Act, and also described Subordinated Creditors as "Excluded Creditors".
2. Clause 1.5 provided that, if a provision of the deeds was found to be void, invalid or unenforceable, then such clause was deemed to be severed to the extent that it was void, invalid or unenforceable and the remainder to remain in full force and effect.
3. By clause 4, "Provision of Funds", each company agreed to pay the relevant deed fund contribution to the deed administrators in the instalments specified. Clause 5 provided: Property Available to Pay Creditors The property of the Company, if any, that is available to and can be realised by the Deed Administrator shall be [any cash at bank of the company as at the date of execution of the DOCA] … together with the entitlement to receive the [total deed fund contribution] (herein both Items collectively referred to as "the Funds") shall be that property from which creditors are entitled to be paid under this Deed. This clause addressed the requirements of section 444A(4)(b) of the Corporations Act, which requires that a proposed deed specify "the property of the company (whether or not already owned by the company when it executes the deed) that is to be available to pay creditors' claims."
4. Clause 6 provided that the Funds were to be distributed to pay the remuneration, costs, disbursements and trading liabilities and expenses of the administrators and deed administrators; then priority creditors admitted to prove under the terms of the DOCAs; and, finally, to Creditors other than Excluded Creditors. This clause addressed the requirements of section 444A(4)(h) of the Corporations Act, which requires that a proposed deed specify the order in which proceeds of realising the property in section 444A(4)(b) are to be distributed amongst creditors bound by the deed.
5. Critically, clause 7 provided: (emphasis added) Deed Administrator Deemed Agent of Company In exercising the powers conferred by this Deed and carrying out the duties arising under this Deed, the Deed Administrator has taken to act as agent for and on behalf of the Company, except in the receipt of payments, if any, under clause 4 hereof, which shall be received as Agent for and on behalf of the creditors of the Company (which shall include the obligation to pay the remuneration, costs and expenses of the Deed Administrator, Administrator or Liquidator) and which funds shall not be refundable in the event of the termination of this Deed. In this respect, the DOCAs "provided otherwise" to the prescribed provisions in Schedule 8A, clause 1 of which supplied the opening non-italicised portion of clause 7 of the DOCAs only.
6. Clause 8 conferred wide powers on the deed administrators including clause 8(g) "to administer the assets available for payment of claims of creditors in accordance with the provisions of this Deed". Clause 8 (g) corresponded with clause 2(g) of Schedule 8A. It was suggested by Mr Russell that clause 8(g) was an appropriate place to refer to the deed administrator's powers as trustee if that is what they were.
7. Clause 8 concluded with a proviso not contained in Schedule 8A: PROVIDED ALWAYS THAT the Deed Administrator shall not be involved in the management, operation or control of the Company or any of its business or undertakings, with the control of the Company reverting to the Sole Director except as expressly provided above. The proviso noted that control of the companies reverted to Mr Russell "except as expressly provided above". In that regard, sub-clauses 8(z) and 8(ai) provided that the deed administrators had the following powers: (emphasis added) (z) to carry on the business of the Company on such terms and conditions and for such purposes and in such manner as the Deed Administrator thinks fit, at any time the company is in breach of any terms of the this Deed, or when the company indicates in writing that it is likely to be in breach of any terms of this Deed (in each case notwithstanding any obligations or action taken under clauses 9 and 10 of this Deed). … (ai) to take control and possession of the assets and undertaking of the company at any time the company is in breach of any terms of this Deed, or when the company indicates in writing that it is likely to be in breach of any terms of this Deed (in each case notwithstanding any obligations or action taken under clauses 9 and 10 of this Deed). Clause 8(z) corresponds with clause 2(z) of Schedule 8A, apart from the italicised portion, whilst clause 8(ai) has no comparator in Schedule 8A. Thus, the DOCAs provided that control of the companies would revert to the deed administrators where the companies were in breach of the DOCAs or expected to be in breach.
8. In the event that a deed fund contribution was not paid on time, then the deed administrators "may" issue a demand or notice on the company requiring payment of the outstanding amount: clause 9. If such a demand was not met then clause 11 provided: (emphasis added) Termination of Deed Where Arrangement Fails … if the Company has failed to comply with a demand issued under Clauses 9 or 10 [which obliged the company to supply monthly financial reports to the deed administrators] of this Deed, or if the Deed Administrator determines that it is no longer practicable or desirable either to carry on the business of the company or to implement this Deed, or if the Deed Administrator becomes aware that the Company has become insolvent, or if the Directors of the Company convene a meeting to consider passing or the Directors pass a resolution under any section within Parts 5.1 to 5.6 of the Corporations Act, or if the Company is otherwise in default of this Deed (hereinafter referred to as "defaults"), then the Deed Administrator should summon a meeting of creditors for the purpose of considering, and if thought fit, passing a Resolution under Section 445C(b) of the Corporations Act … This was a significant departure from clause 3 of Schedule 8A. The range of circumstances in which the DOCAs may be considered to have failed are more numerous than those cited in Schedule 8A and, in particular, included where the directors passed a resolution under Parts 5.1 to 5.6 of the Corporations Act. Further, the deed administrators' obligation to call a meeting of creditors is mandatory in the prescribed provisions, that is, "must" summon a meeting for the purpose of passing a resolution to terminate the DOCA (clause 3(b) of Schedule 8A), but indicative only in clause 11, that is, "should" summon a meeting to consider if thought fit passing such a resolution.
9. Clause 13 provided that the deeds may be pleaded by the companies against any Creditor, apart from Subordinated Creditors and Excluded Secured Creditors, in bar of any debt or claim that is admissible under the DOCA and a Creditor "must not, before termination of this Deed … take or concur in the taking of any step to wind up the Company …": clause 13(a). Creditors apart from Subordinated Creditors and Excluded Secured Creditors were obliged to accept their entitlements under the DOCAs in full satisfaction and complete discharge of their debts or claims: clause 14. (Mr Russell noted that clause 14 did not refer to the creditors taking as beneficiaries.) Clause 15 provided that, upon the companies making all deed fund payments, Creditors' claims were extinguished except for claims of Subordinated Creditors and Excluded Secured Creditors. These clauses of the DOCAs largely accord with clauses 5, 6 and 7 of Schedule 8A. The deed administrators submitted that the trust was fully constituted on receipt of all deed fund payments although, obviously, the last three Antqip instalments have not been paid. Mr Russell enquired when the Antqip deed was said to have come into existence in the circumstances to hand.
10. Clause 19, "Restrictions on Company until Deed Terminates" provided that, unless and until the DOCAs were terminated: … the Company must: (a) not charge, encumber or dispose of any property, other than in the ordinary course of business, without the written permission of the Deed Administrator, (b) carry on its business in a proper and business like manner and with a view to maximising profit … Clause 19 imposed a range of similar obligations such as keeping books and records, maintaining insurance and allowing the deed administrators to access books and records. Clause 19 has no comparable provision in Schedule 8A.
11. Finally, clause 25 provided: During the period of this deed, the Company including its members and officers must not: • Make or proceed with any application for an order to wind up the Company; • Resolve to appoint an Administrator, Liquidator, Receiver or Receiver and Manager; and • The Company must take steps to ensure this. In the event that the Company should for any reason be wound up during the period of this deed, the Administrator shall become the Liquidators of the Company.
12. Clause 25 has no comparable provision in Schedule 8A. Whilst the DOCAs generally followed the sequence of clauses otherwise prescribed by Schedule 8A, clause 25 of the DOCAs has been added as the final provision. It is this provision which gives rise to the first issue in these proceedings.

Validity of appointment of liquidators

1. The liquidators seek orders determining whether their appointment was valid and effective and, further, … that Part 5.3A of the Corporations Act is to act in relation to the [companies] such that: (a) clause 25 of the [DOCAs] … : (i) is deleted; (ii) was not binding on the members and/or officers of the [companies]; and/or (iii) is otherwise void and of no effect; and/or (b) the members of the [companies] were, during the operation of the [DOCAs], permitted and/or authorised to cause the [companies] to be wound up under Part 5.5 of the Corporation Act.
2. The questions thus are: whether, absent clause 25, Mr Russell was entitled to resolve to appoint liquidators to the companies notwithstanding the DOCAs; did clause 25 preclude Mr Russell from doing so; and, if so, should the clause be struck down.

Can a company wind up voluntarily notwithstanding a DOCA?

1. A company can resolve that it be wound up voluntarily as long as the DOCA remains on foot at the time. Part 5.3A of the Corporations Act, "Administration of a company's affairs with a view to executing a deed of company arrangement", is essentially focussed on three phases in the life of a company under administration. The first phase concerns the administrator investigating the affairs of the company and convening a meeting of creditors to decide the company's future, including whether to enter into a DOCA (Divisions 1 to 9). The second phase is life under a DOCA (Division 10). The third phase is life after, or instead of, a DOCA including automatically transitioning to a creditors' voluntary winding up (Division 12). As the matter was described more eloquently by Brooking JD, Phillips and Hansen JJ in Brash Holdings Pty Ltd (admr apptd) v Katile Pty Ltd [1996] 1 VR 24; (1994) 12 ACLC 472; (1994) 13 ACSR 504 at 510: [the] company … [is] subjected to control by an administrator to the exclusion of its normal officers for a strictly limited period during which the administrator is charged to investigate the affairs of the company in order to ascertain which of three courses should thereafter be adopted: a deed of company arrangement to be executed by the company, winding up, or simply the cessation of the administration without either of the foregoing. The scheme of Pt 5.3A is that at the end of the strictly limited period of administration, the creditors themselves will decide which of these three possible steps should be taken and in the meantime there is a moratorium on actions or proceedings against the company.
2. Division 6, "Protection of company's property during administration", contains section 440A(1) which provides: A company under administration cannot be wound up voluntarily, except as provided by section 446A or 446AA. As explained by the Explanatory Memorandum for Corporation Law Reform Bill 1992, section 446A provides for the transition from administration to a deemed creditors' voluntary winding up where the creditors resolve that the company be wound up or the company fails to execute the DOCA agreed upon by the creditors. "Thus, only the Court may wind up a company that is under administration and it is expected that the Court would order a winding-up only in the rarest of circumstances": at [514].
3. More specifically, section 446A(1) of the Corporations Act provides: Administrator becomes liquidator in certain cases (1) This section applies if: (a) the creditors of a company under administration resolve at a particular time under paragraph 439C(c) that the company be wound up; or (b) a company under administration contravenes subsection 444B(2) [by failing to execute a DOCA] at a particular time; or (c) the company's creditors: (i) pass a resolution terminating a deed of company arrangement executed by the company; and (ii) also resolve at a particular time under section 445E that the company be wound up. The power to transition from administration to a creditors' voluntary winding up is, unsurprisingly, vested in the creditors. The intention was that, where an administration is incapable of saving a company, the transition from a voluntary administration or DOCA to a winding up should be efficient and not involve a new court process. Division 12 achieves this by deeming steps to have been taken towards a winding up, as soon as a stage is reached in the administration where winding up emerges as the only realistic alternative: Explanatory Memorandum at [614]-[615].
4. In 2016, section 446AA was added to the Corporations Act and section 440A(1) to provide additional instances in which transition to a creditors' voluntary winding up would occur. Section 446AA(1) provides: Administrator becomes liquidator - additional cases Scope (1) This section applies if a company has executed a deed of company arrangement and: (a) the Court, at a particular time, makes an order under section 445D terminating the deed of company arrangement; or (b) both: (i) the deed of company arrangement specifies circumstances in which the deed is to terminate and the company is to be wound up; and (ii) those circumstances exist at a particular time. In this event, the company is taken to have passed a resolution that the company be wound up voluntarily and to have done so without a declaration of solvency having been made and lodged under section 494, so that it passes into a creditors' voluntary winding-up.
5. As to when an administration begins and ends, section 435C(1) provides: When administration begins and ends (1) The administration of a company: (a) begins when an administrator of the company is appointed under section 436A, 436B or 436C; and (b) ends on the happening of whichever event of a kind referred to in subsection (2) or (3) happens first after the administration begins.
6. The events described in subsections 435C(2) or (3) are, essentially: 1. entry into a DOCA; 2. a resolution of the company's creditors that the administration should end or the company be wound up; or 3. the administration is brought to an end by the Court or there is non-compliance with the detailed requirements of Part 5.3A such as failure to hold a second meeting of creditors within the convening period or failure to execute the DOCA within the required timeframe.
7. The interplay between section 435C, 440A, 446A and 446AA is a little unclear as, on the one hand, the administration of a company ends on execution of a DOCA whilst, on the other hand, it is implicit in section 440A(1) that the company is "under administration" if the DOCA is terminated, either by the companies' creditors, the Court or by operation of the terms of the DOCA, that is, the administration of the company resumes if the DOCA is terminated.
8. Either way, the companies in this case were not "under administration" when Mr Russell resolved to appoint a liquidator as the DOCAs had been entered into and not terminated at the time. On execution of the DOCAs, the administration of the companies came to an end: section 435C(2)(a). The companies were thereafter not "under administration" and the restrictions in section 440A(1) did not apply.
9. Division 10, "Execution and effect of deed of company arrangement", contains section 444E (part of which was canvassed at [5]) which provides: 444E Protection of company's property from persons bound by deed (1) Until a deed of company arrangement terminates, this section applies to a person bound by the deed. (2) The person cannot: (a) make an application for an order to wind up the company; or (b) proceed with such an application made before the deed became binding on the person. …
10. The liquidators submitted that section 444E, in its terms, does not prevent the implementation of a voluntary winding up under Part 5.5 or the appointment of an administrator under Part 5.3A of the Corporations Act, relying on the analytical approach of Finkelstein J in respect of the latter scenario in Beatty v Brashs Pty Ltd (1998) 152 ALR 689; (1998) 26 ACSR 685 at 689 to 692. It was submitted that the continued availability of rights under Part 5.5 appears to be recognised in section 513B(c) of the Corporations Act, which provides for the deemed commencement of a voluntary winding up where the appointment occurs where a deed of company arrangement is still operative: Re Jick Holdings Pty Ltd (in liq) (2009) 72 ACSR 387; [2009] NSWSC 574 at [2]-[6]; Beatty v Brashs Pty Ltd at 689-692. Consequently, notwithstanding that the companies were the subject of the DOCAs, Mr Russell as the sole officer and shareholder could pass resolutions under Part 5.5 for the voluntary winding up the companies and the appointment of the liquidators.
11. I agree that the language of section 444E clearly refers to applications for a court appointed liquidator and does not refer to voluntary liquidations. Thus, section 444E does not preclude Mr Russell making such an appointment. That this scenario may occur is confirmed by section 513B(c), in fact occurred in Re Jick Holdings without judicial exclamation, and is consistent with the approach to statutory construction of these provisions by Finklestein J in Beatty v Brashes. In Johnson v Hancock Re Meditech Nursing Service and Skillforce Agency Pty Ltd (2009) 73 ACSR 78; [2009] NSWSC 685, Barrett J came to a similar conclusion where this scenario occurred, at [7]: Section 444E precludes an application to the court for a winding up order after a deed of company arrangement has come into effect and before it is terminated. But there is no prohibition on the initiation of voluntary winding up during that period. The deed administrators did not submit otherwise.

Submissions on meaning and validity of clause 25

1. Although clause 25 of the DOCAs provided that the companies, members and officers "must not", during the period of the DOCAs, "resolve to appoint [a] Liquidator", the liquidators submitted that, properly construed, the DOCAs did not preclude Mr Russell from appointing a voluntary liquidator. Such a construction was said to be supported by other provisions of the DOCAs and the need to construe the DOCAs consistently with the Corporations Act. As to other provisions of the DOCAs, the liquidators pointed to two clauses which apprehended the appointment of liquidators. First, whilst the first sentence of clause 25 appeared to impose an absolute prohibition on Mr Russell exercising the rights ordinarily available under Part 5.5 to place the companies into voluntary liquidation, the second sentence - "In the event that the Company should for any reason be wound up during the period of this deed, the Administrator shall become Liquidators of the Company" - acknowledged that the companies could be wound up. One possible explanation was said to be that, whilst the DOCAs are binding on all pre-existing creditors, the company, officers, members and administrator, subsequent creditors are not bound by the DOCAs and could make such an application. The liquidators submitted, however, that this was not a satisfactory explanation as those creditors are not bound by the DOCAs and could not be compelled to have the administrators appointed as liquidators in any event.
2. The liquidators also pointed to clause 11 of the DOCAs in support of the construction for which they contended. By that clause, the administrators are required to summons a meeting of creditors to consider termination of the DOCAs where Mr Russell convenes a meeting to "pass a resolution under any section with Part 5.1 to 5.6 of the Corporations Act". This was odd where the first sentence of Clause 25 seems to be directed to prevent Mr Russell from taking steps under those parts.
3. As to the need to construe the DOCAs consistently with the Corporations Act, the liquidators submitted that the DOCAs were effectively subordinate legislation and, as such, should be construed consistently with the enabling legislation, analogous with the approach dictated by section 46, Acts Interpretation Act 1901 (NSW). As the Corporations Act does not preclude the appointment of a voluntary liquidator to a company under a DOCA, clause 25 ought be construed consistent with that possibility. To this, Mr Russell added Austin J's observations in Derwinto Pty Limited (in liq) v Lewis (2002) 42 ACSR 645; [2002] NSWSC 731 where the plaintiff sought to appeal against the administrator's rejection of a proof of debt. At [44]: In my view the correct construction of these provisions is that the statutory right of appeal under s 1321 cannot be restricted by a provision of the deed. Section 444D, according to which creditors are bound by the deed, must be read subject to other provisions of the Act. The Court ought not to adopt a construction that would permit a right of appeal to be restricted, unless the relevant provisions are clearly intended to have that effect. Although the relevant provisions of the Regulations are in their terms not expressed to apply to the appeal rights of a creditor dealing with administrators under a deed of company arrangement, the Act and Regulations contemplate that a deed of company arrangement may adopt those provisions: s 444A(5), reg 5.3A.06 and Schedule 8A, para 8. However, where one section in an Act makes allowance for the consensual adoption of regulations that do not directly apply, the consensual adoption of such regulations should not be construed so as to override or qualify an independent statutory right under the same Act. Were it otherwise, the same process of reasoning would permit consensual abrogation of the creditor's right of appeal, even though under Part 5.3A the "consensus" leading to the adoption of the deed of company arrangement may be one in which the individual creditor has not participated. The deed administrators submitted that Derwinto is not authority for the proposition that a DOCA cannot in any circumstances alter the operation or effect of provisions of the Corporations Act. Rather, it was submitted that his Honour was considering the effect of two statutory provisions which had similar effect, one of which was adopted in the DOCA (being Schedule 8A) and the other being section 1321 of the Corporations Act (now repealed).
4. The liquidators pointed to a number of provisions of the Corporations Act said to conflict with the first sentence of clause 25: whilst the first bullet point of Clause 25 prohibits an application to the Court for an order that the companies be wound up, section 444E allows for such an application with the leave of the Court; whilst the second bullet point of clause 25 prohibits a resolution to place the companies into administration or liquidation, Part 5.3A and Part 5.5 of the Corporations Act allow for these events to occur. Further, clause 25 was said to undermine a fundamental principle of corporations law that insolvent companies should not be permitted to continue to trade and should otherwise be liquidated: Beatty v Brashs Pty Ltd at 689. This principle was recognised in the right under Part 5.4 to wind up a company in insolvency, insolvent trading provisions, and the liability of parties who receive unfair preferences under Division 2 of Part 5.7B. Here, the companies were hopelessly insolvent when Mr Russell resolved to appoint the liquidators. It was submitted that it would odd if, in those circumstances, a director was prohibited from causing the company to take steps to have itself liquidated, noting that the importance of a director or shareholder being able to liquidate a company: Re Jick Holdings at [2]-[6]; Beatty v Brashs Pty Ltd at 689. Accordingly, the liquidators submitted that, properly construed, clause 25 must be read as subject to an entitlement of a member to properly exercise their rights under the Corporations Act, including those under Part 5.5. Alternatively, the DOCAs must have included, by implication, a qualification to this effect.
5. Further, the liquidators submitted that a DOCA can only deal with the property of the company and cannot be used to exempt directors from personal guarantees: M & S Butler Investments v Granny May's Franchising (1997) 24 ACSR 695 at 703. A DOCA cannot be used to oust the operation of the Corporations Act: Re Carey Builders Pty Ltd (1997) 23 ACSR 754 at 775; Metal Manufactures Ltd v Hall [2002] NSWSC 298; (2002) 41 ACSR 466 at [7]; Winterton Constructions Pty Ltd v M A Coleman Joinery Co Pty Ltd (1996) 20 ACSR 671 at 675. It was thus submitted that a DOCA cannot be used to limit the discharge of a director's obligations under the Corporations Act and at law, as those obligations are not property rights of the company: Mancini v Mancini [1999] NSWSC 799; (1999) 17 ACLC 1570 at [30] to [32]; Saad v Doumeny Holdings Pty Ltd [2005] NSWSC 893 at [17]; Re Ledir Enterprises Pty Limited [2013] NSWSC 101 at [20]. Nor can a DOCA be used to limit the rights of a shareholder, which are not property of the company: section 1070A of the Corporations Act. It was said to be extraordinary if, for example, a DOCA required a director to allow a company to trade whilst insolvent. Such a view was said to be implicit in the observations of White J in Re Jick Holdings at [2]-[6] and Finkelstein J in Beatty v Brashs Pty Ltd at 689.
6. The deed administrators submitted that clause 25 operated as a restraint on the power of members of the company to pass any resolution for the appointment of a liquidator. Such a clause could not bind creditors whose debts arose after the date of the DOCAs, such creditors not being bound by the DOCAs, but operated by force of statute on members and officers. A resolution for the initiation of a winding up should be construed as a breach of that prohibition. A resolution for the winding up of a company which is passed contrary to a statutory prohibition is invalid and of no effect: Bredenkamp, in the matter of Rapid Fire Fleet Rentals P/L (in liq) [2014] FCA 1307 at [16]; DCT v VFS Employment Services Pty Ltd [2016] FCA 1054 at [16]; Re Horsham Kyosan Engineering Co Limited [1972] VR 403 at 405. Thus, the liquidators were not validly appointed and the "purported liquidations" are of no legal effect. The liquidators submitted that Bredenkamp and DCT v VFS Employment Services, which concerned the voluntary appointment of a liquidator where an application for a Court appointed liquidator was on foot and no leave had been granted under section 490(1) of the Corporations Act to voluntarily wind up the company, had no application here as they concerned an express statutory prohibition, as distinct from a DOCA. Here, the Corporations Act allowed for the appointment of voluntary liquidators but arguably the DOCA did not. It seems to me that none of the cases relied on by the liquidators or deed administrators referred to in this and the preceding paragraph applied squarely to the case at hand but only by analogy.
7. The deed administrators submitted that DOCAs routinely excluded the rights of parties, whether creditors or members, to apply for a winding up order and suggested that this was perhaps the most common form of precaution or moratorium provision in a DOCA and no one has ever suggested that such a term is limited, constrained or invalid. The fact that a DOCA sought to impact upon rights that were otherwise granted by the Corporations Act or recognised by the law was said to be an entirely common feature of DOCAs. The deed administrators submitted that it was common place for DOCAs to alter the rights of creditors to share pari passu, noted the intended flexibility of DOCAs and the wide variety of possible DOCAs referred to in Mighty River International Limited v Hughes (2018) 130 ACSR 427; [2018] HCA 38. To this, the liquidators replied that rights to commence a winding up proceeding were already expressly constrained by section 444E(2) and thus the deed administrator's argument did not advance matters. It was suggested that the deed administrator could not point to any provision of the Corporations Act which made it impermissible to appoint a voluntary liquidator under Part 5.5 in the circumstances, and submitted that whilst a DOCA may not constitute a contract, it does not substitute the express rights otherwise conferred by the Corporations Act.
8. Alternatively, if clause 25 prevented Mr Russell from resolving to appoint the liquidators, then the liquidators submitted that the clause 25 was void and unenforceable to the extent that it prohibited Mr Russell from exercising the rights afforded under Part 5.5. The liquidators relied on A v Hayden (1984) 156 CLR 532 where Mason J considered when the Courts may refuse to enforce a valid contract on the ground of public policy being, in that case, where enforcement of a contract would have an adverse effect on the administration of justice: at 559. It was submitted that, where the Corporations Act envisaged the appointment of a voluntary liquidator whilst a DOCA was underway, it would be contrary to public policy to enforce a DOCA which precluded such an appointment. To the extent that Mr Russell was in breach of the DOCA, it does not invalidate the appointment of the liquidators or, if the Court thought otherwise, this was an appropriate case to remedy any invalidity under section 1322(4)(a) of the Corporations Act.
9. The liquidators' appeal to public policy in this case seemed a little hollow in circumstances where, on the limited evidence before the Court, Mr Russell continued to operate the companies after entry into the DOCAs but ceased to trade in circumstances where the deed fund contributions were expected to come inter alia from Antqip's trading profits. The companies' financial position drastically worsened, presumably not instantaneously but over time. Mr Russell's appointment of voluntary liquidators without notice to the deed administrators appears to have been inspired by his unhappiness with the deed administrators rather than concerns about looming insolvency. Mr Russell stands to benefit from the appointment of liquidators, both by the fact that the final Antqip deed fund contribution of $153,000 remains unpaid, the secured creditor will receive additional monies which will mean that Mr Russell will be called upon under his guarantee to pay less monies himself, and he and family members will be included in the pool of creditors for the purposes of dividends in the winding up (although this last benefit seems theoretical only).
10. Finally, the liquidators submitted in the alternative that, if clause 25 invalidated Mr Russell's resolution then the Court should validate the winding up of the companies and the appointment of the liquidators by varying the terms of clause 25 under section 447A of the Corporations Act. Section 447A of the Corporations Act gives the Court "plenary powers" to do whatever it considers to be just in all the circumstances "having regard to the rights of the various groups of persons affected by the administration, including making orders which would alter what would otherwise be the operation of Part 5.3A of the Act": Maria's Farm Veggies Pty Ltd [2016] NSWSC 1899 at [21]. Subsection 447A(4)(f) provides that an application may be brought by "any other interested person", which the liquidators submitted that they were.
11. The liquidators submitted that section 447A empowers the Court to vary or rectify a DOCA: Re Deakin Financial Services Pty Ltd [2019] VSC 405 at [24]; Smith v Sandalwood Properties Ltd [2019] WASC 109 at [72]; Adelaide Brighton Cement Ltd v Concrete Supply Pty Ltd (Subject to DOCA) (No 2) [2018] FCA 1003 at [11]-[12]; Re Ten Network Holdings Limited [2017] NSWSC 1529 at [29]. Section 447A empowers the Court to cure defective appointments: Billingsley v Napoli [2019] FCA 1640 at [22]; Re Maria's Farm Veggies Pty Ltd at [22]; Hayes v Doran (No 2) [2012] WASC 486 at [406]; National Australia Bank v Horne [2011] VSCA 280; (2011) 85 ACSR 639 at [32]; Calabretta v Redpen Developments Pty Ltd (in liq) (recs & mgrs apptd) [2010] FCA 81; (2010) 183 FCR 47 at [36]. Apart from the terms of Clause 25, Mr Russell had the power under Part 5.5 to pass resolutions for the voluntary winding up the companies and the appointment of the liquidators. The need for Mr Russell to exercise those powers properly arose because the companies were insolvent and, as a matter of public policy, should be in liquidation. Thus the liquidators submitted that, in the circumstances, it was "just" for the Court to use its power under section 447A to vary clause 25 in a way that allowed the companies to be wound up under Part 5.5 with the plaintiffs being the liquidators.
12. Whilst the deed administrators accepted that section 447A conferred power on the Court to alter the terms of the DOCAs, the power was conferred to achieve the objects of Part 5.3A of the Corporations Act including a better return for creditors and members than would result from a winding up. In considering the invitation to make an order under section 447A, the deed administrators submitted that the Court should take into account whether it was in the interests of creditors to make an order depriving clause 25 of its effect. Whilst it would be in the interests of some creditors, those creditors were Mr Russell as opposed to unrelated creditors who were bound by the DOCA whether they voted for it or not by reason of section 444D(1).

How to construe a DOCA

1. The liquidators and deed administrators both relied on the statutory force of DOCAs as dictating the nature of the task of construing the DOCAs and supporting the result for which each contended. As the High Court observed in MYT Engineering Pty Ltd v Mulcon Pty Ltd [1999] HCA 24; (1999) 195 CLR 636, it may be that DOCAs are "not simply a contract" as it is "more than a set of promises between those who are parties to it" but effects a change in status of the company and binds all creditors, not just those who voted in favour of the DOCA: at [25]. The obligations which a DOCA imposes "stem from the combined operation of the [DOCA] and the [Corporations Act]: at [25]. Or as Austin J's put it in J Aron Corporation v Newmont Yandal Operations Pty Limited (2004) 49 ACSR 97; [2004] NSWSC 159 at [29]-[30]: [29] If the deed is effective under Part 5.3A … then the rights of the parties are governed by the provisions of that Part. … [W]hen a deed of company arrangement of the kind described in Part 5.3A is executed, the rights of creditors and others bound by the deed are the rights conferred by the Part. [30] … Part 5.3A does not give them [the plaintiffs] any right, as creditors, to enforce the deed as a contract. They are bound by the deed under s 444H, but their rights in respect of it are only those rights which Part 5.3A confers. Specifically, they are the rights to make various applications, under provisions such as ss 445D, 447C, 445G, 449B and 600A.
2. DOCAs have statutory force by reason of sections 444B, 444D, 444G and 444H of the Corporations Act and not by its own force: Wellnora Pty Ltd v Fiorentino [2008] NSWSC 483 at [40] per Barrett J; Correa v Whittingham (No 2) [2013] NSWCA 471 at [75] to [76] per Gleeson JA with whom Barrett JA and Tobias AJA agreed. In Correa v Whittingham (No 2), Gleeson JA at [76] adopted the explanation of Barrett J in Reed Constructions Australia Limited v DM Fabrications Pty Limited [2007] NSWSC 1190; 25 ACLC 1,463 at [20]: (emphasis that of Gleeson JA) … A deed of company arrangement derives its operative force from statute. … Sections 444D and 444G identify persons who are bound by the deed of company arrangement. Those persons are not parties bound together by contract. They are persons whose rights and obligations are created by law by virtue of the execution of the relevant instrument. They are akin, in that respect, to persons bound by a scheme of arrangement under Part 5.1 of the Corporations Act. Thus, Gleeson JA concluded that there was "simply no room for the argument that independently of the Corporations Act a company may be bound by contract" as the binding force of a DOCA only arises by reason of section 444G: at [79]. If the DOCA never came into force for failure to comply with the requirements of the Corporations Act, its provisions would never become the source of any obligation: at [78].
3. As Barrett J further explained in Reed Constructions at [23]: The main statutory impact is upon creditors. By force of s.444D(1), the deed binds them in relation to claims arising on or before the day specified in the deed under s.444A(4)(i). … Section 444B(6) causes the instrument to become a deed of company arrangement when executed by the specified persons. The provisions in the instrument then have statutory force. …
4. Perhaps of most assistance, in City of Swan v Lehman Brothers Australian Limited [2009] FCAFC 130, Stone J concluded that DOCAs should be construed as statutes rather than contracts as a DOCA derives its operative force from statute: at [5]-[9]. A similar approach was taken by Perram J and Rares J, albeit Rares J did so without deciding whether that approach was correct: at [63]. The construction of the DOCA was not contested on appeal, where the High Court otherwise affirmed the Full Court's decision: Lehman Bros Holdings Inc v City of Swan (2010) 240 CLR 509; (2010) 265 ALR 1; [2010] HCA 11. The DOCA contained inconsistencies and errors. Stone J construed the relevant clause as purporting to give effect to other clauses in the deed, consistent with the principles of construction articulated by Dixon CJ and Fullagar J in Fitzgerald v Masters (1956) 95 CLR 420 at 426-427, where their Honours observed in respect of inconsistencies, "Words may generally be supplied, omitted or corrected in an instrument where it is clearly necessary in order to avoid absurdity or inconsistency."
5. As the DOCA in City of Swan v Lehman Brothers purported to impose restrictions on creditors that went beyond what was contemplated by Part 5.3A, Stone J concluded that the DOCA lacked the necessary statutory force to bind creditors and, as the offending provisions were not severable, the DOCA must be declared void: at [41]. Notwithstanding the respondents' reliance on the commercial realities behind the arrangements made in the DOCA, Stone J observed at [44]: In my view Pt 5.3A has a more limited scope than these submissions recognise. The language of Pt 5.3A does not lend itself to a wholesale adjustment of the rights and obligations of a company's creditors. Whether a wider scope would lead to a better commercial outcome and whether it would be appropriate to provide for that expansion of Pt 5.3A is a question for the legislature not for the Court.
6. Consistent with these authorities, it seems to me that DOCAs should be construed as statutes or, more precisely, as subordinate legislation. Construing DOCAs in this matter is perhaps unfortunate as, to my observation, DOCAs are often drafted in urgent circumstances where the proponent of the DOCA is experiencing financial stress such that DOCAs are frequently ill-drafted and certainly fall short of the standards of excellence of statutory draftspersons. Also, generally DOCAs appear to be prepared by accountants and insolvency practitioners rather than lawyers.
7. As to rules of statutory construction which may assist, and drawing heavily on Perry Herzfeld and Thomas Prince, Interpretation (2nd ed, 2020, Thomson Reuters (Professional) Australia), the general principles of statutory construction apply equally to the interpretation of subordinate legislation although the context in which the subordinate legislation is to be construed includes the legislation under which it is enacted: [14.10]. The validity of subordinate legislation may be challenged if it deals with a subject outside the scope of the empowering provision upon the authority of which it was purportedly made: at [10.10]-[13.40]. When subordinate legislation is open to two constructions, on one of which it would be within the empowering provision and on the other ultra vires, the first should be adopted: [14.60]. Where a provision of subordinate legislation is not authorised by the empowering legislation, the provision may in some circumstances be severed or read down so as to preserve the validity of the balance of the subordinate legislation, including by textual surgery using the "blue pencil" rule so that the valid portion operates independently of the invalid portion or, failing that, by treating the text as modified so as to achieve severance where in so doing there is no change to the substantial purpose and effect of the impugned provision, in particular, there is not left substantially a different law from what it would otherwise be: at [13.210] citing Harrington v Lowe (1996) 190 CLR 311 at 328.
8. Where subordinate legislation is directed to practical considerations, it should be construed in light of those considerations, not meticulous comparison of language, and if capable of more than one construction, the Court ought adopt an interpretation that leads to a reasonably practicable result: Interpretation at [14.50]. This rule of construction may be particularly useful when construing DOCAs, which are essentially practical and often imperfect instruments. The High Court has twice noted the practical or commercial quality of DOCAs. In Lehman Bros Holdings Inc v City of Swan, French CJ, Gummow, Hayne and Kiefel JJ observed that the Corporations Act and Schedule 8A say little about what provisions may or may not be contained in a DOCA and are "silent about both the nature and the content of the "arrangement" between the company and its creditors that may be made": at [37]. Further, at [38]-[39]: [38] … The Act is silent about what price can be exacted from creditors, with the agreement of a majority (by number and value), for the compromise of their claims. [39] … whether compromising debts or claims on particular terms and conditions is commercially more desirable than the company going into liquidation is, according to the structure and content of Pt 5.3A, a question for creditors. It is for them to make their own commercial judgment.
9. In Mighty River International Limited v Hughes (2018) 130 ACSR 427; [2018] HCA 38, Kiefel CJ and Edelman J emphasised the intended flexibility of DOCAs and the wide variety of possible DOCAs, including: those which extinguished or varied debts; imposed moratoria on claims; provided for debt for equity swaps; replaced creditors' claims with rights as beneficiaries of a creditor's trust with the trust funded by third parties, a parent of the company or a party who wished to acquire the company with creditors' claims discharged; a transfer of shares in the company from members to creditors; or a deed or moratorium only which allows the company to trade out of solvency difficulties: at [7] and [45].

Construing these DOCAs

1. The DOCAs envisaged that the management, operation and control of the companies and their business and undertakings would revert to Mr Russell: clause 8. Responsibility for the companies continuing to trade having reverted to Mr Russell, it is implicit that he was also imbued with the statutory responsibilities to manage the companies in accordance with the provisions of the Corporations Act, including the prohibition on insolvent trading. Consistently with this, the companies were obliged to conduct their business in the manner described in clause 19(b), being "in a proper and business like manner and with a view to maximising profit".
2. In addition, the deed administrators had power to take control of the companies' businesses and their assets if the companies were in breach of the DOCAs or likely to be in breach (clauses 8(z) and 8(ai)); the companies were obliged to report to the deed administrators every month with up to date management accounts (clause 10); and the deed administrators were entitled to call a creditors' meeting to consider terminating the DOCAs if the deed administrators determined that it was no longer practicable or desirable to carry on the companies' businesses or the deed administrators became aware that the companies had become insolvent: clause 11. Thus, the regime established by the DOCAs was to provide the deed administrators with timely information to enable the deed administrators and deed creditors, and not Mr Russell, to decide whether the DOCAs should be terminated and the companies go into a creditors' voluntary winding up. This was not a particularly surprising bargain to have struck as, at the time the DOCAs were entered into, the power to approve the DOCAs or otherwise place the companies in liquidation was in the hands of creditors. The DOCAs endeavoured to continue to vest decision-making power in respect of appointing a liquidator in deed creditors.
3. The DOCAs apprehended the appointment of a liquidator to the companies. Clause 7 referred to the possibility of an obligation to pay remuneration, costs and expenses of a liquidator. Clause 11 anticipated that a liquidator may be appointed in a variety of circumstances. It ought be remembered that clause 11 identified some eight instances of default "(hereinafter referred to as 'defaults')", including: … or if the Directors of the Company convene a meeting to consider passing or the Directors pass a resolution under any section within Parts 5.1 to 5.6 of the Corporations Act … That is, clause 11 defined the passing of a resolution to go into voluntary liquidation as a "default" entitling the deed administrators to call a meeting of creditors to consider whether to resolve to terminate the DOCA under section 445C(b) of the Corporations Act.
4. Clause 25 restrained some parties, but not others, from appointing a liquidator. Clause 25 restrained the companies and Mr Russell (as sole director and shareholder of the companies) from inter alia appointing a liquidator but imposed no restraint on anyone else. Seen in this light, there is no necessary inconsistency between the first and second sentences of clause 25 as, if any of the unrestrained parties appointed a liquidator, then the DOCAs provided that the administrators would become the liquidators. True it is that, by reason of section 444D(1) and 444G of the Corporations Act, the DOCAs did not bind everybody, in particular, post-DOCA creditors and, if a post-DOCA creditor took steps to place the companies into liquidation, then the second sentence of clause 25 may not apply, but that does not preclude the operation of clause 25 to those who were bound by it, including Mr Russell.
5. Nor do I consider that there is any inconsistency between clause 25 and clause 11. Clause 25 prohibited Mr Russell from resolving to appoint a liquidator. Clause 11 anticipated that Mr Russell may pass such a resolution under Part 5.5 of the Corporations Act but defined this as a "default" entitling the deed administrators to convene a meeting of creditors to consider terminating the DOCA.
6. What then is the effect of the continuing availability of Mr Russell's right under Part 5.5 to resolve that the companies be wound up voluntarily? Part 5.5 entitled, but did not oblige, Mr Russell to place the companies in voluntary liquidation whilst clause 25 provided that Mr Russell "must not" resolve to appoint a liquidator during the period of the DOCAs. Against this, clause 11 and clause 25 both appear to anticipate that Mr Russell may choose to exercise such rights nonetheless. In that event, both clause 11 and 25 provide for the consequences which will follow: in clause 11, the deed administrators may convene a meeting of creditors to consider terminating the DOCAs and thus place the companies into a deemed creditors' voluntary liquidation; and, in clause 25, the DOCAs provide that the deed administrators "shall become the liquidators".
7. Reading the DOCAs as a whole against the context of the Corporations Act, I do not read clause 25 as seeking to confine or amend the operation of the Corporations Act, nor to contract out of the Corporations Act, but to define an event which would give rise to a consequence. That is, on Mr Russell placing the companies into voluntary liquidation, the deed administrators and creditors would be entitled to take steps to terminate the DOCAs and place the companies into liquidation with their chosen liquidator at the helm. It may be that the consequences prescribed by the DOCAs would be of little utility, depending on how events unfolded. If Mr Russell issued a notice of meeting of the companies to resolve to appoint a liquidator and, on becoming aware of the notice, the deed administrators convened a meeting of creditors beforehand and resolved to place the companies in liquidation, then the deed administrators and creditors would have been able to take steps to act on Mr Russell's "default". In the events which have occurred here, Mr Russell gave no notice to the deed administrators of his intention to place the companies in voluntary liquidation, thus preventing the deed administrators and creditors from exercising these rights. Mr Russell's "defaults" may nonetheless provide a basis for the deed administrators to seek orders as the Court "thinks fit" in relation to the external administration of the companies under section 90-15(1) of the Insolvency Practice Schedule (Corporations), Schedule 2 to the Corporations Act, examples of which include, in section 90-15(3)(b) and (c): (b) an order that a person cease to be the external administrator of the company; (c) an order that another registered liquidator be appointed as the external administrator of the company.
8. That is, whilst breach of clause 25 of the DOCAs would not invalidate the appointment of a liquidator under Part 5.5, it may provide a sound basis for the deed administrators and creditors to replace the liquidator so appointed. The deed administrators, by their Amended Interlocutory Process, did not seek to exercise their rights under clause 25 to be appointed as liquidators, nor to call a meeting of creditors to consider terminating the DOCAs. As to the latter, Mr Pleash explained that, whilst ordinarily on default of the terms of the Antqip DOCA the deed administrators would call a meeting of creditors pursuant to clause 11, the deed administrators had not done so as the Antqip DOCA was under challenge in the proceedings and the costs of calling and holding the meeting might therefore be wasted. Instead, the deed administrators had notified the creditors of Antqip of the default and invited them to comment or join the proceedings.
9. Clause 25 must be read as subject to the Corporations Act. Any apparent inconsistency between clause 25 and the Corporations Act may be resolved, consistent with the principles of construction in Fitzgerald v Masters, by adding the words at the commencement of clause 25: "Subject to the Corporations Act,". Thus, I consider that clause 25 did not prevent Mr Russell from appointing the liquidators. Their appointment was valid. Nor it is necessary to vary the DOCA by deleting or amending clause 25 to achieve that result.

Termination of DOCAs

1. The liquidators seek orders that the DOCAs be terminated and that the funds held by the deed administrators be paid to the liquidators for distribution in accordance with subdivision 6D of Part 5.6 of the Corporations Act. The Court has power to terminate a DOCA under section 445D of the Corporations Act. Section 445D(2) identifies those persons who may make an application to terminate a DOCA, including "any other interested person": section 445D(2)(c). The liquidators contend that they are "interested persons".
2. The words "other interested person" are words of wide scope "intended to encompass applicants whose material rights or economic interests are or may be affected by the operation or effect of the deed of company arrangement which they seek to challenge": Allatech v Construction Management Group [2002] NSWSC 293 per Austin J at [18]-[20], followed in Be Australia Wd Pty Ltd (Subject To A Deed of Company Arrangement) v Sutton (2011) 82 NSWLR 336; [2011] NSWCA 414 at [168] per Campbell JA with McColl JA agreeing and City of Swan v Lehman Brothers per Perram J at [149]. I am satisfied that the liquidators have sufficient economic interests to be substantially affected by the DOCAs currently in issue to be "interested persons" under section 445D(2)(c).

Submissions on deed fund and termination

1. As to why the DOCAs should be terminated, the liquidators noted that the remaining deed funds were the only remaining assets of the companies, which were clearly insolvent, and relied on Re Spargold Enterprises Pty Ltd [1999] NSWSC 623; (1999) 32 ACSR 363, where Santow J held that in such circumstances the proper course was to terminate the deed so that the deed fund could be distributed to all creditors, as was also done in Lombe v Wagga Leagues Club Ltd [2006] NSWSC 3; (2006) 56 ACSR 387 and Re Jick Holdings. Clause 11 also required the deed administrators to convene a meeting of creditors in these circumstances to consider terminating the DOCA.
2. The liquidators contended that, on the proper construction of clause 7, the deed administrators do not hold the monies in the deed funds on trust for deed creditors, to the exclusion of post-DOCA creditors. Clause 7 does not expressly provide that the monies are to be held in trust. Even if it did, as Barrett J observed in Lombe v Wagga Wagga Leagues Club at [71], that would not be sufficient to establish a trust. The additional terms of clause 7 - that the funds were not refundable in the event that the DOCAs were terminated - was said not to improve the argument because, as Barrett J explained in Lombe v Wagga Wagga Leagues Club at [77], those words simply meant that the companies "could (not) exercise any unilateral right to prevent application of the relevant part of its property in accordance with the deed". Further, those words are otherwise ineffective because, as Barrett J concluded at [87] to [88] and as White J concluded in Re Jick Holdings at [38], upon termination of the DOCA, the trust (if there was one) failed and the monies held in the deed funds were regarded as being held on resulting trust for the company.
3. The deed administrators opposed termination of the DOCAs, noting that the Court's power may be exercised where there has been some default in or corruption of the process by which the DOCAs were adopted or if there is some other reason for doing so: section 445D(1)(g) of the Corporations Act. Ultimately, it is a discretionary judgment to be made by the Court where the interests of creditors are of primary importance. Here, the companies have substantially complied with the DOCAs. Given the consequences of a winding up, there is no reason to think that, if a meeting of creditors under each DOCA was called now, that the creditors would prefer a liquidation. The effect of termination would be to elevate the claims of those parties, including Mr Russell, from that voluntarily accepted by them at the time of adoption of the DOCAs as Excluded Creditors to the position in which their claims will rank pari passu with other ordinary creditors. Mr Russell seeks the termination of the DOCAs so that the deed funds may be applied to payment of the secured creditor in respect of which he has given a guarantee. Thus, the primary beneficiary of any order terminating the DOCAs will be the person who originally promoted the DOCAs and related parties who voted for it. Ordinary creditors, who have been subject to the moratorium provision in the DOCAs since 2014, would have to accept a further dilution of their claims in a winding up.
4. Further, the deed administrators submitted that the funds held by them in the deed funds in both DOCAs are held on trust for those creditors entitled to receive a dividend under each deed. A company can be in liquidation and subject to a deed of company arrangement simultaneously: Mercy v Wanari (2000) 35 ACSR 70; [2000] NSWSC 756; Re Nardell Coal Corporation Pty Limited (2004) 49 ACSR 110; [2004] NSWSC 281. A DOCA may operate such that monies paid into a deed fund become subject to a trust in favour of participating creditors: Dean-Willcocks v ACG Engineering Pty Ltd (in liq) (2003) 45 ACSR 290; [2003] NSWSC 353; Shepard v Sports Mondial of Australia Pty Ltd (in liq) (2005) 53 ACSR 746; [2005] NSWSC 432; Re Jick Holdings. Whether a trust exists will depend upon the terms of the arrangement: Re Jick Holdings at [36].
5. The deed administrators submitted that Lombe v Wagga Wagga Leagues Club was not authority for the proposition that the Corporations Act precluded the possibility that arrangements made under a binding DOCA could never give rise to a trust: Re Jick Holdings at [33]. Rather, that was not the effect of the deed in that case. In Lombe v Wagga Wagga Leagues Club, adoption of clause 1 of Schedule 8A of the Corporations Regulations had the result that the deed fund was held by the deed administrators as agent for the company. As such, the property was held for the principal, namely the company. Here, the DOCAs expressly provide that the deed funds are held as agents for the creditors. Clause 7 gives effect to "language or mechanism by which the legal title to the company property was transferred to the deed administrator to be held by them on trust": Re Jick Holdings at [36].
6. Mr Russell also submitted that there was no trust. It was essential to the creation of a trust that there should be the intention to create a trust: Commissioner of Stamp Duties (Qld) v Jolliffe (1920) 28 CLR 178; Byrnes v Kendle (2011) 243 CLR 253; Kauter v Hilton (1953) 90 CLR 86 at 97 per Dixon CJ, Williams and Fullagar JJ; Associated Alloys Pty Limited v ACN 001 452 106 Pty Limited (in liq) (2000) 202 CLR 588 at [29]; Bahr v Nicolay (No 2) (1988) 164 CLR 604 at 618 per Mason CJ and Dawson J; Ashton v Pratt (2015) 88 NSWLR 281; [2015] NSWCA 12 at [186]; Alston v Cormack Foundation Pty Limited [2018] FCA 895; (2018) 128 ACSR 33 at [187]; Re Australian Elizabethan Theatre Trust (1991) 30 FCR 491 at 503. Where the language employed by the parties for the transaction is inexplicit, the Court is left to infer the relevant intention from other language used by them, from the nature of the transaction and from the circumstances attending the relationship between the parties: Associated Alloys at [34], Walker v Corboy (1990) 19 NSWLR 382 at 397; Alston v Cormack Foundation Pty Limited at [190].
7. Mr Russell submitted that clause 7 does not expressly create a trust nor purport to divest the from companies all legal and beneficial interests in the monies in such a way that the deed administrators became the owners at law and other persons became entitled in equity. The DOCAs' failure to describe how legal title to the companies' property was transferred to the deed administrators to be held on trust militated against the conclusion that a trust came into existence: Re Jick Holdings at [36]. As to context, there was no need for the parties to resort to a trust. The deed administrators' obligations to creditors were well defined by the DOCAs and the Corporations Act. Had the parties intended to create a trust, they could easily have done so using clear language. Nor did the DOCAs require that the assets available to pay the creditors be earmarked and segregated.
8. Mr Russell submitted that clause 7 did not purport to transfer title to the monies. The creditors had no absolute entitlement to receive the monies as, by reason of the order of priorities established by clause 6, they might never receive any monies. It is difficult to see how title could pass to an unsegregated mass of creditors, the existence of which would not be finally established until the administrators had adjudicated upon their proofs of debt. Further, the companies were to make payments over an extended time (50 monthly payments commencing 6 months after the execution of the DOCAs). The releases in clause 15 were only enlivened upon payment of all sums required by clause 4. It was difficult to see why the creditors had any property right over the sums paid in advance of all the payments being made, and Antqip has not made all of the payments due under the Antqip DOCA.
9. Mr Russell submitted that the language of agency does not suggest a different outcome as agency does not require or necessarily contemplate the existence of a trust or the passing of property: Community Association DP270447 v ATB Morton Pty Limited [2019] NSWCA 83; (2019) 19 BPR 39,277 per Leeming JA (with whom Bell P and Payne JA agreed) at [79]. The scope of the agent's authority conferred by clause 7 is merely administrative: to render the administrators' receipt of funds tantamount to the receipt by the creditors entitled to prove, subject to the company's property rights and the entitlements of the administrators and any subsequent liquidator. It was submitted that the terms of clause 7 deny equitable ownership of the funds by the creditors because the funds were subject to a contingent obligation to pay a third party to the deed, namely a liquidator.

Are deed funds held on trust?

1. The starting point is Spargold Enterprises, where Santow J noted that a deed administrator has a duty to act impartially as between pre- and post-DOCA creditors. At [8]: Also to the point is that those post DCA [DOCA] creditors whose provision of credit has presumably allowed the company to continue to trade for the benefit of the pre DCA creditors should not be left to incur additional expense in funding such a challenge [to the DOCA]. No-one will in future trade with a company under a DCA if that were the result, thus preventing salvage of such companies. Such a challenge, if so forced on post DCA creditors, would be to recapture money that the Court, if aware of the situation, would most likely have prevented from being distributed, by ordering to the contrary under s447E. Terminating the DCA will of course prevent such distribution and there is no further point to the DCA, nor need for order under s447E. In that case, a company executed a DOCA and proceeded to incur significant further indebtedness. The judgment does not reveal what the terms of the DOCA were. The deed administrators applied to the Court to terminate the DOCA as distribution pursuant to the DOCA would leave nothing for post-DOCA creditors. His Honour was satisfied that to permit distribution under the DOCA would unfairly prejudice post-DOCA creditors. Consequently, "and where the DCA has no further purpose", the proper course was to terminate the DOCA and wind up the company.
2. Secondly, deed administrators under DOCAs which incorporate clause 1 of Schedule 8A of the Corporations Regulations - which provides that, in exercising the powers conferred by the deed and in carrying out the duties under the deed, the administrator is taken to act as agent for and on behalf of the company - hold the deed fund as agents for the companies and not as trustees. This was made plain in Federal Commissioner of Taxation v All Suburbs Car Repairs Pty Limited (1994) 29 ATR 329; (1994) 14 ACSR 753, where the DOCA incorporated Schedule 8A, including clause 1 and Davies J held at 758-759: It follows, in my opinion, that, when the directors and shareholders agreed to pay sums to Mr Silvia in his capacity as administrator, they agreed to pay those sums to him in his capacity as agent for All Suburbs and, consequently, that the sums when paid would be received by him on behalf of the company. It necessarily follows that the sums when received would be property of All Suburbs. This also accords with the ordinary operation of company schemes of arrangement. Thus, when s 444A(4)(b) provides that the deed must specify "the property of the company (whether or not already owned by the company when it executes the deed) that is to be available to pay creditors' claims", it contemplates that sums may be paid by third parties for distribution to creditors and that those sums will be property of the company available to pay creditors' claims.
3. For a period of time, a different approach was taken. In Dean-Willcocks v ACG Engineering, Austin J formed the view by reference to the terms of the DOCA that the deed fund was not an asset of the company: at [14]. Although the DOCA did not use the language of an express trust, clause 5 of the DOCA included the following sub-clause (set out at [3] of the judgment): 5.4 (a) The Administrator shall hold the Administration Fund in accordance with the terms of this Deed of Company Arrangement. (b) The Company and the Directors agree that any monies paid to the Administrator by the Company or any third party on behalf of the Company shall not be refundable to the Company or third party …
4. Austin J considered that the terms of the DOCA "make it plain the Administration Fund is not an asset of the company. … Clause 5.4 makes it expressly clear that the money so paid is not refundable to the company or any other payer": at [14]. Austin J concluded at [15]: As a matter of the plain and natural meaning of the DCA [DOCA], these words seem to me to create a trust of the amount of the Administration Fund held in the Administration Account for the benefit of, inter alios, the Participating Creditors identified in clause 5.5(d). The trust arises because clause 5.4(a) imposes on the Deed Administrator an obligation to "hold" the Administration Fund in accordance with the terms of the DCA, and clause 5.5(d) requires that the balance after certain deductions be distributed pro rata to the Participating Creditors. Where property is vested in a person subject to a legally enforceable obligation to "hold" that property so as to make a distribution to someone else, the natural conclusion, under our law, is that a trust of that property has been created.
5. Austin J distinguished Spargold at [18]: In my opinion Spargold does not assist in the circumstances of the present case. While a deed administrator has a duty of impartiality as between creditors and classes of creditors, if he or she is obliged under the terms of the deed to hold funds in trust for one class of creditors to the exclusion of another class, then impartiality is not the issue, and the Deed Administrator must act consistently with the rights of the beneficiary class. The terms of the deed under consideration in Spargold are not set out in the judgment, but one can be confident that there was no provision constituting a fund in the hands of the deed administrator for the benefit of the deed creditors to the exclusion of the post-deed creditors, as there is in the present case. The question whether the deed administrator might have been a trustee of any specific property was obviously not argued before his Honour, and therefore his observation that a deed administrator is not a trustee should be taken to mean only that a deed administrator is not necessarily a trustee by virtue of his or her function and duties. The judgment should not be taken to exclude the possibility that an express trust might be created by the terms of the deed.
6. In Commonwealth of Australia v Rocklea Spinning Mills Pty Limited (2005) 145 FCR 220; [2005] FCA 902, Finkelstein J noted the differing results in All Suburbs Car Repairs and Dean-Willcocks v ACG Engineering; that Austin J did not refer to All Suburbs Car Repairs or to the provisions of the Corporations Act to which Davies J referred; and observed that, if Austin J had done so, it "might have led to a different result": at [32].
7. Dean-Willcocks v ACG Engineering was followed by Campbell J in Shepard v Sports Mondial, where clause 14 of the DOCA provided that monies paid to the deed administrators by the company, directors or third parties were not refundable if the DOCA was terminated and further, "the moneys paid are held by the Administrators on trust for the benefit of the Administrators and the Participating Creditors": at [3]. Campbell J agreed with Austin J's conclusion that the manner of application of the available funds depended upon the terms of the DOCA and, in that case, the effect of clause 14 was that the monies that constituted the deed fund were held on trust for the benefit of the administrators and participating creditors and "it is those people who are entitled to receive the monies which should have been part of the Fund, when applied in accordance with order of application set down in the Deed itself": at [13].
8. The case law, however, then reverted to the approach in All Suburbs Car Repairs. In Lombe v Wagga Leagues Club, the DOCA provided that the deed administrators held the deed fund "on trust" for the benefit of the administrators, deed administrators and participating creditors and that such monies were not refundable. Barrett J considered that the analysis in All Suburbs Car Repairs held good in every case where a DOCA incorporated clause 1 of Schedule 8A of the Corporations Regulations and funds were provided from outside the company's existing resources for application towards creditors' claims under the DOCA. At [68]: … Those funds become the property of the company. That they should therefore be controlled and applied by the deed administrator is a corollary of the statutory scheme that makes the administrator the agent of the company. In the ordinary course of events, the deed administrator, being an agent of the company and a fiduciary, obtains no proprietary interest in the contributed funds. And, as one of the parties bound by the deed (s 444G(c)), the deed administrator must deal with the relevant property as the deed provides.
9. That is, the property to which the direction to hold the deed fund "on trust" related was property of the company. The direction was to a person who stood in a fiduciary relationship to the company and was an agent of the company: at [69]. The fact that the DOCA referred to the deed fund being held by the deed administrators "on trust" did not cause the property of the company to be divested from the company and vested in the deed administrators; it was no more than a way of emphasising the fiduciary position the deed administrators occupied in relation to the company and the trustee-like responsibility they had to apply the company's property according to the DOCA: at [71]. At [74]: The only person capable of creating a trust affecting property of the [Company] was the [Company] itself. Essential to any conclusion that it had done so would be a finding that there was divestment from the [Company] of all legal and beneficial interests in the relevant property in such a way that the deed administrators became the owners at law and other persons became entitled in equity. I do not think that it was intended by the deed of company arrangement that the … creditors whose claims were to be dealt with under the deed, should be the beneficial owners of the deed fund. Rather, it was intended that the deed fund should be applied by reference to the claims of those persons, being claims against the [Company]. Application of the deed fund was thus to be by way of quid pro quo: payment of part of the fund to a particular person was the reward for elimination of a claim that person had against the [Company]. That intention is incompatible with the creation of a trust in respect of the property concerned. It is consistent with the application of company property for company benefit.
10. Barrett J did acknowledge that a DOCA may be capable of creating a trust by specifically divesting property of the company and settling it upon a trustee to be held upon defined trusts, but segregating part of the company's property so that it became a fund to be applied by the deed administrator as the company's agent in accordance with the DOCA did not, of itself, give rise to a trust "unless it can clearly be seen that the company has divested itself of the legal and beneficial interests in its property": at [76]. Nor did his Honour regard the statement that the monies were not "refundable" as justifying a conclusion that they were settled upon trustees: at [77]. Further, if there was a trust, then Barrett J considered that the effect of termination of the DOCA was to bring the trust to an end, with the residue of trust property held on resulting trust for the company: at [87]-[88].
11. Lombe v Wagga Leagues Club has been widely followed since, including by Gyles J in Purchas, in the matter of Estore Pty Limited (in liq) (2006) 154 FCR 246; [2006] FCA 1222 at [15]; Lander J in Parker, in the matter of Strongest Link at [45]-[51] and White J in Re Jick Holdings at [33]-[36]. In Re Jick Holdings, White J noted that Lombe v Wagga Leagues Club is not authority for the proposition that it is not possible for a DOCA to provide that the property of the company be settled on trust, but rather that it does not follow that merely because the deed administrator is required to hold the deed fund and apply it to participating creditors that the company, let alone the deed administrator who is usually the agent of the company, holds the property on trust for those persons: at [33]-[36]. White J noted that in Lombe v Wagga Leagues Club "there was no language or mechanism by which the legal title to the company property was transferred to the deed administrators to be held by them on trust": at [36]. Nor did the DOCA in Re Jick Holdings use the language of trust and there was no need to imply from the language of the DOCA that a trust was intended to be created: at [36]. Further, at [38]: If the deed had created a trust, this would have been a clear case to make an order terminating the deed. The trust would thereupon be extinguished. There is no reason that the trade creditors who allowed the company to continue to trade, or the Commissioner of Taxation, should be postponed to the deed creditors (Re Spargold Enterprises Pty Ltd; Ex parte McDonald [1999] NSWSC 623; (1999) 32 ACSR 363; Commonwealth of Australia v Rocklea Spinning Mills Pty Ltd at [23]-[27]).
12. In Johnson v Hancock, Barrett J confirmed that a DOCA can bring about the creation of a trust but repeated at [20]-[21]: … Essential to the creation of a trust, however, is vesting of the relevant property in the designated trustee to be held upon trust for and exclusively for the benefit of identified beneficiaries. … The important point is that, unless the deed itself brings about some specific vesting of property and the creation of equitable interests in that property, the deed administrator is simply a company functionary who, like a liquidator, administers company property according to a particular statutory regime. The DOCA in Johnson v Hancock did not use the language of trust nor contain provisions which otherwise had the effect of creating one: at [22]-[23].
13. By and large, these authorities considered DOCAs which adopted clause 1 of Schedule 8A of the Corporations Regulations. In Warner (in his capacity as trustee of the personal insolvency agreement of Gore) v Mayfair Ltd (2015) 238 FCR 531; [2015] FCA 441, Farrell J noted that the presence of clause 1 was a factor critical to the reasoning in Lombe v Wagga Leagues Club and All Suburbs Car Repairs, and noted that the conclusion to be drawn from Barrett J's reasoning in Lombe v Wagga Leagues Club is that the terms of the DOCA will be determinative of whether funds contributed by third parties become property of the company when the DOCA terminates early: at [73].
14. Thirdly, there are cases where a DOCA did establish a trust by requiring the execution of a trust deed and payment into a specifically constituted trust fund (called a creditors' trust) following which the DOCA terminated. In Open Telecommunications Limited (Subject to Deed of Company Arrangement) [2003] NSWSC 1198, a deed administrator wished to execute a varied DOCA and creditors' trust deed, which would create a fund in favour of employee creditors and a further fund in favour of other unsecured creditors. Hamilton J described the mechanism proposed as "quite ingenious", as it would remove the sums promised to creditors from the ambit of the DOCA to a deed of trust, following which the DOCA could be discharged and the company able to continue to operate without being subject to a DOCA. This would enable the company to raise capital to supply the promised amounts to the trust funds and to restore the company to viability: at [4]. The administrator was of the view that this offered a better commercial solution than the DOCA, but the administrator sought assurance from the Court in respect of the legality and propriety of the proposed arrangements which involved taking considerable sums of money out of the ambit of the Corporations Act to be held and supervised in the creditors' interests according to the general law of trusts: at [4]-[5]. His Honour gave the directions sought enabling the administrators to put the proposed arrangement to the creditors for a vote.
15. Creditors' trusts became sufficiently popular that, in 2005, the Australian Securities and Investments Commission (ASIC) issued Regulatory Guide 82, "External administration: Deeds of company arrangement involving a creditors' trust", which has been revised from time to time and most recently re-issued in December 2018. ASIC describes the common features of a creditors' trust as, under the DOCA and one or more interconnected deeds, a trust entity is created and the company's obligations to some or all of the creditors bound by the DOCA are compromised and transferred to the trust. Those creditors become beneficiaries of the trust. The company and/or third parties promise to make payments or transfer property to the trustees to satisfy the creditors' claims against the company, in return for which the creditors' rights against the company are extinguished. The trustee of the new trust becomes solely responsible to the former creditors (now beneficiaries) for ensuring that the parties perform their payment and other obligations to the trustee, determining how much each of the former creditors is entitled to receive from the trust, and making distribution to creditors. Usually, the DOCA terminates immediately on creation of the trust, which commonly occurs when or shortly after the DOCA is executed. When the DOCA terminates, the company ceases to be externally administered and the directors regain full control of the company and no longer required to use the notification "subject to deed of company arrangement" on the company's public documents.
16. ASIC notes that a creditors' trust in a DOCA is a mechanism used to accelerate a company's exit from external administration but creates special risks for creditors, including that the creditors' rights against the company may be extinguished before the trust fund has been received in full, the amount available by distribution to creditors has been ascertained, or creditors have received any payment. Creditors may have fewer legal rights if the DOCA proposal is not fully complied with by all relevant parties; creditors may not fully appreciate the implications of a creditors' trust. Once the creditors' trust had been constituted and the DOCA terminated, the arrangement is no longer governed by Part 5.3A of the Corporations Act and the protective mechanisms of that part cease to apply such that "administrators recommending a creditors' trust bear a heavy burden of explaining to creditors the implications of adopting such a proposal": at RG 82.5 and 82.13.
17. A DOCA established a creditors' trust in Parkview Constructions Pty Limited v Tayeh (2009) 71 ACSR 65; [2009] NSWSC 186. A company executed a DOCA which required the company's director to provide a settlement sum following which the director and deed administrators were required to execute a trust deed and the deed administrators were obliged to commence holding the administration fund as trustees on trust as part of the trust fund under the trust deed. The DOCA provided that, upon these requirements being satisfied, the claims of unsecured creditors were discharged and the creditors instead were entitled to the benefits of the trust. On the same day that the DOCA was executed, the settlement sum was provided and the trust deed executed. Barrett J considered that the DOCA was effective to establish the trust and the DOCA thereafter immediately terminated. However, his Honour noted that the outcome caused him "considerable disquiet" as the protective aspects of Part 5.3A of the Corporations Act had been avoided by the creation through a DOCA of a parallel but essentially unregulated regime of administration: at [78].
18. In In the matter of Bevillesta Pty Limited (in voluntary administration) (2011) 84 ACSR 215; [2011] NSWSC 417, Bergin CJ in Eq was not so troubled. Notwithstanding ASIC's submission that the proposed creditors' trust was an abuse of Part 5.3A of the Corporations Act, her Honour was critical of the warnings contained in Regulatory Guide 82 as it then stood, observing that if there were sound commercial reasons that persuaded an administrator that it was in the best interests of the creditors to adopt a DOCA with a creditors' trust deed to obtain a better return than from an immediate winding up of the company, the administrator should be able to recommend such a proposal to creditors without having to seek the Court's imprimatur: at [67]. In that case, the sound commercial reason to establish the creditors' trust was that the creditors stood a chance of receiving something under the trust regime whilst they stood no chance of receiving anything under the liquidation regime: at [70].
19. Turning then to the DOCAs at hand, as mentioned at [32], clause 7 of the DOCAs adopted clause 1 of Schedule 8A of the Corporations Regulations but proceeded to add the italicised portion again reproduced: (emphasis added) Deed Administrator Deemed Agent of Company In exercising the powers conferred by this Deed and carrying out the duties arising under this Deed, the Deed Administrator has taken to act as agent for and on behalf of the Company except in the receipt of payments, if any, under clause 4 hereof, which shall be received as Agent for and on behalf of the creditors of the Company (which shall include the obligation to pay the remuneration, costs and expenses of the Deed Administrator, Administrator or Liquidator) and which funds shall not be refundable in the event of the termination of this Deed. The payments under clause 4 of the DOCAs were the deed fund contributions, to be made by instalments with an initial instalment within one month of executing the DOCAs and 50 equal monthly instalments commencing six months after execution of the DOCAs. Clause 4 did not refer to nor capture the other property of the company which was available to pay creditors specified in clause 5 as including cash at bank. If clause 7 created a trust, then the cash at bank did not form part of the trust fund.
20. Obviously enough, the DOCAs did not establish a creditors' trust with the features described in ASIC Regulatory Guide 82 as illustrated in Parkview Constructions v Tayeh or Re Bevillesta. An important feature of such trusts is that creditors cease to be creditors of the company and become beneficiaries of the trust alone. I do not think that clause 7 has that effect, nor pretends to. Rather, the creditors remain creditors of the company, with the deed administrators deemed to be the creditors' agent in respect of payment of the deed fund to creditors in respect of their claims.
21. Clause 7 does not use the language of an express trust, albeit that is not fatal if the intention to create a trust may otherwise be inferred from the conduct of the parties and all the circumstances of the case: Cohen v Cohen (1929) 42 CLR 91; [1929] ALR 204; Vedejs v Public Trustee [1985] VR 569. But the fact that clause 7 described the deed administrators' role when receiving the deed fund contributions "as Agent" rather than trustee is not unimportant. It suggests that the parties did not intend to create a trust. An agent can also be a trustee, but where commercial parties specifically describe one's role as "agent", it is reasonable to think that they intended that the party would have the attributes ascribed by the law of agency rather than trust law.
22. For an express trust to be created, there must be certainty of intention, subject matter and objects: Wright v Arkyns (1823) Turn & R 143 per Lord Eldon at 157; Knight v Knight (1840) 3 Beav 148; (1840) 49 ER 58; Herdegen v Federal Commissioner of Taxation (1988) 84 ALR 271; (1988) 20 ATR 24; Walker v Corboy (1990) 19 NSWLR 382. As already mentioned at [114], I do not consider that certainty of intention is evident in clause 7. Nor was the subject matter of the trust certain as clause 4 apprehended that the deed fund would be constituted by some 50 instalments made over several years. In respect of Antqip, the deed fund is yet to be fully constituted. As to the objects of the trust, the deed administrators submitted that it was commonplace for trustees to be paid expenses incurred in the business of the trust including remuneration and this was all clause 7 was endeavouring to do. The class of beneficiaries was fixed under the DOCAs albeit the beneficiaries would not be precisely identified until their proofs of debt had been considered. I consider that the objects of a trust were largely certain, being creditors (a term defined by the DOCAs), but may also include a liquidator appointed in the future.
23. Most importantly, it does not seem to me that, by clause 7, the companies were divested of all legal and beneficial interests in the deed fund contributions such that the deed administrators became the legal owners and the creditors became the beneficial owners of the deed fund contributions entitled in equity to those funds. There is nothing in the italicised portion of clause 7 which seems to me to have that result nor takes it outside the principles stated in Lombe v Wagga Leagues Club or Re Jick Holdings.
24. Therefore, it does not seem to me that the DOCAs had the effect of creating a trust in respect of the deed fund contributions. In those circumstances, the deed funds remain the property of the companies and ought be remitted to the liquidators for distribution to all creditors of the companies in the winding up. The deed administrators accepted that, if the deed funds were not held on trust, there would be no role for the continuing operation of the DOCAs because section 556 governed what would happen in a winding up under Part 5.6 of the Corporations Act. In that event, the deed administrators sought to preserve their statutory and equitable liens over those funds and the liquidators and Mr Russell did not cavil with this.

Orders

1. For these reasons, I make the following orders: 1. Pursuant to section 444E(3) of the Corporations Act 2001 (Cth), grant leave to the plaintiffs nunc pro tunc to bring these proceedings against the first and second defendants. Antqip Hire Pty Limited (subject to deed of company arrangement) (in liquidation) 1. Declare that clause 25 of the Deed of Company Arrangement entered into by the third, fourth and fifth defendants, as deed administrators, and the first defendant on 8 May 2014 (the Antqip Hire DOCA), on its proper construction, is subject to the Corporations Act 2001 (Cth) such that the members of the first defendant were, during the operation of the Antqip Hire DOCA, entitled to resolve that the first defendant be wound up voluntarily. 2. Declare that the appointment of the plaintiffs as the joint and several liquidators of the first defendant on 27 May 2019 was valid and effective. 3. Terminate the Antqip Hire DOCA. 4. Declare that all monies paid pursuant to clause 4 of the Antqip Hire DOCA constitute property of the first defendant, which is divisible amongst all of its creditors in accordance with subdivision D of Part 5.6 of the Corporations Act 2001 (Cth). 5. Order the third, fourth and fifth defendants to pay any monies held by them in their capacity as the deed administrators of the first defendant to the plaintiffs without prejudice to any lien held by the third, fourth and fifth defendants over those monies for unpaid costs and expenses. Antqip Pty Limited (subject to deed of company arrangement) (in liquidation) 1. Declare that clause 25 of the Deed of Company Arrangement entered into by the third, fourth and fifth defendants, as deed administrators, and the second defendant on 8 May 2014 (Antqip DOCA), on its proper construction, is subject to the Corporations Act 2001 (Cth) such that the members of the second defendant were, during the operation of the Antqip DOCA, entitled to resolve that the second defendant be wound up voluntarily. 2. Declare that the appointment of the plaintiffs as the joint and several liquidators of the second defendant on 27 May 2019 was valid and effective. 3. Terminate the Antqip DOCA. 4. Declare that all monies paid pursuant to clause 4 of the Antqip DOCA constitute property of the second defendant, which is divisible amongst all of its creditors in accordance with subdivision D of Part 5.6 of the Corporations Act 2001 (Cth). 5. An order that the third, fourth and fifth defendants to pay any monies held by them in their capacity as the deed administrators of the second defendant to the plaintiffs without prejudice to any lien held by the third, fourth and fifth defendants over those monies for unpaid costs and expenses. 6. The plaintiffs' costs and the third, fourth and fifth defendants' costs of these proceedings to be paid from the monies referred to in Order (6) and Order (11).

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