//
[2025] NSWSC 1601
General information, not legal advice.
Supreme Court of NSW
2025-12-23
Nixon J
Original judgment source is linked above.
Zoe will write a short plain-English brief of this judgment and email it to you: what it was about, what the court decided and why. It can take up to a minute.
General information, not legal advice.
Or create a free account to save it and ask Zoe follow-up questions.
Source: NSW Caselaw (www.caselaw.nsw.gov.au). Converted to plain text by ZoeLaw. Not the official version.
Medium Neutral Citation: In the matter of Mercon Group Pty Ltd (subject to deed of company arrangement) [2025] NSWSC 1601
Hearing dates: 26 November 2025
Date of orders: 23 December 2025
Decision date: 23 December 2025
Jurisdiction: Equity - Corporations List
Before: Nixon J
Decision: 1. The Originating Process filed on 26 August 2025 be dismissed.
2. The Plaintiff pay the Defendants’ costs, as agreed or assessed.
Catchwords: CORPORATIONS – creditors’ meeting – appeal from decision of voluntary administrators – where plaintiff brought a proceeding against the first defendant for alleged building defects – where first defendant entered voluntary administration – where plaintiff and various unit owners in the building lodged proofs of debt for voting purposes at the second meeting of creditors – where administrator admitted the proofs of the plaintiff and of various unit owners for $1 for voting purposes, and rejected the claims of other unit owners in full – where administrator admitted the claims of four related creditors in full – whether administrator made a “just estimate” of the claims of the plaintiff, the unit owners and the related creditors
CORPORATIONS – Voluntary administration – application to set aside deed of company arrangement – where creditors passed resolution for the first defendant to execute the deed – where resolution would have passed on value, but not on votes, if the related creditors were disregarded – whether resolution to enter deed should be set aside
CORPORATIONS – Voluntary administration – Application to terminate Deed of Company Arrangement – whether material omissions from or misstatements in the information provided in the second report to creditors – whether the deed of company arrangement should be terminated for “some other reason” under s 445D(1)(g) or s 447A of the Corporations Act 2001 (Cth) — whether deed of company arrangement oppressive, unfairly prejudicial to, or unfairly discriminatory against one or more creditors – whether effect cannot be given to the deed without injustice
Legislation Cited: Civil Procedure Act 2005 (NSW) s 98
Corporations Act 2001 (Cth), ss 286, 435, 436A, 439A, 440D, 445D, 447A, 588FDA
Design and Building Practitioners Act 2020 (NSW) s 37
Home Building Act 1989 (NSW), s 18E
Strata Scheme Management Act 2015 (NSW) s 9
Corporations Regulations 2001 (Cth) regs 5.6.23, 5.6.26
Insolvency Practice Rules (Corporations) 2016 (Cth) ss 75 – 85, 75 – 100, 75 – 225
Insolvency Practice Schedule (Corporations) ss 75 – 41, 90 – 15
Cases Cited: Allesch v Maunz (2000) 203 CLR 172; [2000] HCA 40
Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270; [2000] HCA 30
Australian Securities and Investments Commission v Edwards [2005] NSWSC 831
Australian Securities and Investments Commission v Midland Hwy Pty Ltd (admins apptd) [2015] FCA 1360
Bacnet Pty Ltd v Lift Capital Partners Pty Ltd (in liquidation) (2010) 183 FCR 384; [2010] FCAFC 36
Bovis Lend Lease Pty Ltd v Wily [2003] NSWSC 467
Britax Childcare Pty Ltd, in the matter of Infa Products Pty Ltd v Infa Products Pty Ltd (Administrators Appointed) [2016] FCA 848
Canstruct Pty Ltd v Project Sea Dragon Pty Ltd (subject to a deed of company arrangement) (No 4) [2024] FCA 112
Decon Australia Pty Ltd v TFM Epping Land Pty Ltd [2022] FCAFC 54
El-Saafin v Franek (No 3) [2019] VSC 155
Expile Pty Ltd v Jabb’s Excavations Pty Ltd [2004] NSWSC 284In the matter of AZMAC Pty Ltd (in liquidation) [2020] NSWSC 204
In the matter of Caernarvon Canobolas Pty Ltd (in liq) [2022] NSWSC 382
In the matter of Nahas Construction and Development Pty Limited (Subject to Deed of Company Arrangement) (ACN 083 581 257) [2014] NSWSC 628
In the matter of SurfStitch Group Limited [2018] NSWSC 164
Ireland v WG Riverview Pty Ltd [2019] NSWCA 307
Kirwan v Cresvale Far East Ltd (in liq) [2002] NSWCA 395
Longley (deed administrator), in the matter of Dixon Advisory & Superannuation Services Pty Ltd (subject to deed of company arrangement) [2024] FCA 70
Maylord Equity Management Pty Ltd v Reeltime Media Ltd [2008] NSWSC 1045
Mediterranean Olives Financial Pty Ltd v Loaders Traders Pty Ltd (No 2) [2011] FCA 178
Project Sea Dragon Pty Ltd (subject to deed of company arrangement) v Canstruct Pty Ltd (2024) 305 FCR 465; [2024] FCAFC 141
Re Catholic Church Insurance Ltd [2023] FCA 1197
Re Derwent Howard Media Pty Ltd [2011] NSWSC 1164
Re Mustang Marine Australia Services Pty Ltd (admin apptd) — Perpetual Trustee Company Ltd v Mustang Marine Australia Services Pty Ltd [2010] NSWSC 1429
Sands Contracting Pty Ltd v Foodcorp (VIC) Pty Ltd [2020] FCA 1274
Scott v Olde [2025] FCA 1014
Selim v McGrath (2003) 177 FLR 85; [2003] NSWSC 927
Shaoyong (David) Guo v Xinwei Song [2018] NSWSC 12
Sino Group International Ltd v Toddler Kindy Gymbaroo Pty Ltd [2023] FCAFC 110
The Owners - Strata Plan No 87060 v Loulach Developments Pty Ltd (No 2) [2021] NSWSC 1068
TiVo, Inc v Vivo International Corporation Pty Ltd (subject to deed of company arrangement) [2014] FCA 789
University of Sydney v Australian Photonics Pty Ltd (subject to deed of company arrangement) [2005] NSWSC 412
Weriton Finance Pty Ltd v P.N.R Pty Ltd (In Administration) [2012] NSWSC 1402
Category: Principal judgment
Parties: The Owners – Strata Plan No 93170 (Plaintiff)
Mercon Group Pty Ltd (subject to deed of company arrangement) (First Defendant)
Rashnyl Prasad and Sean Wengel in their capacities as Voluntary Administrators of Mercon Group Pty Ltd (subject to deed of company arrangement) (Second Defendant)
George Merhi (Third Defendant)
Representation: Counsel:
G George (Plaintiff)
N Mirzai (First and Third Defendants)
D Weinberger SC (Second Defendant)
Solicitors:
Pateman Legal (Plaintiff)
HWLE (First and Third Defendants)
Bird and Bird (Second Defendant)
File Number(s): 2025/326752
Publication restriction: Nil
By Originating Process filed on 26 August 2025, the Plaintiff, The Owners – Strata Plan No 93170 (the Owners Corporation), seeks orders pursuant to the Corporations Act 2001 (Cth) (the Act) and the Insolvency Practice Rules (Corporations) 2016 (Cth) (IPRC) in relation to the administration of the First Defendant, Mercon Group Pty Ltd (subject to deed of company arrangement) (the Company). The Third Defendant, Mr George Merhi, is the sole director of the Company (the Director). The Second Defendants, Mr Rashnyl Prasad and Mr Sean Wengel, are the former voluntary administrators appointed to the Company, and are now the deed administrators under a deed of company arrangement which the Company executed on 1 September 2025 (DOCA). I will refer to them below, in both capacities, as the Administrators .
In particular, the Owners Corporation seeks:
an order that certain proofs of debt which were lodged for the purposes of voting at the second meeting of the Company’s creditors held on 12 August 2025 (the Second Meeting), and which were either admitted for $1 or rejected entirely and adjudicated as having a nil value, ought to have been admitted for the face value of the claim;
an order that the decision of the Administrators to admit related creditors for the purposes of voting at the Second Meeting be reversed and all resolutions passed at the Second Meeting be set aside;
an order setting aside the resolution made at the Second Meeting that the Company execute the DOCA;
an order that the DOCA, which was executed on 1 September 2025, be set aside or terminated;
orders that the Administrators cease to be the Company’s external administrators, and repay to the Company any remuneration received by them for acting in that capacity; and
orders that the Company be wound up and that Ms Suelen McCallum and Mr Antony Resnick be appointed as liquidators of the Company.
In support of this relief, the Owners Corporation advanced the following contentions, each of which is addressed below:
first, that the Administrators failed to make “just estimates” of the proofs of debt lodged for the purposes of voting at the Second Meeting;
secondly, that the resolution to execute the DOCA was only passed because of the votes of related creditors and should be set aside;
thirdly, that misleading information was provided by the Administrators to creditors voting on the DOCA;
fourthly, that the DOCA constitutes an abuse of the provisions of Part 5.3A of the Act; and
None of the prayers for relief in the Originating Process relates to the first meeting of creditors of the Company on 18 July 2025 (First Meeting).
Nonetheless, the Owners Corporation’s written submissions contended that the Court should order that the Administrators’ decision to admit certain proofs of debt for $1 for voting purposes at the First Meeting be set aside, and should determine that a resolution to replace the Administrators, which was recorded in the minutes of the First Meeting as having been defeated, would have been passed if there had been a “just estimate” of those proofs of debt.
In advancing those submissions, the Owners Corporation acknowledged that the Court would likely decline to make any consequential orders, but that the Court should “include this matter in its consideration of whether the DOCA should be set aside”.
The Defendants submitted that, in circumstances where no relief was sought in respect of the First Meeting, the Court should reject those submissions.
When these matters were raised with Counsel for the Owners Corporation in opening address, he acknowledged that the Originating Process did not seek any relief in respect of the First Meeting, and that the Court would determine only the relief sought in the Originating Process. No application was made to amend the Originating Process. The relevant passage of the transcript is set out below:
“[COUNSEL FOR PLAINTIFF]: … Your Honour, I can see [concede] that the Court is going to be reluctant to make any orders [in relation to the First Meeting].
HIS HONOUR: It is not so much whether I am reluctant to, it’s whether you have sought any.
[COUNSEL FOR PLAINTIFF]: We did seek relief, your Honour, under IPS75, as I understand it. But when I say I’m going to treat it this way, I concede that - I’m happy to move on, but I do want to‑‑
HIS HONOUR: But the Originating Process is an application for reviewing and reversing decisions made in relation to proxies and proofs of debt at the second meeting, [the termination] of the DOCA and the winding up of the first defendant.
[COUNSEL FOR PLAINTIFF]: Yes.
HIS HONOUR: And you set out the orders that you seek and none of them relate to the first meeting of creditors; none of them relate to the proofs of debt at the first meeting of creditors, and none of them relate to the votes at the first meeting of creditors.
[COUNSEL FOR PLAINTIFF]: I can see [concede] that, but this material is introductory.
HIS HONOUR: Mr Mirzai [Counsel for the Company and the Director] said that insofar as you say that matters … that occurred are relevant to the Court –
[COUNSEL FOR PLAINTIFF]: Yes.
HIS HONOUR: - in the exercise of its powers in relation to the matters that [are] raised, then you can make those submissions. But I obviously won’t be determining any issue, except by reference to this Originating Process. I will see that that’s done.
[COUNSEL FOR PLAINTIFF]: Yes. …”
The Owners Corporation relied on an affidavit of its solicitor, Mr Steven Pateman.
In addition, the Owners Corporation sought leave to rely on an affidavit of Ms Carolyn Smale, which was sworn on the morning of the hearing. Ms Smale is a member of the Strata Committee of the Owners Corporation. Ms Smale deposed, in conclusory terms, to a “continuing arrangement” with a financier, the intentions of the Committee regarding the funding of the liquidation of the Company, and the attitude of unidentified persons who were unit owners.
The Defendants objected to this affidavit. I determined that leave to rely on it should be refused, for the following reasons.
First, there was no explanation for the delay in serving this evidence, in circumstances where:
(a) the orders made by the Court on 8 September 2025, when setting this matter down for hearing on 26 November 2025, included a notation that: “the Plaintiff has filed and served all evidence on which it relies, no further evidence to be relied on in chief without leave”; and (b) the Owners Corporation has, at all times, been represented by legal practitioners, and the issue of the funding of the liquidation of the Company was plainly a matter that was relevant to the relief sought by the Owners Corporation.
Secondly, the affidavit was of minimal probative value, containing a mixture of hearsay and evidence regarding the intentions of other persons.
Thirdly, to allow this evidence to be led on the morning of the hearing would have caused significant prejudice to the Defendants, since they would have been denied the opportunity to take steps such as seeking the production of documents relating to the matters referred to by Ms Smale (for example, communications with unit owners regarding the funding of the proposed liquidation, or documents relating to the asserted “continuing arrangement” with the financier).
The Administrators relied on an affidavit of Mr Prasad.
The Owners Corporation chose not to cross-examine Mr Prasad, and therefore did not challenge Mr Prasad’s evidence that, in carrying out their role as Administrators, he and Mr Wengel sought to act “as independent external administrators seeking to uphold and serve the interests of creditors” and to conduct “all of our enquiries and investigations in a timely, transparent and comprehensive manner”.
Nonetheless, the Owners Corporation sought to advance, in submissions, a number of serious allegations regarding the Administrators’ conduct, which were not pleaded. For example, the Owners Corporation submitted that the Administrators discussed, with the Director, prior to their appointment “avoiding Mercon’s actual or contingent liability to the [Owners Corporation] by engaging the administration process”; that “the reason” why the Administrators did not conduct any “proper investigation of potential insolvency or related claims” was that they were “only moving one way”, namely, “piloting …the DOCA process through … the second meeting of creditors”; and that the Administrators “intended” their second report to creditors to be misleading or confusing.
I accept the Defendants’ submission that, in circumstances where those criticisms were not pleaded and were not put to Mr Prasad in cross-examination, the Court should not entertain those submissions. I have not addressed them below.
The Company and the Director relied on an affidavit of the Company’s external accountant, Mr Nicolas Karam, regarding taxation matters. Mr Karam was also not required for cross-examination.
The Company operated a business as a building contractor, and belonged to a group of related entities known as the Mercon Group.
The Mercon Group was founded by the Director, and his cousin, Mr Andre Merhi.
Between around late 2014 and 2016, the Company undertook the construction of a development on land located at 11-13 Old Northern Road, Baulkham Hills, NSW, which was owned by Harcourts (NSW) Pty Ltd. This development, known as “The Jacob”, is a multi-storey building comprising thirty-three residential units, two commercial units, basement car parking and common areas.
On 29 July 2016, Strata Plan No 93170 was registered and the Owners Corporation was thereby constituted. The Owners Corporation is responsible for the management and control of the common property, together with the administration of the strata scheme, for the benefit of the owners of lots in the scheme: Strata Scheme Management Act 2015 (NSW), s 9(2).
At the time of registration of the strata scheme, all of the lots in the scheme were owned by Harcourts as trustee for the Harcourts NSW Baulkham Hills Unit Trust.
On 12 October 2016, a final Occupation Certificate was issued in relation to the construction of The Jacob by the Hills Shire Council. Shortly afterwards, Harcourts sold or transferred all of the lots in the strata scheme to third parties. Each owner of a lot in The Jacob is referred to below as a U****nit O****wner.
There was evidence that, within a few months of the Occupation Certificate being issued, complaints were being made regarding defects at The Jacob, including in respect of waterproofing. For example, in the course of submissions, reference was made to the following emails:
on 24 January 2017, an email was sent by the strata manager attaching a copy of “the defect list as discussed at the onsite meeting last night”, which included: “Specialist water proofer coming in to waterproof and investigate leak”;
on 8 June 2017, the strata manager sent an email to “maintenance@mercon.com.au”, attaching a number of pictures and stating “we have a major issue with water leaking throughout the building”; and
on 30 January 2019, the strata manager sent an email to the Director, referring to “an issue at the complex unit 15 had water leaking into their apartment and we engaged a plumber to investigate”. (As noted below, the owner of unit 15 subsequently lodged a proof of debt for voting purposes at the Second Meeting.)
In September 2022, a report was prepared for the Owners Corporation by “Strata Defect Specialists Sydney” (the SDSS Report). This report was not served in the subsequent proceedings brought by the Owners Corporation in the Technology and Construction List, nor could it have been relied on as expert evidence in that proceeding (given that the report did not identify the author, let alone his or her qualifications).
However, the SDSS Report is of some significance as it was relied on by a number of Unit Owners who subsequently lodged proofs of debt for voting purposes. I deal with the contents of the SDSS Report when addressing the issues regarding the assessment of those proofs of debt.
On 12 October 2022, the Owners Corporation brought a proceeding in the Technology and Construction List in this Court against the Company, Harcourts and Balintore Developments Pty Ltd, alleging, inter alia, that the Company had breached the statutory warranties in the Home Building Act 1989 (NSW) (HBA) and the statutory duty of care in the Design and Building Practitioners Act 2020 (NSW) (DBPA) (the Technology and Construction List Proceeding).
Balintore had subcontracted the Company to complete the construction of The Jacob for Harcourts. It was placed into voluntary liquidation on 8 May 2023.
Harcourts had, in 2018, been wound up and deregistered. The Owners Corporation subsequently sought and obtained an order, with effect from 25 July 2023, that Harcourts be re-registered and a liquidator be appointed.
On 28 June 2024, the Owners Corporation served, in the Technology and Construction List Proceeding, a report prepared by Mr Daniel Slatter, who is a remedial building consultant. In addition, Mr Slatter prepared a Scott Schedule. (The form of the schedule in evidence in the present proceeding was headed “Amended Scott Schedule”.)
The Owners Corporation subsequently provided Mr Slatter’s report and the Amended Scott Schedule to the Administrators in support of the proof of debt which it lodged prior to the Second Meeting. I deal with the contents of these documents below, when addressing the issues regarding the assessment that proof of debt.
On 26 February 2025, the Owners Corporation filed a Further Amended Technology and Construction List Statement. The amendments included identifying the “Defects” that were the subject of the Owners Corporation’s claim by reference to the Amended Scott Schedule, and the addition of the following allegation (at paragraph [46A]):
“46A. The Defects identified as ‘major defects’ for the purposes of Section 18E of the [H]ome Building Act in the Plaintiff’s Amended Scott Schedule filed 26 February 2025:
(a) are defects in a ‘major element’ of The Jacob, as that term is defined in section 18E of the Home Building Act;
(b) are attributable to:
(i) defective design;
(ii) defective or faulty workmanship;
(iii) defective materials; or
(iv) a failure to comply with the structural performance requirements of the NCC; and
(c) have caused or are likely to cause:
(i) the inability to inhabit or use The Jacob (or part of [T]he Jacob) for its intended purpose;
(ii) the destruction of part of The Jacob; or
(iii) a threat of collapse of The Jacob or any part of The Jacob,
which matters are particularised in the Plaintiff’s Amended Scott Schedule filed 26 February 2025 (‘Major Defects’)."
“The Plaintiff’s loss and damage includes:
A. the costs of rectifying the common property to the extent that such rectification costs are borne by it;
B. the costs of remediation of the consequences of the Defects to the extent that such remediation costs are borne by it;
C. any increased insurance premiums, legal and other professional costs incurred by it as a result of the Defects (or any of them);
D. the amount that the Plaintiff becomes liable to pay to Unit Owners in respect to damage occasioned to Residential Units by reason of the Defects; and
E. economic loss.”
On 10 March 2025, orders were made that the Company serve any expert evidence by 13 June 2025.
On 15 April 2025, the Company filed an Amended Technology and Construction List Response. The amendments included the addition of the following defence:
“In further answer to the Plaintiff’s claim under the HBA, the First Defendant says that:
(a) the claim is time barred because the alleged defects are not ‘major defects’ within the meaning of section 18E(4) of the HBA; and
(b) the claim is statute barred because:
a. section 18E(1)(b) provides that the warranty period is six (6) years for a breach that results in a ‘major defect’ in residential building work or 2 years in any other case; and
b. section 18E(1)(c) provides that the warranty period starts on completion of the work to which it relates; and
c. on 12 October 2016, Building Certificates Australia Pty Ltd issued a final occupation certificate certifying the whole of The Jacob; and
d. the alleged defects are not ‘major defects’.
(c) the List Statement does not properly plead ‘major defects’."
On 8 July 2025, the Company entered voluntary administration pursuant to s 436A of the Act, and the Administrators were appointed. By operation of s 440D of the Act, the Technology and Construction List Proceeding was thereby stayed.
On 9 July 2025, the solicitor for the Owners Corporation sent a letter to the Administrators, referring to the existence of the Technology and Construction List Proceeding, and asserting that the Director “has clearly taken the step of appointing the Administrators because proceedings were at a stage where it was likely that judgment in favour of the [Owners Corporation] for the amount claimed was near to hand”.
On 10 July 2025, the Administrators issued an Initial Report to Creditors which stated, among other things, that:
the First Meeting would be held virtually at 11:00am on 18 July 2025; and
in order to participate in the First Meeting, a proof of debt for voting purposes, and any proxy forms, would have to be submitted by 5:00pm on 17 July 2025, together with any “information to substantiate your claim”.
The Initial Report to Creditors attached a Declaration of Independence, Relevant Relationships and Indemnities, which referred to discussions that had occurred between the Director and the Administrators prior to their appointment regarding “the financial circumstances of the Company and options available to it”. The Administrators stated in this Declaration that they did not believe these discussions affected their independence because, inter alia, the Administrators had no prior relationship with the Director and the “meeting and nature of the information exchanged provided us with a better understanding of the Company’s position, including allowing us an opportunity to assess strategies to preserve the assets of the Company to provide a better result for creditors”. The Owners Corporation advanced, in closing oral address, a number of submissions regarding these discussions, including that the Administrators likely discussed with the Director “avoiding Mercon’s actual or contingent liability to the [Owners Corporation] by engaging the administration process”. However, as noted at paragraph [15] above, no issue was pleaded regarding the independence of the Administrators, or their discussions with the Director prior to their appointment, and no issue was raised with Mr Prasad in cross-examination regarding these matters. In those circumstances, I do not consider that it is open to the Owners Corporation to advance those submissions.
| Name | Total Claim Value | | ATO | TBD | | Civil 1 Pty Ltd | $17,530 | | Confederal Tax law Pty Ltd | $12,833 | | Demo Link Pty Ltd | $8,855 | | Plumbing Hub Pty Ltd | $7,115 | | Strata Plan 93170 [Owners Corporation] | $2,837,500 | | TOTAL: | $2,883,833 |
The amount of the Owners Corporation’s claim in the above table (namely, $2,837,500) matches the total amount shown in the Amended Scott Schedule.
On 14 July 2025, the solicitor for the Owners Corporation uploaded various documents to an online shared folder which was managed by the Administrators. The documents that were uploaded included the Further Amended List Statement in the Technology and Construction List Proceeding, the report of Mr Slatter, the Amended Scott Schedule, and the SDSS Report.
On 15 July 2025, the Director completed a Report on Company Activities and Property (ROCAP) in respect of the Company, which was lodged with the Australian Securities and Investments Commission. The ROCAP disclosed that the Company’s only asset was cash at bank of $1,344.30. The following explanation was given for the lack of any other assets: “The Company subcontracts all work to 3rd party”. The ROCAP disclosed that the Company owed its creditors a total of around $1.66m. There was no mention of any liability either to the Owners Corporation or any Unit Owner, but the ROCAP did record that money was owed to the Australian Taxation Office (ATO), which was not included in the list of creditors.
On 17 July 2025, the solicitor for the Owners Corporation submitted to the Administrators proofs of debt and proxies on behalf of the Owners Corporation and seven Unit Owners (being the owners of Units 2, 4, 14, 15, 22, 27 and 29 in The Jacob). This email stated that:
the proof of debt of the Owners Corporation was supported by the Amended Scott Schedule and Mr Slatter’s report; and
the proofs of debt of the individual Unit Owners were supported by the SDSS Report.
The Owners Corporation’s proof of debt was in the amount of $4,191,317.10, comprising:
$2,837,500 for “loss and damage” arising from “construction defects in respect to the Common Property of [The Jacob]” (matching the amount in the Amended Scott Schedule, which was attached);
$586,157 for an “escalation entitlement” for the period 28 June 2024 to 10 July 2025 at a claimed rate of 20% per annum;
$171,182.85 for the cost of the insurance policy to be taken out in respect of the rectification works, calculated at 5% of the contract value for those works;
$562,148.22 (incl GST) in legal costs and disbursements; and
$34,329.03 in interest payable on a loan obtained to meet the costs of the Technology and Construction List Proceeding.
The amounts of the proofs of debt lodged on behalf of the seven Unit Owners were as follows:
“For the purposes of the first meeting of creditors, given the limited time available and limited information provided, the administrators have determined to admit each creditor as a contingent creditor for a value of $1 for voting purposes only. The basis for that decision is that the information or evidence provided in support of the claims has not yet been independently verified or adjudicated on. As you may be aware, proceedings remain on foot which concern, inter alia, those claims and those proceedings have not yet been determined nor any findings made in respect of the claims advanced. For example, the expert evidence submitted in support of the claims has not been the subject of any expert evidence in reply nor any judicial scrutiny.
I reiterate that this decision is only for voting purposes for the first meeting of creditors and does not limit you from submitting a further proof of debt or additional supporting evidence which might lead to a different outcome in the future.”
The First Meeting was held, as scheduled, at 11:00am on 18 July 2025.
The minutes record that the First Meeting was attended by eighteen creditors present in person or by proxy (including those participating by virtual means).
The minutes further record that the resolution moved by the Owners Corporation to remove the Administrators and to replace them with Mr Robinson and Mr Whittingham was defeated:
on the votes (with eight votes in favour, nine against, and one abstaining); and
on value (with $8 in favour, $1,781,446.04 against, and $86,358.51 abstaining).
The eight creditors who voted in favour of this resolution (with total claims of $8) were the Owners Corporation and the seven Unit Owners who were admitted for $1 each for voting purposes.
The nine votes against the resolution included those of four related parties, who were admitted for voting purposes with combined claims of $1,720,649.45, as follows:
the Director was admitted in the amount of $446,470.09;
Mr Andre Merhi was admitted in the amount of $333,579.14;
AG Kellyville Pty Ltd was admitted in the amount of $82,627.02; and
M Civil Pty Ltd was admitted in the amount of $857,973.20
(Related Creditors)
The other five creditors who voted against the resolution (with total claims of $60,796.09) and the sole creditor who abstained (with a claim of $86,358.51) appear to have been trade creditors.
The minutes of the First Meeting record the following question and answer:
“[Solicitor for the Owners Corporation]: We would have expected to see the ATO as a creditor. What is the position on that at the moment?
[Chairperson (Mr Prasad)]: We have written to the ATO and requested details of any potential claim. To date we have not received a response from the ATO.
The accounting records of the Company do not indicate any amounts owing to the ATO.
However this is subject to change.”
On 5 August 2025, the Administrators issued their Second Report to Creditors, pursuant to s 439A of the Act and s 75 – 225 of the IPRC.
The Second Report to Creditors stated, among other things, that:
the Second Meeting would be held on 12 August 2025;
at the Second Meeting, the creditors would be provided with the opportunity to vote on the future of the Company and to resolve whether the Company should execute the proposed DOCA, whether the administration should end, or whether the Company should be wound up; and
creditors did not need to submit a further proof of debt unless they wished to amend their claim.
The Second Report to Creditors also included a number of statements regarding the claims made in relation to The Jacob, including that:
the Company was subcontracted by Balintore to complete the construction of The Jacob for Harcourts;
since assuming occupancy of The Jacob, “numerous owners and occupiers of the residential and commercial units have reported [incidents] of flooding, ingress/penetration of water and consequent damage to the building”;
the Owners Corporation commenced the Technology and Construction List Proceeding in October 2022, and engaged a remedial building consultant to prepare an expert report which was filed as evidence in that proceeding;
the Owners Corporation has made a claim in the administration approximating $4.2m which “has not been independently quantified or assessed”; and
other Unit Owners had also made claims in the administration which “purportedly” relate to lot property rather than common property, totalling approximately $190,000, which have also “not been independently quantified or assessed”.
The Second Report to Creditors included information about the financial performance and position of the Company, including that:
the debt owing to the ATO was $63,725;
there were no outstanding employee entitlements;
$1,800,008 of claims had been received in respect of related, unsecured creditors;
the Company had been operating with ongoing financial support from related parties including entities and individuals connected with the Director;
the claims of the four Related Creditors were evidenced by signed loan agreements, and the amount of their loans had increased from 2022 to 2025;
the Company maintained books and records in accordance with s 286 of the Act;
| Item | ROCAP ($) | ERV ($) | | Assets: | 1,344 | 1,344 | | Cash at bank | | | | Total Assets | 1,344 | 1,344 | | Liabilities: | | | | Unsecured creditors (excl Defects Claims) | 1,766,982 | 1,857,585 | | Unsecured Creditors – Defects Claims | - | TBD | | Statutory Creditors | | 63,725 | | Total Liabilities | 1,766,982 | 1,921,310 | | Total Net Assets / (Deficiency) | (1,765,638) | (1,919,966) |
The Owners Corporation submitted that a number of the statements made in the Second Report to Creditors were misleading. I refer below to the particular issues raised by the Owners Corporation when dealing its claim that the DOCA should be terminated pursuant to s 445D of the Act.
The Second Report to Creditors also outlined the key terms of the proposed DOCA as follows (at [8.2]):
the Deed Fund would consist of:
(a) cash held by the Administrators; (b) debts due to the Company; (c) tax refunds due to the Administrators; and (d) the contribution from the Director, being a fixed contribution of $150,000;
neither the Director nor any shareholders of the Company would make a claim for, or participate in, the dividend to unsecured creditors;
control of the Company would remain with the Administrators whilst the Company was subject to the DOCA; and
the Related Creditors had agreed not to participate in the Deed Fund and to defer their entitlement to recover the debts owing to them until after the termination of the DOCA.
In the Second Report to Creditors, the Administrators expressed the view that the proposed DOCA provided a better return to creditors than if the Company was to be wound up and placed into liquidation. In particular, the Administrators set out that the proposed DOCA would give unsecured creditors a return of between 2.85 and 64.95 cents in the dollar (depending upon the amount for which the claims of the Owners Corporation and the Unit Owners were admitted) and that the return in a liquidation scenario would be nil. The Administrators stated as follows:
“Based on our investigations to date, the proposed DOCA is expected to provide a greater, more certain outcome for creditors than the potential recoveries in liquidation detailed in section 7.8 of this report.
Given the above, it is our recommendation that creditors should resolve to execute the proposed DOCA.”
“The effects of the liquidation of the Company includes:
- The moratorium available under the Voluntary Administration process will cease;
- The Liquidators will be empowered to pursue potential recoveries and recover potential voidable transactions; and
- The Liquidators will be required to conduct an investigation into the affairs of the Companies pursuant to Section 533 of the Act and lodge a report with the ASIC in respect to the findings made.
As the proposed DOCA is expected to provide a better return to creditors of the Company, than liquidation, we do not recommend this option.
Accordingly, we do not consider this option to be in the best interests of creditors.”
On 11 August 2025, the solicitor for the Owners Corporation sent a letter to the Administrators, stating that each of the Owners Corporation and the Unit Owners of Units 2, 4, 14, 22, 27 and 29 relied on the respective proofs of debt previously submitted by them, and enclosed:
an updated proof of debt for Unit 15 (with the amount of the claim increasing from $7,465.50 to $28,365.50);
proofs of debt for five additional Unit Owners, in the following amounts:
(a) Unit 5: $30,305.00; (b) Unit 10: $495.00; (c) Unit 11: $280.00; (d) Unit 28: $3,850.00; (e) Unit 32: $11,330.00; and
proxies for the Owners Corporation and for each of those twelve Unit Owners who had lodged proofs.
The claims by the five additional Unit Owners and the updated claim in respect of Unit 15 increased the total amount claimed by the Unit Owners to around $257,000.
On 12 August 2025 at 11:46am (being around 15 minutes before the Second Meeting commenced), the Administrators sent an email to the solicitor for the Owners Corporation, which stated, relevantly, as follows:
“Regarding the [proofs of debt] received prior to the first meeting of creditors, the administrators have determined to admit each creditor as a contingent creditor for a value of $1 for voting purposes only at the second meeting of creditors. The basis for that decision is that the information or evidence provided in support of the claims has not yet been independently verified or adjudicated on. As you may be aware, proceedings remain on foot which concern, inter alia, those claims, and those proceedings have not yet been determined nor any findings made in respect of the claims advanced. For example, the expert evidence submitted in support of the claims has not been the subject of any expert evidence in reply nor any judicial scrutiny.
In respect to the additional PODs received since the first meeting of creditors, I reject each of those claims in full.”
“It does not arise within the building defects liability period
There is no evidence supporting the defects alleged.”
Immediately prior to the Second Meeting, the Administrators had admitted the following claims for voting purposes:
the Owners Corporation and six Unit Owners (being the Owners of Units 2, 4, 14, 22, 27 and 29) were admitted for a total of $7;
the ATO was admitted for $61,096.64;
the four Related Creditors were admitted for a total of $1,720,649.75; and
six other (unrelated) creditors were admitted for a total of $136,855.10.
The Second Meeting was held, as scheduled, at noon on 12 August 2025. It was attended by the eighteen creditors referred to in the previous paragraph, in person or by proxy.
The minutes of the Second Meeting record that the resolution that the Company execute the proposed DOCA (the DOCA Resolution) was passed:
on the votes (with eleven votes in favour, and seven against); and
on value (with $1,918,601.19 in favour, and $7 against).
The only votes against the DOCA Resolution were cast by the Owners Corporation and the six Unit Owners.
The ATO, the other unrelated creditors and the four Related Creditors all voted in favour of the DOCA Resolution.
The same voting patterns were observed in relation to three other resolutions regarding the remuneration of the Administrators, with the Owners Corporation and the six unit owners being the only creditors opposing those resolutions.
On 26 August 2025, the Owners Corporation commenced this proceeding.
On 1 September 2025, the DOCA was executed.
By prayer 1 of its Originating Process, the Owners Corporation seeks an order that the proofs of debt lodged for the purposes of voting at the Second Meeting by the Owners Corporation and various Unit Owners which were either admitted for $1 or rejected in full, “ought to have been admitted for the face value of the debt or claim”.
In its Points of Claim filed on 24 September 2025, the Owners Corporation alleges that the estimates of those proofs of debt which were made by the Administrators were not “just estimates” for the purposes of s 75 – 85(4) of the IPRC.
(1) A person other than a creditor (or the creditor’s proxy or attorney) is not entitled to vote at a meeting of creditors.
(2) Subject to subsections (3), (4) and (5), each creditor is entitled to vote and has one vote.
(3) A person is not entitled to vote as a creditor at a meeting of creditors unless:
(a) his or her debt or claim has been admitted wholly or in part by the external administrator; or
(b) he or she has lodged, with the person presiding at the meeting, or with the person named in the notice convening the meeting as the person who may receive particulars of the debt or claim:
(i) those particulars; or
(ii) if required—a formal proof of the debt or claim.
(4) A creditor must not vote in respect of:
(a) an unliquidated debt; or
(b) a contingent debt; or
(c) an unliquidated or a contingent claim; or
(d) a debt the value of which is not established;
unless a just estimate of its value has been made.
The claims of the Owners Corporation and the Unit Owners were unliquidated or contingent claims. Accordingly, the Owners Corporation and Unit Owners were not entitled to vote at the Second Meeting unless “a just estimate” of the value of their respective claims “had been made”: IPRC, s 75 – 85(4)(c).
The person responsible for making any such determination was the chair of the Second Meeting, being Mr Prasad. Section 75 – 100 of the IPRC provides as follows:
(1) The person presiding at a meeting may determine any question that arises as to the entitlement of a person to vote.
(2) In deciding whether a person is entitled to vote at a meeting of creditors, the person presiding must:
(a) have regard to the merits of the person’s claim; and
(b) act impartially and independently.
(3) If the person presiding is in doubt whether a proof of debt or claim should be admitted or rejected, he or she must mark that proof as objected to and allow the creditor to vote, subject to the vote being declared invalid if the objection is sustained.
(4) A decision by the person presiding to admit or reject a proof of debt or claim for the purposes of voting may be appealed against to the Court within 10 business days after the decision.
“An estimate which is ‘just’ has two elements, one subject[ive] and one objective. It must be an estimate arrived at by the chairperson as a result of a genuine endeavour on his or her part to ‘do the best that can be done by reference to the factual material the claimant furnishes’ , as Barrett J says in [Selim v McGrath [2003] NSWSC 927 at [103]]. But an estimate made even after such an endeavour is not just if it is plainly unreasonable or wrong, despite the chairperson’s honest belief to the contrary.”
“It is here that a difference between proof in a winding up and proof for Part 5.3A voting must be noted. Any estimate of value undertaken pursuant to regulation 5.6.23(2) – as well as any decision under regulation 5.6.26(1) to admit or reject - will, of necessity, be of a somewhat summary nature. A decision of the latter kind, as I have said, can only be undertaken by the chairperson, which means that the meeting will either have started or be about to start. The same will be true of any regulation 5.6.23(2) estimate, if, as I consider likely, the correct view is that the function of making such an estimate is a function to be performed by the chairperson. Even if it is a function of the administrator as such, the fact that it is a function that the legislation envisages only in relation to a meeting means that it will be undertaken, at the earliest, a short time before the time at which the meeting is to start. The situation is accordingly not one in which extensive debate and deliberation will be possible. As far as the regulation 5.6.26 function of admitting or rejecting is concerned, this is borne out by the fact that there is express provision acknowledging that the chairperson may be in doubt as to the correct course to take. In that instance, it is not expected that the chairperson will resolve the doubt. So too, it seems to me, regulation 5.6.23, in requiring a just estimate of value to be made, does not contemplate that the chairperson or administrator will undertake any detailed inquiry. He or she will do the best that can be done by reference to the factual material the claimant furnishes, view[ed] in the total context with which the decision-maker is dealing. If that material provides reasonable grounds, within that context, for ascribing a particular figure to the particular claim, the chairperson or administrator is no doubt expected to accept that position. If, on the other hand, there is little or no material from which a conclusion as to value can be drawn, a just estimate may be zero or perhaps the nominal amount of $1.00, assuming that admission is warranted at all.”
“The predecessors to ss 75-85 and 75-100 were considered in detail by Barrett J in Selim v McGrath [2003] NSWSC 927; (2003) 47 ACSR 537 at [88]-[103]. The relevant principles are as follows. A creditor seeking to vote at a creditors’ meeting must furnish particulars of the debt or claim, and the person presiding must then determine two things, namely: (i) whether or not the person is a creditor at all, which determines whether or not they can vote; and (ii) if so, what amount represents a just estimate of the creditor’s claim.
The creditor must furnish sufficient particulars to show, at least at a prima facie level, the existence of the asserted debt or claim. The person presiding may then have regard not only to that material, but to other material within his or her knowledge, in determining the two questions outlined above. If the person presiding is in no doubt that the person is not a creditor, the ‘proof’ is rejected and the person is not entitled to vote. If the person presiding entertains doubt about the person’s status as a creditor, the proof is marked as objected to and the creditor is permitted to vote, subject to any subsequent disallowance if the objection is sustained.
Where the person is permitted to vote, a just estimate of the debt or claim must be made. The process, which will necessarily be undertaken at or shortly before the meeting, is summary in nature. The person presiding is not required to undertake any detailed inquiry, but rather to do the best he or she can by reference to the factual material furnished, viewed in the total context in which the decision maker is dealing. If the material provides reasonable grounds for ascribing a figure to the claim, the person presiding must accept that position, but if not, a just estimate may be zero or perhaps the nominal amount of $1, assuming admission is warranted at all.”
Section 75 – 100(4) of the IPRC gives a right to appeal to the Court from the decision to admit or reject a proof of debt, provided that such appeal is brought within 10 business days of the decision. (The present proceeding was commenced within two weeks of the Second Meeting and therefore within time.)
On such an appeal, the Court has power, pursuant to s 90 – 15(1) of the Insolvency Practice Schedule (Corporations) (IPS), to “make such orders as it thinks fit in relation to the external administration of a company”.
An appeal such as the present is a hearing de novo: El-Saafin v Franek (No 3) [2019] VSC 155 at [75] (Lyons J); In the matter of AZMAC Pty Ltd (in liquidation) [2020] NSWSC 204 at [42] (Rees J); In the matter of Caernarvon Canobolas Pty Ltd (in liq) [2022] NSWSC 382 at [2] (Ward CJ in Eq); and Scott v Olde [2025] FCA 1014 at [73] (Lee J).
In El-Saafin v Franek at [76], Lyons J referred to the following observations of Gaudron, McHugh, Gummow and Hayne JJ in Allesch v Maunz (2000) 203 CLR 172; [2000] HCA 40 at [23]:
“the critical difference between an appeal by way of rehearing and a hearing de novo is that, in the former case, the powers of the appellate court are exercisable only where the appellant can demonstrate that, having regard to all the evidence now before the appellate court, the order that is the subject of the appeal is the result of some legal, factual or discretionary error, whereas, in the latter case, those powers may be exercised regardless of error.”
Accordingly, it is not necessary for the Owners Corporation to establish that Mr Prasad erred in deciding whether to admit or reject a proof of debt for voting purposes at the Second Meeting, or erred in making a just estimate. Instead, the Owners Corporation must establish, on the evidence before the Court (which may include evidence additional to the material before the Administrators as at the time of the Second Meeting) that a particular proof should have been admitted or rejected for voting purposes at the Second Meeting, and, if the proof should have been admitted, what amount represents a “just estimate” of the creditor’s claim: El-Saafin v Franek at [77].
The burden of establishing those matters, on the balance of probabilities, is on the party challenging the proof of debt: Scott v Olde at [72].
When the Court is determining, on an appeal under s 75 – 100(4) of the IPRC, whether a proof of debt should have been admitted or rejected for voting purposes, and whether an administrator made a “just estimate” of that claim, it is necessary to have regard to the “somewhat summary nature” of the administrator’s task in making a “just estimate” of the value of a debt under s 75 – 85(4)(d) of the IPRC, and “the factual material furnished [in relation to those proofs], viewed in the total context in which the decision maker is dealing”: Scott v Olde at [72], referring to Selim at [103].
If the available material provides reasonable grounds for ascribing a particular figure to the creditor’s claim, then a “just estimate” of the claim will be that figure: Selim at [103]; Re Catholic Church Insurance at [75].
However, if it appears that the person is a creditor for at least some amount (for example, where a debt is subject to an uncertain contingency), but the claim cannot be quantified by a just estimate, it is appropriate to admit the creditor for voting purposes at a nominal value of $1: Bovis Lend Lease Pty Ltd v Wily [2003] NSWSC 467 at [269(f)] (Austin J) (quoted with approval in El-Saafin v Franek at [98]); Selim at [103]; and Re Catholic Church Insurance at [75].
In Weriton Finance Pty Ltd v P*.N.R.* Pty Ltd (In Administration) [2012] NSWSC 1402 at [51], Black J held that “the approach of valuing the claim at a nominal value of $1.00 for voting purposes was open, where the material before the administrator was not sufficient to allow a conclusion as to value to be drawn”, referring to Bovis Lend Lease at [269], Selim at [103], and [2002] NSWCA 395. In at [395], Young CJ in Eq observed at [395] that: “If the chairman finds it almost impossible to ascribe a value to the claim, then it should be valued at a dollar which at least would allow the claimant to be recorded amongst the number of creditors voting on the resolution.”
“How was Nishimatsu’s potential debt to be valued? There was no admission of any part of it. Until the arbitration award, or any settlement of the claim, it would be impossible to determine any fixed amount to represent it. It may fail utterly. The counterclaim may succeed fully. It may fail in part with the counterclaim extinguishing part of the claim. It may succeed fully with the counterclaim failing. It would require a careful evaluation of the merits of claim and counterclaim to determine a range for its value. That would be an unrealistic course. In my view it would be impossible to give it any value for sensible purposes. In fact a nil value was attributed to it meaning that it had no voting rights. I do not see how there could be any different decision. The alternative would have made a nonsense of any idea of parity amongst the unsecured creditors giving a right to an unproved creditor (who may ultimately fail to prove a debt) which was possibly greater than that of a proven creditor. The decision was not only a bona fide decision. It was in my view the only patently equitable one.”
“The basis for that decision is that the information or evidence provided in support of the claims has not yet been independently verified or adjudicated on. As you may be aware, proceedings remain on foot which concern, inter alia, those claims, and those proceedings have not yet been determined nor any findings made in respect of the claims advanced. For example, the expert evidence submitted in support of the claims has not been the subject of any expert evidence in reply nor any judicial scrutiny.”
The first, and major component, of the Owners Corporation’s proof of debt is a claim for **$**2,837,500 for “loss and damage” arising from “construction defects in respect of to the Common Property of [The Jacob]” (see paragraph [46](1) above).
The Owners Corporation relied, in support of this claim, on Mr Slatter’s report and on the Amended Scott Schedule prepared by Mr Slatter. The Owners Corporation did not, on the present appeal from the Administrators’ decision, rely on any evidence as to quantum additional to this material.
Mr Slatter’s report does not contain any opinions regarding the costs of remedial work in order to address alleged defects at The Jacob. The only material regarding such costs was the “Estimate of Loss” column in the Amended Scott Schedule. In respect of each alleged defect in the Amended Scott Schedule, Mr Slatter provides a figure in this column. The total figure shown in the Amended Scott Schedule matches precisely the amount claimed in the Owners Corporation’s proof of debt for loss and damage arising from building defects (namely, $2,837,500).
There are a number of points to note about the information in the “Estimates of Loss” column.
First, Mr Slatter is not a quantity surveyor and does not appear, having regard to his curriculum vitae, to have any specialised experience in assessing the costs of performing the rectification works which he proposes in his report. The Owners Corporation did not, in written or oral submissions, point to any evidence that Mr Slatter has any such experience.
Secondly, even if Mr Slatter had such experience, he does not provide any information in the Amended Scott Schedule as to how his “Estimate of Loss” has been determined. There is no commentary to describe the process by which he has reached his opinion on the cost of the proposed rectification works. There is, for example, no information regarding the extent to which the figure comprises materials and the extent to which it comprises labour, let alone the basis on which such components have been assessed.
Thirdly, all of the figures in the “Estimate of Loss” columns are round figures. For example, of the first six items in the list, three have an estimate of $7,000, two of $50,000, and one of $500. The final item in the list, relating to the main roof, is given an estimate of $750,000, with no explanation of the method by which this figure has been determined. This feature of the Amended Scott Schedule gives rise to an inference that the figures have not been arrived at following the application of a process of summing various elements of the costs of the rectification work, in order to determine a figure, but instead represent “ballpark” estimates. This inference is reinforced by the note at the end of the Amended Scott Schedule, which includes the following statements:
“The budgets are estimates only presented with the best intentions and knowledge at the time of preparation. It is recommended that a design scope is prepared for each defect item & market rate quotations received.”
There is no evidence that the “recommended” steps were subsequently taken by the Owners Corporation, and in any event, no detailed scope of works or estimate of the costs of works based on market rate quotations was provided to the Administrators in support of the Owners Corporation’s proof of debt.
Fourthly, the rounded figures given for each defect in the “Estimate of Loss” column are added to produce a total figure of $2,270,000 in the Amended Scott Schedule, to which a “General Contingency” of 25% is then added (thereby producing the figure of $2,837,500 which was adopted in the proof of debt). The only explanation provided in the Amended Scott Schedule for this “General Contingency” is as follows:
“The 25% General Contingency applies to works that cannot be determined at this time & may include those unable to be determined until excavation, demolition and/or dismantling is undertaken or latent defects discovered.”
Mr Slatter did not explain, by reference to any specialised experience or literature, or by reference to the nature of the existing building or of the proposed works, the reasons why a contingency of this extent was appropriate.
Fifthly, as the Defendants noted, the Amended Scott Schedule identifies 16 of the 37 defects as being “Not considered a ‘major element’”. As the final Occupation Certificate was issued on 12 October 2016, any claim for breach of the statutory warranties under the HBA in respect of a defect in an element which was not a “major element”, and which was therefore not a “major defect”, would have been statute-barred well before the Technology and Construction List Proceeding was commenced on 12 October 2022: HBA, s 18E. The fact that Mr Slatter identified a number of the alleged defects as relating to elements which were not considered a “major element” indicates both that no claim was available under the HBA in respect of those elements, and that there was a genuine and live issue, as pleaded in the List Response, as to whether the Company was liable for any of the claimed loss under the HBA.
The Owners Corporation submitted as follows:
“… as the [Owners Corporation] had an expert opinion that substantiated its claim and other evidence that validated values in the proof, and [the Company] had, despite numerous opportunities, not filed any evidence to rebut the [Owners Corporation’s] claims in fact or quantum, the Administrators ought to have accepted that the [Owners Corporation] had established it had a claim, and to discount the claim by a percentage, to reflect uncertainty if necessary.”
I do not accept this submission.
It does not follow, from the fact that the Company went into administration before the (extended) deadline for the Company to file its expert evidence in the Technology and Construction List Proceeding, that the opinions expressed in Mr Slatter’s Report and the Amended Scott Schedule should be accepted without any examination or scrutiny.
Having regard to the matters set out above regarding the “Estimate of Loss” column of the Amended Scott Schedule prepared by Mr Slatter, I accept the Defendants’ submission that the figures in this column do not constitute evidence of quantum which would have been admissible in the Technology and Construction List Proceeding in order to establish loss. Nor do the figures in the “Estimate of Loss” column provide a basis on which the Administrators, or the Court, could make a “just estimate” of the Owners Corporation’s claim. Instead, they are ballpark figures, without any supporting reasoning, provided by a person without specialised experience in preparing such estimates. It follows that those figures cannot be given any weight.
The Owners Corporation’s submission that “the Administrators ought to have accepted that the [Owners Corporation] had established it had a claim, and to discount the claim by a percentage, to reflect uncertainty if necessary” must be rejected, for two reasons. First, there is no basis for determining the extent of any such discount. If Mr Slatter had exposed the reasoning process by which the figures in the Amended Scott Schedule had been determined, and had identified any risks attaching to those estimates, there might be a basis for determining such a discount. However, there is no sensible means of arriving at the appropriate extent of the discount to be applied to a figure where the basis for that figure is entirely inscrutable. Secondly, the authorities summarised at paragraphs [95]-[103] above make clear that, if the material is not sufficient to provide a reasonable basis for ascribing a particular figure to a claim, the appropriate course is not to apply some arbitrary discount to the claim, but to admit the proof for voting purposes for a nominal amount. That is precisely what was done in this case. (Further, it should be noted that if the Administrators had taken the total figure shown in the Scott Schedule for “Estimate of Loss”, excluding the “General Contingency” uplift, and had applied – for the sake of illustration – a discount of only 20% to allow for the uncertainty attaching both to liability and to quantum, the resultant figure would have been $1,816,000, and the DOCA Resolution would have still passed both on the votes and on value.)
The remaining four elements of the Owners Corporation’s proof of debt may be dealt with briefly.
First, the Owners Corporation claimed an amount of $586,157 as an “escalation entitlement” for the period from 28 June 2024 to 10 July 2025. This represented an increase, at a claimed rate of 20% per annum, applied to the total figure shown in the Amended Scott Schedule. Given that the “escalation” figure is a function of applying the identified rate to the total figure in the Amended Scott Schedule, the comments set out above regarding the total in the Amended Scott Schedule apply equally to this “escalation” figure. Further, the Owners Corporation did not identify any material (whether in Mr Slatter’s report, the Amended Scott Schedule, or otherwise) to support the implicit assertion that there was, in the period in question, a 20% increase in construction costs. As the Defendants submitted, this figure appeared to be the creation of the person who prepared the proof of debt.
“if the company has committed a wrong prior to the commencement of the winding up or the deed of company arrangement then in the eyes of the law it has already incurred a liability, although a Court would have to adjudicate the case to establish that liability. Thus, s.553(1) admits to proof in a winding up a claim for damages arising from a wrong committed by the company prior to the commencement of the winding up. If the company denies liability for that wrong so that it puts the claimant to the cost of establishing his or her case, the company will normally have to pay the successful claimant’s assessed costs. However, I think it is stretching somewhat the accepted concept of a contingent liability to say that, from the moment that the company puts the ultimately successful claimant to proof of his or her case, the company is under an existing obligation to pay the claimant’s legal costs. While the ‘association and connection’ between the claimant’s substantive claim and the costs of establishing that claim certainly exist, as Goldberg J said in Pasminco , the substantive claim depends upon the existence of a legal right while the award of costs is always in the discretion of the Court, even though the way in which the discretion will be exercised will be fairly predictable in most cases.”
Finally, the Owners Corporation sought an amount of $34,329.03 in interest that was payable on a loan obtained to meet the costs of the Technology and Construction List Proceeding. The Owners Corporation did not, in written or oral submissions, articulate any basis on which it was asserted that the Company was liable for such interest.
For those reasons, I reject the Owners Corporation’s claim that its proof of debt should have been admitted for its face value, and find that, given the lack of any reasonable or sufficient basis for determining the value of its claim, a just estimate of the proof was the nominal amount of $1.
The Administrators admitted six Unit Owners (being the owners of Units 2, 4, 14, 22, 27 and 29) as contingent creditors for $1 for voting purposes only at the Second Meeting. The Administrators’ reasons for doing so were stated to be the same reasons as given in respect of the Owners Corporation’s proof of debt, namely, that “the information or evidence provided in support of the claims has not yet been independently verified or adjudicated on”.
The Owners Corporation did not, in its written or oral submissions, undertake any examination of those proofs of debt lodged by the Unit Owners which were admitted for $1 for voting purposes, or address the reasons why the Court should determine that those proofs ought to have been admitted for their face value. That was despite the Defendants having made a number of submissions, both in writing and orally, regarding each of those proofs of debt.
The proof of debt lodged by the Unit Owner was in the amount of $20,000. The only material provided in support of this claim was an extract of the SDSS Report.
This extract does not support the Unit Owner’s claim. In particular, the SDSS Report identified only three issues in respect of Unit 2:
as regards the first issue, which relates to Unit 2’s balcony, the SDSS Report stated that this issue was “the owner[’]s liability”, explaining that: “The owner of the unit has modified the bottom seal of the subsill and [this issue] is therefore no longer the builder’s responsibility”; and
as regards each of the second and third issues, which relate to Unit 2’s two bedrooms, the SDSS Report made the following statements (emphasis added):
“Walls on either side of window were tested with a moisture meter as well as the skirting. All areas tested dry. Mold on the lower section of the window frame is due to condensation and there is no building fault.”
The proof of debt lodged by the Unit Owner was in the amount of $25,000. The only material provided in support of this claim was an extract of the SDSS Report, relating to an issue with the balcony of Unit 4.
The SDSS Report expressed the view that the relevant building work was “not in compliance with AS4654”. However, there was no material provided, whether in the SDSS Report or otherwise, to substantiate the claim that the quantum of the Unit Owner’s loss and damage is $25,000. The SDSS Report is silent on the costs of any rectification works. It is not clear by whom, or on what basis, this figure for the claimed loss and damage has been determined.
The proof of debt lodged by the Unit Owner was in the amount of $25,000. The only material provided in support of this claim was an extract of the SDSS Report, consisting of those pages relating to Unit 14.
This extract does not support the Unit Owner’s claim. In particular, the report identified only two issues in respect of Unit 14:
as regards the first issue, which relates to the bedroom one balcony, the SDSS Report stated that: “Area has been cleaned since inspection and there is no evidence of water ingress. No further action required”; and
as regards the second issue, which relates to the balcony, the SDSS Report stated as follows: “The owner of the unit has modified the bottom seal of the subsill and [this issue] is therefore no longer the builder’s responsibility”.
Once again, there was no information provided, whether in the SDSS Report or otherwise, to substantiate the claim that the quantum of the Unit Owner’s loss and damage is $25,000.
The proof of debt lodged by the Unit Owner was in the amount of $50,000. The only material provided in support of this claim was an extract of the SDSS Report, consisting of those pages relating to Unit 22.
This extract does not support the Unit Owner’s claim. In particular, the SDSS Report appears to have been incomplete insofar as Unit 22 is concerned. Three issues were identified in the SDSS Report regarding Unit 22, which relate to the balcony and loungeroom. In respect of each issue, the SDSS Report included a query by the builder “Can we further investigate this issue in our on-site meeting”. There is no response to this query in the “SDSS Comments” column, and therefore it is unknown whether an inspection occurred, or what views SDSS formed after any such inspection.
Further, there was no material provided, whether in the SDSS Report or otherwise, to substantiate the claim that the quantum of the Unit Owner’s loss and damage is $50,000.
The proof of debt lodged by the Unit Owner was in the amount of $57,000. The only material provided in support of this claim was an extract of the SDSS Report, consisting of one page relating to Unit 27.
This extract does not support Unit 27’s claim. Only one issue is identified in the extract of the SDSS Report provided with Unit 27’s proof, relating to the balcony and living room. In respect of this issue, the SDSS Report included the following comment by the builder “Can we further investigate this issue in our on-site meeting. This possibly may be a maintenance issue.” There is no response to this query in the “SDSS Comments” column, and therefore it is unknown whether an inspection occurred, or what views SDSS formed after any such inspection, including as to whether this was a building defect or a maintenance issue.
Further, there was no material provided, whether in the SDSS Report or otherwise, to substantiate the claim that the quantum of the Unit Owner’s loss and damage is $57,000.
The proof of debt lodged by the Unit Owner was in the amount of $5,000. The only material provided in support of this claim was an extract of the SDSS Report, consisting of one page relating to Unit 29.
This extract does not support Unit 29’s claim. Only one issue was identified in respect of Unit 29 in this extract, relating to water ingress in one of the Unit’s bedrooms, causing mould. In respect of this issue, SDSS recommended that “Further investigation is required by a waterproofing specialist” and “Builder to rectify as required.” There is no evidence as to whether a waterproofing specialist was engaged to conduct any such investigation, or whether such specialist identified that any rectification work was required.
Further, there is nothing in the SDSS Report (or any other information provided with the proof) to support the assertion that the cost of rectification works would be $5,000.
As set out above, the material provided in support of the proofs of debt lodged by the Unit Owners of Units 2, 4, 14, 22, 27 and 29 does not establish that the Unit Owners had any claim against the Company and, in any case, provides no basis for determining the value of any such claim.
For those reasons, I reject the Owners Corporation’s contention that these proofs of debt should have been admitted for their face value. The Owners Corporation has not established that the Administrators, in admitting these proofs of debt for $1 for voting purposes only at the Second Meeting, failed to make a just estimate of the Unit Owners’ claims.
The Administrators rejected in full the proofs of six other Unit Owners (being the owners of Units 5, 10, 11, 15, 28 and 32), on the basis that:
those claims did not arise within the building defects liability period;
there was no evidence supporting the defects alleged; and
(in the case of Units 5 and 15), there was no evidence of the costs quoted.
As regards the first of these matters, because the final Occupation Certificate was issued in October 2016, any claim for breach of the warranties in the HBA had to be brought by October 2022 (for a major defect) or otherwise by October 2018: HBA, s 18E. No claim had been brought by any of these Unit Owners prior to the Company entering into administration in July 2025. It follows that any claim under the HBA was statute-barred at the time that the proofs were lodged.
The Owners Corporation did not dispute that this was the case, but submitted that claims were nonetheless available for breach of the statutory duty of care under the DBPA or for breach of a common law duty of care. This submission depended on the following proposition: “The evidence is that the earliest that defects came to the attention of individual owners is from 2022.”
There is no such evidence. The date “2022” appears to be selected because it is the date of the SDSS Report, which was issued in September 2022. However, with one exception (namely, Unit 10), none of these additional Units was referred to in the SDSS Report. Further, the issue identified in the SDSS Report in relation to Unit 10 concerned the entrance hallway, whereas the only issue raised in Unit 10’s proof of debt concerned a blockage in the balcony drain.
The proofs of debt lodged by each of these Unit Owners are generally silent on when the issue that is identified in their respective proofs of debt first came to their attention. Nor did the Owners Corporation lead evidence from any of the Unit Owners as to this issue. The available evidence indicates that issues arose with water ingress at The Jacob from around 2017, shortly after the completion of its construction (see paragraphs [24] and [61] above).
Further, in order to establish any claim for breach of duty, it is not sufficient to establish the existence of a defect in the building which requires rectification. Instead, it is necessary to identify the specific risks that the builder was required to manage, and the precautions that should have been taken to manage those risks, which the builder allegedly failed to take: The Owners - Strata Plan No 87060 v Loulach Developments Pty Ltd (No 2) [2021] NSWSC 1068 at [42]-[44]. Those matters are not addressed by any of the proofs of debt.
Again, despite the Defendants making a number of submissions about the individual proofs of debt which were rejected in full, the Owners Corporation did not, in written or oral submissions, undertake any examination of those proofs of debt, or address the reasons why the Court should determine that those proofs ought to be have been admitted for their face value.
The Unit Owner lodged a proof in the amount of $30,305.00. The claim made in respect of Unit 5 was described as follows: “Moisture found under floor tiles and door frame leading to corrosion along door frame and tiles”.
Unit 5 was not referred to in the SDSS Report. The only material provided in support of this claim was a quote from an entity called “K Port Holdings” for the amount of $27,550 (plus GST). The majority of this quote was for removing and replacing tiles and waterproofing ($26,000), with the remainder for removing and refitting the door frame and for rubbish removal.
There was no material provided with the proof of debt which made, let alone was capable of substantiating, any allegation that this water ingress was due to defective building works, or that the Company had breached its statutory or common law duty of care.
There was no material to indicate when this issue first arose. The date specified in respect of this claim in the “Particulars of the debt” was 7 August 2025, being the date of the quote from K Port Holdings (and the same date as the proof of debt).
The Unit Owner lodged a proof in the amount of $495.00. The claim made in respect of Unit 10 was described as follows: “Poor drainage on balcony due to grout/concrete blockage in drain”.
This issue was not referred to in the SDSS Report. There was no material provided with the proof of debt which made, let alone was capable of substantiating, any allegation that this issue with the drainage was due to a defect in the construction of The Jacob, or that the Company had breached its statutory or common law duty of care.
The only material provided in support of this claim was a quote from an entity called “Adapt Plumbing & Drainage” for the amount of $450 plus GST, together with some photographs of the drain in question.
There was no material to indicate when this issue first arose. The date specified in respect of this claim in the “Particulars of the debt” is 6 August 2025, being the date of the attached quote from Adapt Plumbing & Drainage.
The Unit Owner lodged a proof in the amount of $280.00. The claim in respect of Unit 11 was described as follows: “Service fee to clean mould from bedroom caused by water leaking from balcony above”.
Unit 11 was not referred to in the SDSS Report. There was no material provided with the proof of debt which made, let alone was capable of substantiating, any allegation that the water ingress was due to a defect in the construction of The Jacob, or that the Company had breached its statutory or common law duty of care.
The only material provided in support of this claim was an invoice from a handyman for the cleaning job at a rate of $280 per hour.
There was no indication in the material provided in respect of this proof as to when the issue arose. The date specified in respect of this claim in the “Particulars of the debt” was 22 April 2024, being the date of the attached invoice.
The Unit Owner initially lodged a proof in the amount of $7,465.50, which was subsequently amended and increased to $28,365.50. The claim made in respect of Unit 15 was in respect of two matters:
“Loss and damage incurred as a result of ceiling slumping due to studs not being installed to code being construction defects”; and
“Resolving the lack of fall on the balcony towards the drain, causing the balcony to pool water”.
Unit 15 was not referred to in the SDSS Report. The only material provided in support of this claim was:
an invoice from “Stephen Currie”, dated 14 July 2025, in the amount of $6,006.00 (incl GST) which was said to relate to “Repair works on slumping ceiling” that were said to be carried out on “25.10.25” (presumably an erroneous reference to 25 October 2024);
an invoice from Bunnings dated 22 October 2024 for various materials in the total amount of $1,459.50 (incl GST); and
a quote from “K Port Holdings” dated 7 August 2025 (being the same date as the proof of debt) for removing and replacing tiles and waterproofing, in the amount of $20,900.00 (incl GST).
There was no material provided with the proof of debt which made, let alone was capable of substantiating, any allegation that this work was necessary due to the Company having breached its statutory or common law duty of care in the construction of The Jacob.
The date specified in respect of the ceiling issue in the “Particulars of the debt” was “September 2024 within 2 weeks of moving in as new Owner”. However, issues with water ingress had first been identified in respect of Unit 15 at the start of 2019 (see paragraph [24] above).
The Unit Owner lodged a proof in the amount of $3,850.00. The claim made in respect of Unit 28 was described as follows: “Moisture in slab has lifted flooring”.
Unit 28 was not referred to in the SDSS Report. The only material provided in support of this claim was a quote dated 2 August 2025 from “Kim’s Floor Sanding Service” in the amount of $3,850 (incl GST) for removing boards, new underlay and laminating.
There was no material provided with the proof of debt which made, let alone was capable of substantiating, any allegation that the moisture in the slab was due to a defect in the construction of The Jacob, or that the Company had breached its statutory or common law duty of care.
There was no indication in the material provided in respect of this proof as to when the issue arose. The date specified in respect of this claim in the “Particulars of the debt” was 2 August 2025, being the date of the attached quote.
The Unit Owner lodged a proof in the amount of $11,330.00. The claim made in respect of Unit 32 was described as follows: “Remove & Replace water damaged flooring and underlay to match existing”.
Unit 32 was not referred to in the SDSS Report. The only material provided in support of this claim was a quote dated 7 August 2025 (being the same date as the proof of debt) from “K Port Holdings” in the amount of $11,330 (incl GST).
There was no reference, in the proof or in any accompanying material, to the source or cause of the water damage to the flooring. There was no material provided with the proof of debt which made, let alone was capable of substantiating, any allegation that the water damage was due to some defect in the construction of The Jacob, or that the Company had breached its statutory or common law duty of care.
There was no indication in the material provided in respect of this proof as to when the issue arose. The date specified in respect of this claim in the “Particulars of the debt” was 7 August 2025, being the date of the attached quote (and the date of the proof of debt).
By prayers 2 and 3 of the Originating Process, the Owners Corporation seeks orders:
reversing the decision of the Administrators to admit the Related Creditors for the purposes of voting at the Second Meeting; and
setting aside the resolutions passed at the Second Meeting, including the resolution that the Company execute the DOCA (the DOCA Resolution).
The Owners Corporation’s challenge to the DOCA Resolution depended, in part, on the claims made in respect of the proofs of debt lodged by the Owners Corporation and the various Unit Owners. In particular, the Owners Corporation pleaded, in paragraph [49] of the Points of Claim, as follows: “Had the debts and claims [of the Owners Corporation and Unit Owners] been properly determined and admitted to vote, wholly or in part, the resolution at the Second Meeting agreeing to a DOCA would not have been passed”. Having regard to my findings in relation to the proofs of debt lodged by the Owners Corporation and Unit Owners, this aspect of the challenge to the DOCA Resolution must be dismissed.
In addition, the Owners Corporation pleaded (at paragraphs [73]-[74] of the Points of Claim) that the Related Creditors voted in favour of the DOCA Resolution and that, “[h]ad votes of Related Creditors been disregarded, the DOCA Resolution would not have passed”.
In the Owners Corporation’s submissions, two separate contentions were advanced, the first relating to the admission of the Related Creditors’ proofs of debt for voting purposes at the Second Meeting, and the second relating to the impact of the Related Creditors’ votes on the outcome of the DOCA Resolution.
The Owners Corporation submitted that the proofs of debt provided by each of the Related Creditors were “short on detail”, with “no material [being] provided to substantiate the sum” claimed in the proof.
Based on the asserted lack of any information to support the Related Creditors’ proofs of debt, the Owners Corporation submitted that the Administrators could not be said to have come to a “just estimate” in relation to these proofs, for three main reasons:
first, “the estimates did not fall within a range of estimates that a reasonable person could have arrived at, given no information was provided to substantiate the claims”;
secondly, the estimates “could not have been estimates arrived at by the Administrators as a result of a genuine endeavour on their part to do the best that can be done by reference to the factual material each of the Related Creditors actually furnished”; and
thirdly, even if the estimates were made as a result of a genuine endeavour on the part of the Administrators, those estimates “are not ‘just’, since they are plainly unreasonable or wrong, despite the Administrators’ honest belief to the contrary”.
The Owners Corporation further submitted that an “independent administrator would not have accepted” these proofs of debt and would have “required further particulars”, stating that: “This suggests the Administrators were not even-handed when evaluating proofs and the standard they applied when adjudicating the [Owners Corporation’s] and [Unit Owners’] proofs, was different to the standard applied when considering and favouring the Related Creditors’ proofs”.
I put to one side the allegations that the Administrators did not “genuinely” determine the proofs of debt, or were not “independent” or “even-handed” when evaluating the proofs of debt. No such allegation was pleaded. Further, no such allegation was put to Mr Prasad in cross-examination.
The contention that the Administrators ought to have rejected the Related Creditors’ proofs of debt appears to depend on the proposition that there was no material to substantiate the claim of each of the Related Creditors other than the unsupported assertions made in their respective proofs of debt regarding the existence and amount of the liability.
This proposition is not supported by the evidence before the Court. Mr Prasad gave unchallenged evidence that, in assessing the merits of a particular proof of debt, the Administrators had regard not only to the supporting material provided, but also to the extent to which the Company’s books and records verified the claims made. The Second Report to Creditors contains a section headed “Related Party Financing”, which sets out the results of the Administrators’ investigations regarding the Company’s liabilities to the Related Creditors. This section of the report indicates that:
As noted above, the DOCA Resolution was passed both on the votes (with eleven in favour, and seven against) and on value (with $1,918,601.19 in favour, and $7 against).
The Owners Corporation noted that the Related Creditors voted in favour of the DOCA Resolution and that, if the votes of those creditors had been disregarded, the result would have been that the DOCA Resolution was passed on value (with $197,951.74 in favour, and $7 against), but not on the votes (as there would have been seven in favour and seven against).
The Owners Corporation relied on section 75 – 41 of the IPS, which provides as follows:
(1) This section applies if, on the application of a creditor of a company under external administration, the external administrator of the company or ASIC, the Court is satisfied of the following matters:
(a) a proposal has been voted on by creditors (either at a meeting of the creditors or under section 75 - 40 without a meeting);
(b) if the vote or votes that a particular related creditor, or particular related creditors, of the company cast on the proposal had been disregarded for the purposes of determining whether or not the proposal was passed, the proposal:
(i) if it was in fact passed--would not have been passed; or
(ii) if in fact it was not passed--would have been passed;
or the question would have had to be decided on a casting vote;
(c) the passing of the proposal, or the failure to pass it, as the case requires:
(i) is contrary to the interests of the creditors as a group or of that class of creditors as a group, as the case may be; or
(ii) has prejudiced, or is reasonably likely to prejudice, the interests of the creditors who voted against the proposal, or for it, as the case may be, to an extent that is unreasonable having regard to the matters in subsection.
A “related creditor”, for the purpose of a vote in relation to a company, means a person who, when the vote was cast, was a related entity and a creditor of the company: s 75 – 41(4).
Pursuant to s 75 – 41(2), the matters to be taken into account in determining whether the result of the relevant vote has occasioned “unreasonable” prejudice for the purpose of s 75 – 41(1)(c)(ii) are:
the benefits resulting to some or all of the related creditors, from the proposal;
the nature of the respective relationships between the related creditors and the company; and
any other relevant matter.
Where s 75 – 41 applies, the orders which the Court may make include, relevantly, an order setting aside the relevant resolution: s 75 – 41(3)(c).
I accept that, if the votes of the four Related Creditors had been disregarded on the DOCA Resolution, the “question would have had to be decided by a casting vote”, as the resolution would have passed on value, but not on the votes (with seven votes in favour, and seven against). Therefore, the requirements of each of s 75 – 41(a) and s 75 – 41(b) are satisfied. (Mr Prasad gave evidence that if there had been a deadlock, he would have exercised a casting vote in accordance with the Administrators’ recommendation, namely, to approve the Company’s entry into the DOCA. This unchallenged evidence accords with commonsense, and I accept it.)
The Owners Corporation contended that the requirements of s 75 – 41(c) were also satisfied in the circumstances of this case: Points of Claim, [75]. In this regard, the Owners Corporation relied on three matters in their written submissions.
First, the Owners Corporation submitted that Mr Prasad had met with the Director prior to the Administrators’ appointment and had likely had discussions with the Director regarding avoiding the Company’s actual or contingent liability to the Owners Corporation by engaging the administration process. As noted at paragraph [15] above, I do not consider that it is open to the Owners Corporation to raise any such allegation in circumstances where it was not pleaded and was not put to Mr Prasad in cross-examination.
Secondly, the Owners Corporation submitted that, by admitting the proofs of debt of the Owners Corporation and various Unit Owners for $1 for voting purposes only at the Second Meeting, Mr Prasad “impacted the outcome of voting, because it diluted entitlements when a vote on value was a certainty”. This submission depends on the contention that the Administrators failed to make a “just estimate” of those claims. For reasons given above, I have rejected that contention.
Thirdly, the Owners Corporation submitted that an independent administrator would not have accepted the proofs of debt lodged by the Related Creditors, given the lack of any supporting information, and the decision to admit those proofs for voting purposes suggests that the Administrators were not even-handed when evaluating proofs. For reasons given above, I have also rejected those submissions.
By prayer 4 of the Originating Process, the Owners Corporation seeks an order that the DOCA be set aside or terminated.
By prayers 5-8 of the Originating Process, the Owners Corporation seeks various orders consequential upon the setting aside of the DOCA, namely, that:
the Company be wound up;
the Administrators cease to be the Company’s external administrators;
Ms Suelen McCallum and Mr Antony Resnick be appointed liquidators of the Company; and
the Administrators repay to the Company any remuneration received by them for acting as the Company’s external administrators.
One of the bases on which the Owners Corporation seeks this relief is that the Second Report to Creditors contained information that was “false and misleading” and “omitted material information for creditors”, and that the DOCA should therefore be terminated pursuant to s 445D(1)(a), (1)(b) or (1)(c) of the Act (Points of Claim, [51]-[58]).
The other bases on which the Owners Corporation seeks this relief are considered separately below.
(1) The Court may make an order terminating a deed of company arrangement if satisfied that:
(a) information about the company's business, property, affairs or financial circumstances that:
(i) was false or misleading; and
(ii) can reasonably be expected to have been material to creditors of the company in deciding whether to vote in favour of the resolution that the company execute the deed;
was given to the administrator of the company or to such creditors; or
(b) such information was contained in a document that accompanied a notice of the meeting at which the resolution was passed; or
(c) there was an omission from such a document and the omission can reasonably be expected to have been material to such creditors in so deciding…
Section 445D necessitates a two-stage enquiry. The first stage is determining whether one of the grounds referred to in s 445D(1) has been established and, if it has, the second stage is to decide whether to exercise the discretion to terminate the deed based on that ground: Decon Australia Pty Ltd v TFM Epping Land Pty Ltd [2022] FCAFC 54 at [144] (Yates, O’Callaghan and Halley JJ).
In determining whether any of the grounds in s 445D(1) are made out, the Court is required to make an objective valuation of the relevant circumstances viewed as a whole: Decon Australia at [145].
The onus of establishing that one of the grounds in s 445D(1) is made out lies with the party seeking termination of the deed: Mediterranean Olives Financial Pty Ltd v Loaders Traders Pty Ltd (No 2) [2011] FCA 178 at [179] (Dodds-Streeton J); Britax Childcare Pty Ltd, in the matter of Infa Products Pty Ltd v Infa Products Pty Ltd (Administrators Appointed) [2016] FCA 848 at [91] (Burley J). The administrators do not bear the onus of establishing the adequacy of their investigation and reports: Mediterranean Olives at [181].
In Sino Group International Ltd v Toddler Kindy Gymbaroo Pty Ltd [2023] FCAFC 110 at [62], the Full Court of the Federal Court (Farrell, Cheeseman and Feutrill JJ) provided the following summary of the principles relevant to determining whether the grounds in s 445D(1)(a) or s 445D(1)(c) are established:
“(1) The test for whether information is false or misleading or contains a material omission is determined objectively.
(2) The inquiry is directed to the adequacy of the information presented to creditors to enable their decision-making, not to the intention or conduct of any person who provides the information.
(3) It is the objective quality of the information that is assessed, not whether anyone was in fact mislead.
(4) The inquiry is directed to the information available at the date of the hearing and is not limited to the information available at the time the information was produced.
(5) Estimates as to recoverability may be misleading in circumstances where no qualifying information or doubt is expressed as to the recoverability of the certain amounts, notwithstanding that a creditor may appreciate that the information is merely an estimate or prediction.
(6) Estimates of liability that are not close to the actual liability later revealed may be false or misleading for the purposes of s 445D(1)(a).
(7) Where an estimate of a liability is represented to be ‘likely to arise in the future’ and that figure ultimately proves to be far too low, the estimate may be false or misleading where based on an incorrect and material particular or by reason of an omission of a material particular.
(8) An omission which can reasonably be expected to have been material to creditors in deciding to vote in favour of execution of a DOCA may justify terminating a DOCA under s 445D(1)(c).
(9) Section 445D(1)(c) is to be understood in the context of an administrator’s statutory and other duties to make investigations and inquiries.
(10) Sections 445D(1)(a) and (c) each require that the information or omission is of a kind that can reasonably be expected to have been material to creditors in deciding whether to vote in favour of executing a DOCA.
(11) In the context of s 445D(1)(a), ‘material’ means something which was relevant and did affect, or might have affected, the outcome (being the decision to execute the DOCA). By extension, in the context of s 445D(1)(c), ‘material’ means something which was relevant and might have affected the outcome.
(12) The information or omission need not reasonably be expected to be material to all creditors, but it must affect a sufficient number.
(13) The test of materiality is objective.
(14) In deciding whether the materiality test is satisfied, all the information about the company’s business, property, affairs or financial circumstances that has been found to be false or misleading, or to have been omitted, should be considered collectively.”
“(1) Whether the creditors voted to enter into a DOCA, noting that creditors are generally taken to be in a better position to judge what is in their best interests than the Court;
(2) Whether the vote is carried by the votes of related creditors whose interests are not aligned with the unrelated creditors;
(3) Whether the information base upon which the creditors voted was materially flawed whether because it was false, misleading or otherwise omitted information;
(4) The degree to which false, misleading or omitted information had, or is likely to have had, an influence on the manner in which creditors voted;
(5) Whether creditors would be better off under a DOCA or in a liquidation;
(6) Whether the dividend under a DOCA is likely to be insignificant;
(7) Whether the continuation of the DOCA would have the effect of eroding commercial morality or public confidence in financial systems; and
(8) Whether the effect of the DOCA, once implemented, would be to permit an insolvent company to continue to trade, contrary to the public interest.”
The Owners Corporation focussed, in their written submissions, on statements made in the Second Report to Creditors regarding the following four matters:
the date on which the Company became insolvent;
the Company’s Adjusted Net Asset Position;
the Company’s financial statements; and
unreasonable director-related transactions.
In the Second Report to Creditors, the Administrators stated that “it is our opinion that the Company was insolvent from 30 June 2025, i.e. when it stopped receiving related party support”. This opinion was stated to be expressed having regard to various matters, including the following:
as at the time of the Administrators’ appointment, 93% of the Company’s liabilities represented loans from the Related Creditors ($1.72m out of a total of $1.847m);
each of these loans was executed on 5 July 2022 and was unsecured;
it was a term of each of these loans that:
(a) interest was calculated annually at a rate of 8% or as agreed by the parties, and the lender was able to capitalise interest that became due and remained unpaid; (b) the balance of the loan account was repayable at the end of the five-year term (that is, in July 2027); (c) the Company may repay the debts at any time in full or in part during the term of the loan as agreed between the parties; and (d) in the event of a default (including the entry of the Company into external administration), the loans are immediately due and payable;
in the period from July 2022 to June 2025, the Company remained able to trade and meet its obligations as and when they fell due as a result of continual related party funding;
in the lead up to the Administrators’ appointment, the Director and the other Related Creditors made the decision that they would no longer be able to continue funding the business and the last advance was made on 30 June 2025;
in particular, the Related Creditors made the decision “to no longer fund the defence of the alleged defects liability claim” in the Technology and Construction List Proceeding, citing the ongoing costs of defending that claim; and
the Company ceased trading operations shortly thereafter.
The Administrators further stated as follows (emphasis in original):
“There is an abundance of evidence that in the event that the Company had continued to trade, and did not cease as a result of the mounting costs of the defence of the defects liability claim, that related parties would have continued to support the Company for the term of the loan. Similarly, the loan agreements indicate that the related party loans were not due and payable, further evidencing that the Company was not insolvent whilst this support remained.”
The Owners Corporation submitted that the Administrators relied on the loans from the Related Creditors as being formal obligations to support their opinion that the Company was solvent up until 30 June 2025, and that this was erroneous, for the following reasons.
First, having regard to the statements in the Second Report to Creditors that the Related Creditors decided unilaterally to withdraw their financial support from the Company, in advance of any event of default, it appears that, “whatever the terms of the loans were, the parties did not comply with them” and the “loans were therefore not ‘genuinely and realistically available’ as a matter of ‘commercial reality’” (referring to the often-cited remarks of Barrett J in Australian Securities and Investments Commission v Edwards [2005] NSWSC 831 at [99], and also the similar observations of Derrington J in Canstruct Pty Ltd v Project Sea Dragon Pty Ltd (subject to a deed of company arrangement) (No 4) [2024] FCA 112 at [140]-[145]).
Secondly, in the period up to 8 July 2025, moneys totalling $14.514m were paid to the Company by the Related Creditors, and the Company repaid $12.183m to the Related Creditors, suggesting that the loans “were not … ‘genuinely and realistically available’ for the stated 5 year loan period”, but were instead “short term ‘revolving’ commitments”, provided “at the whim of the corresponding lenders”, which “were used to ‘prop up’ [the Company] for reasons which the evidence does not reveal”.
Thirdly, the “loans also do not provide evidence of solvency because as Barrett J said in Edwards, loans which are payable on demand do not ‘enhance solvency: it merely substitutes one form of immediate (or near immediate) obligation for another’”.
The Owners Corporation submitted that, by reason of the matters set out above, the Company was insolvent from at least 30 June 2022 and that, if this had been identified in the Second Report to Creditors (with the explicit or inferred consequence that the Company had been trading whilst insolvent for three years prior to entry into voluntary administration), “this would, or ought to have, had a material effect on creditors voting on the DOCA”.
The statement in the Second Report to Creditors regarding the date on which the Company became insolvent is, and is expressed to be, a statement of opinion. Such a statement may be misleading if the opinion is not honestly held on rational grounds, or if it implies that it is based on reasonable grounds (when this is not the case), or if it is presented as an expert opinion and lacks a proper basis involving the application of relevant expertise: see Ireland v WG Riverview Pty Ltd [2019] NSWCA 307 at [22]-[24] per Bell ACJ, and the authorities there cited.
The Owners Corporation submitted that the net asset deficiency of the Company was misstated in the Second Report to Creditors, with the correct figure not being $19,887 (as stated in the report), but $1,743,845.
It is important to note that both of those figures appear in the Second Report to Creditors, with the latter in fact being described as the “Net Asset Position”, the former being described as an “adjusted” figure, and the nature and amount of the adjustment being identified.
In particular, the Second Report to Creditors includes the following table:
| Balance Sheet Test | 08-Jul-25 | 30-Jun-25 | 30-Jun-24 | 30-Jun-23 | 30-Jun-22 | | Total Assets | 4,902 | 4,766 | 577,060 | 354,406 | (3,730) | | Less: Total Liabilities | (1,748,737) | (1,752,834) | (2,866,179) | (2,663,532) | (2,158,953) | | Net Asset Position | (1,743,835) | (1,748,068) | (2,289,119) | (2,309,126) | (2,162,683) | | Add: Related Party Loans | 1,723,948 | 1,720,649 | 1,544,546 | 1,619,869 | 935,587 | | Adj Net Asset Position | (19,887) | (27,419) | (744,573) | (689,257) | (1,227,096) |
“- The Company’s adjusted net asset position has improved significantly over time. The Company moved from a $1.23m deficit in FY22 to $19.9k as at 8 July 2025;
- There has been continued and increasing support from related parties, with related party loans growing from $935k in FY22 to $1.72 million by July 2025; and
- The net asset deficiency of $1.74m on an unadjusted basis when compared to $19.9k on an adjusted basis indicates that, overall, the Company’s financial exposure to external third parties was neutral. The ongoing funding from related parties has allowed the Company to continually improve its financial position year on year and repay the majority of unrelated debts.”
Given that the Second Report to Creditors identified the net asset position, identified that the Administrators had made an adjustment to that figure for the purposes of considering the balance sheet test, and explained the extent of and reasons for this adjustment, I do not consider that the Second Report to Creditors is false or misleading by reason of providing an adjusted net asset position.
There are, in any case, a number of additional difficulties with the Owners Corporation’s submissions regarding this issue:
there is no allegation in the Points of Claim that the Second Report to Creditors contains false or misleading information by reason of including the line for the “Adjusted Net Asset Position”. Instead, the Points of Claim appears implicitly to accept the correctness of the information in this part of the report, by pleading that the Company relied on funding from the Related Creditors “to reduce a significant net asset deficiency over the period from 2021 to 2025” (at [53[i]);
the Owners Corporation did not lead any evidence from any accountant or insolvency practitioner which expressed any criticism of the section of the Second Report to Creditors dealing with the Company’s Net Asset Position;
accordingly, the Defendants were not given any opportunity to lead evidence from the Administrators to address any alleged deficiency in this section of their report;
further, despite choosing not to cross-examine Mr Prasad (including about the disclosure in the Second Report to Creditors concerning the Company’s Net Asset Position), the Owners Corporation made submissions in closing oral address that the table which is set out above was “intended to confuse and mislead”, and the commentary below the table was “creative accounting”. I do not consider that it is open to the Owners Corporation to make those submissions, in the circumstances set out above, and I reject them.
The Owners Corporation submitted that, in the Second Report to Creditors, “the Administrators accepted that [the Company’s] financial statements were correct” in circumstances where those financial statements “did not present a ‘true and fair view’”. In particular, the Owners Corporation submitted that the Company’s financial statements from the 2023 financial year onwards made no provision for the Owners Corporation’s claim in the Technology and Construction List Proceeding, and “consequently the company’s liabilities were understated”; and that, if a provision had been made for this claim in the Company’s balance sheet, it would have led to the Administrators’ concluding that the Company was insolvent “several years before 30 June 2025, and consequently, it traded whilst insolvent”.
I reject those submissions, for the following reasons.
First, there is no allegation in the Points of Claim that the financial statements of the Company did not provide a true and fair view of the Company’s financial position and performance, or that the Second Report to Creditors was false or misleading by reason that the Administrators failed to inform creditors that this was so. The Defendants were therefore given no opportunity to lead evidence from Mr Prasad regarding those matters.
In any event, the Administrators did not express any view in the Second Report to Creditors that the Company’s financial statements gave a true and fair view of its financial position and performance. Instead, in that report, the Administrators referred to the requirement in s 286 of the Act that a company keep written financial records that correctly record and explain its transactions and financial position and performance, and would enable true and fair financial statements to be prepared and audited, and stated as follows (emphasis in original): “From our investigations to date, we consider that the Company has maintained books and records in accordance with the requirements of the Act.” This is a statement that, in the Administrators’ opinion, the books and records of the Company were such as would enable true and fair financial statements to be prepared (and not a statement that the financial statements were true and fair).
Further, the Owners Corporation did not identify the amount of any provision that should have been recorded in respect of its claim, having regard to the applicable accounting standards, and led no evidence as to those matters.
Finally, the Owners Corporation did not lead any evidence from an insolvency practitioner regarding the effect that a provision, in the balance sheet, for a contingent claim would have had on the assessment of solvency, or the date of solvency (and again, did not put to Mr Prasad in cross-examination that such a provision would have been material to the date of solvency, so as to give him the opportunity to respond to any such contention).
Finally, the Owners Corporation submitted that the Second Report to Creditors was misleading, or omitted material information, because:
in the section of the report headed “Unreasonable Director-Related Transactions – Section 588FDA of the Act”, the Administrators considered the payments which had been made by the Company to the Related Creditors between July 2021 and July 2025 “on a global basis and not on a transaction-by-transaction basis”, despite this being required by s 588FDA; and
in the section of the report dealing with likely returns in a liquidation scenario, “the Administrators included no figure for sums which might be recovered as unreasonable director-related transactions”.
As Burley J observed in Britax Childcare at [88], “the investigation conducted in the administration process is intended by Parliament to be a ‘swift and practical’ one” (citing Re Mustang Marine Australia Services Pty Ltd (admin apptd*) — Perpetual Trustee Company Ltd v Mustang Marine Australia Services Pty Ltd* [2010] NSWSC 1429 at [109] (Ward J)). His Honour added that:
“Consistent with this, the administrator’s investigation is necessarily a preliminary investigation which involves the administrator carrying out his or her investigations in a manner which is modified in light of the tight timeframe and associated constraints provided for by Pt 5.3A. An administrator, so constrained, cannot carry out a detailed investigation of a company in the same way as can a liquidator, and accordingly the administrator’s actions must be looked at in the light of that more restricted range of activities which are available to him or her; Mediterranean Olives … at [61]–[62].”
As regards the first criticism set out at paragraph [228](1) above, insofar as the Owners Corporation’s submission is that the Administrators failed to consider individual payments made by the Company to the Related Creditors in the relevant period, that submission is inconsistent with the text of the relevant section of the Second Report to Creditors.
The report states, in terms, that: “We have conducted a preliminary review of payments made by the Company to related parties, including the Director, since 1 July 2021”. Further, the Administrators identified specific transactions which “we have considered in detail”, namely:
payments made on behalf of AG Kellyville in the period from January 2023 to April 2025, totalling $127,373;
repayments made, or payments made on behalf of Mr Andre Merhi during the period from September 2024 to February 2025, totalling $501,607; and
repayments made, or payments made on behalf of the Director during the period from January to April 2025, totalling $178,029.
The Administrators reported that they were of the opinion that these transactions would not be voidable by a liquidator, having regard to the following matters:
“- It remains our opinion that the Company was solvent during the time of the transaction. Although not required to be proved for a claim pursuant to Section 588FDA, the Courts consider the solvency position of a company when determining whether a reasonable person in the directors’ circumstances would have entered into the transaction.
- The transactions were made in the context of increasing related party support in the period examined; and
- Although moneys were withdrawn by some related parties, other related parties, whom are controlled by the same individuals funded more moneys over and above what was withdrawn during that same period, resulting in an increase in related party support, rather than a decrease.”
The Owners Corporation did not advance any submission that this opinion did not have a reasonable basis. Instead, the highest that the position was put in written submissions was that the Administrators’ “opinion on whether recoveries were likely was influenced by their opinion about [the Company’s] solvency”. Insofar as the Owners Corporation intended, by this submission, to convey some criticism of the Administrators’ reasoning, any such criticism depends on the proposition that the Administrators were mistaken in concluding that the Company was solvent up until 30 June 2025 (and, for reasons given above, no such proposition has been established).
Further, on 28 July 2025, around a week prior to the issue of the Second Report to Creditors, the Administrators sent an email to the solicitor for the Owners Corporation, which included the following statements:
“I refer to ongoing correspondence between our offices and, in particular, to the various assertions you have made concerning the conduct of the [Director].
Given the seriousness of the matters raised and the potential implications of such – I request that you set out: the facts, matters, and circumstances giving rise to your view that the Directors may have breached their statutory or fiduciary duties.
To the extent that your allegations rely on information not already provided to the Administrators, I would be grateful if you could provide copies of any relevant documents or correspondence in support of your position.
This request is made to ensure that any concerns raised are properly considered and, where appropriate, factored into the Administrators’ ongoing investigations and statutory reporting obligations.”
Mr Prasad gives unchallenged evidence that his office did not receive any response to this email from the solicitor for the Owners Corporation, and therefore “could not properly engage with his concerns (if at all)”.
As regards the second criticism set out above, it is correct that the Administrators did not, in setting out low and high recoveries in a liquidation scenario, allocate any amount for “Preference Recoveries”. In this regard, the Administrators expressly noted the following matters in the Second Report to Creditors:
“As detailed in section 7.8.1, our investigations into the affairs of the Company have not identified any voidable transaction recoveries”;
the Administrators’ investigations regarding uncommercial transactions and unfair loans were ongoing and were subject to change upon receipt of further information; and
in the event that a liquidator was appointed, the liquidator would carry out further investigations into potential recovery actions, including in respect of the various transactions identified in the section of the report dealing with “Unreasonable Director-Related Transactions”.
The Owners Corporation submitted that the omission of any figure for unreasonable director-related transactions “was misleading and material”. However, the Owners Corporation did not identify a single transaction which they alleged to be an unreasonable director-related transaction, or explain why it was an unreasonable director-related transaction, or explain why the Administrators should have concluded, on the information available to them, that it was an unreasonable director-related transaction, or identify the figure which should have been included in the Second Report to Creditors for unreasonable director-related transactions (let alone the basis for any such figure).
In its Points of Claim (at [95]-[100]), the Owners Corporation alleges that the DOCA should be set aside or terminated because it constitutes an abuse of Pt 5.3A’s provisions.
In this regard, the Owners Corporation relied on the broad powers of the Court:
to set aside a deed of company arrangement “for some other reason”, pursuant to s 445D(1)(g) of the Act; and
to bring the administration of a company to an end where “the provisions of the Act are being abused” or “for some other reason”, pursuant to s 447A(2) of the Act.
Section 447A confers a wide discretionary power on the Court: Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270; [2000] HCA 30 at [20] (Gleeson CJ, McHugh, Gummow, Hayne and Callinan JJ). This includes a power to terminate an administration and to order a winding up in the public interest: Australian Securities and Investments Commission v Midland Hwy Pty Ltd (admins apptd*)* [2015] FCA 1360 at [65] (Beach J).
The power is to be exercised having regard to, inter alia, the interests of the creditors as a whole and the public interest. But in an unusual case, the public interest may override the creditors’ interests and favour liquidation: Midland Hwy at [67] (Beach J).
In Midland Hwy at [68], Beach J observed that:
“The public interest includes considerations of commercial morality and the interests of the public at large (Bidald Consulting Pty Ltd v Miles Special Builders Pty Ltd [2005] NSWSC 1235 at [287] (Bidald Consulting) per Campbell J). Where there has been misconduct in the affairs of a company requiring appropriate investigation by a liquidator and appropriate recovery proceedings being considered and undertaken, it is detrimental to commercial morality to prevent or hinder such steps through the device of a DOCA propounded by entities and individuals who ought be the subject of investigation and the target of such proceedings. A winding up will be beneficial from a public interest perspective where investigations and recovery proceedings are likely to be funded and the investigations and appropriate recovery proceedings could realistically lead to the relevant persons who have engaged in the suspect transactions being brought to account: Public Trustee (Qld) v Octaviar Ltd (subject to a deed of company arrangement) [2009] QSC 202 at [182] per McMurdo J.”
In the case of a prima facie insolvent company, it may be appropriate to order its winding up, particularly where a deed of company arrangement will not restore the company to financial health, potentially has the purpose or effect of quarantining third parties from investigation and recovery proceedings, and has little tangible upside for creditors: Midland Hwy at [66].
In Project Sea Dragon at [97], Derrington J observed that the scenarios in which the Court may exercise the power under s 447A(2)(b) to terminate a deed of company arrangement and voluntary administration include the following (citations omitted):
“(a) where it would bar particular claims already being litigated against the company … ;
(b) where the winding up may serve the public interest as investigations and recovery proceedings are likely to be funded and could realistically lead to persons who engaged in suspect transactions being brought to account …;
(c) if the provisions of the Corporations Act are being abused … ; or
(d) where there is an ulterior element or purpose in using the provisions of Pt 5.3A …”
“(a) where there has been an abuse of the provisions of Pt 5.3A …;
(b) where the DOCA is contrary to the ‘public interest’, which involves considerations of commercial morality and the interests of the public at large …;
(c) where, as in the case of s 447A, the termination of a DOCA can be justified in the public interest even if it is not also in the interests of the creditors as a whole …; and
(d) where the DOCA has the consequence of preventing an effective investigation into the company’s affairs and the opportunity for a greater return in a liquidation scenario, as in such circumstances the DOCA is contrary to the creditors’ interests overall and the public interest at large …”
The object of this Part, and Schedule 2 to the extent that it relates to this Part, is to provide for the business, property and affairs of an insolvent company to be administered in a way that:
(a) maximises the chances of the company, or as much as possible of its business, continuing in existence; or
(b) if it is not possible for the company or its business to continue in existence - results in a better return for the company's creditors and members than would result from an immediate winding up of the company.
“There was no challenge on the appeal to the fundamental principles adopted by the primary judge as applicable to an allegation of abuse of the provisions of Pt 5.3A, referred to at [48] above. Accordingly, it was accepted that the concept of abuse of the provisions of Pt 5.3A is akin to the jurisdiction of the Court to stay proceedings for abuse of process, that the question is whether there is an improper or collateral purpose which is the predominant purpose, and that the Court is entitled to take into account the interests of the creditors as a whole and the public interest, including considerations of commercial morality and the interests of the public at large.”
In support of its application to set aside or terminate the DOCA pursuant to s 447A(2) and s 445D(1)(g), the Owners Corporation submitted that:
the DOCA “represents an abuse of Pt 5.3A”, as it “ought to be inferred that [the Company’s] only purpose in executing the DOCA was to frustrate the [Owners Corporation’s] claim and to extinguish the liability”;
if the administration proceeds, the insolvent trading claim (which the Administrators “accepted … could be brought against [the Director]”) will not be pursued, and “suspicious” transactions between the Company and the Related Creditors will not be investigated; and
“there is no public interest served in permitting [the Company] to continue to trade”, particularly given the Company has “no discernible prospects of becoming a going concern or paying Related Creditors” and the Director has shown “a cavalier disregard for meeting the company’s lawful obligations and responsibilities”.
In support of the submission that the Company’s “only purpose in executing the DOCA was to frustrate the [Owners Corporation’s] claim and to extinguish the liability”, the Owners Corporation relied on the following matters:
the Company and the Director “ought to have been aware well before, or certainly by, 2022, that The Jacob suffered serious defects which [the Company] was liable to make good”, including because the Company was served with a copy of the SDSS Report;
if the Company had any doubts about its liability for defects, such doubts “had to have been extinguished” when the Technology and Construction List Proceeding was commenced in October 2022;
given the Company’s experience in residential, retail and commercial building work, “it was inconceivable that the company did not understand the likely extent and quantum of The Jacob’s defects and its liability for them”;
the Company “made no serious attempt to defend” the Technology and Construction List Proceeding “and used the proceedings to buy time”; and
from 2022 until entry into administration, the Company had few assets, and its liabilities exceeded its assets by significant sums, such that it “had no financial capacity to repay the loans [to Related Creditors] or pay the [Owners Corporation] any monies whatsoever”.
I do not accept the submission that the Company could not have had any genuine reason to doubt either its liability for the defects alleged in the Technology and Construction List Proceeding, or the quantum of its exposure.
So far as liability is concerned, the Technology and Construction List Proceeding was commenced on the sixth anniversary of the final Occupation Certificate being issued. It follows that the Owners Corporation was unable to advance any claim for breach of the warranties under the HBA other than for such breaches as resulted “in a major defect in residential building work”: HBA, s 18E(1). As noted above, the Company advanced, in its defence, allegations that “the alleged defects are not ‘major defects’ within the meaning of section 18E(4) of the HBA”. There is no basis to conclude that this defence was not properly and genuinely advanced, particularly where Mr Slatter acknowledged that almost one half of the defects in the Amended Scott Schedule were “Not considered a ‘major element’”.
So far as quantum is concerned, there are, as I have noted above, serious deficiencies in the evidence of quantum served by the Owners Corporation in the Technology and Construction List Proceeding, which consisted of ballpark estimates by a person without any specialised experience in costing rectification works, which are provided without any supporting reasoning and which are subject to a 25% uplift (which itself is not supported by any reasoning).
The Owners Corporation submitted that:
in the Second Report to Creditors, the Administrators “accepted that if the [Company] was placed in liquidation, an insolvent trading claim for $114,464 could be brought against [the Director]”; and
“[i]f an administration proceeds, these claims will not be pursued”.
This submission does not accurately encapsulate the statements made in the Second Report to Creditors regarding a potential insolvent trading claim.
The relevant section of the Second Report to Creditors (7.8.2.3) commenced with the following statement:
“If an insolvent trading claim exists, recovery proceedings would be considered by us if appointed as liquidators, and if creditors indicate their willingness to fund our further investigations, as well as it is confirmed that the Directors have the financial capacity to repay a commercial sum to the Company or meet any orders made against them. Our initial investigations indicate that the Director may have capacity to meet a claim for damages if a liquidator was successful.”
The Administrators noted that their preliminary view was that the Company was likely insolvent from 30 June 2025, and that, based on available records, “the Company ceased trading three days after this point and the further unrelated debts incurred following 30 June 2025 was minimal (i.e. below $200)”. On this basis, the Administrators expressed the view that “there do not appear to be any debts incurred while the Company was insolvent, and the potential value of an insolvent trading claim is assessed as nil”.
The Owners Corporation did not file an evidence from an insolvency practitioner expressing any contrary opinion, and chose not to cross-examine Mr Prasad regarding the conclusions reached by the Administrators or the basis for those conclusions.
Having expressed the view that the “potential value of an insolvent trading claim is nil”, the Administrators acknowledged that if liquidators were appointed, further investigations would be undertaken to determine a more accurate date of insolvency, “which may increase this claim” and added that:
“In the best-case scenario, if it is established that the Director did trade the Company whilst insolvent, the maximum quantum of a potential insolvent trading claim is estimated at $114,464, representing the total outstanding claims from unrelated creditors for debts incurred prior to the cessation of trade.”
Accordingly, the Administrators’ view, based on their preliminary investigations, was that the value of any insolvent trading claim was nil and that, even if a liquidator, after carrying out further investigations, formed a different view about the date of insolvency, the highest that the quantum of the claim would be was $114,464.
The Administrators made the following cautionary comments about the potential costs involved in bringing any such claim:
“We also note here that to recover these amounts we may be required to bring action against the Director, incurring significant costs with no certainty of outcome. Similarly, the Director may have other defences available that may mitigate all or some claims we may have. After considering the likely costs and expenses associated with investigating and pursuing such a claim, it is expected that the net recovery after factoring in these costs would be nil. As such, it would be uncommercial to proceed with action for such a claim and the expectation of any liquidator would be that creditors fund their costs, which will likely exceed $200,000, to do so.
Further [an] extensive analysis would be required in order to form a concluded view on the quantum of any claim for insolvent trading.
The merit of pursuing an insolvent trading claim also needs to be considered in light of the following:
- The costs and duration of litigation;
- The likelihood of the action being defended; and
- The financial position of the Director.”
As set out above, the Administrators expressed the view that the costs of pursuing an insolvent trading claim against the Director (assuming one were available for the maximum possible amount of $114,464) would likely exceed $200,000, that these costs would need to be funded, and that these costs would likely make the pursuit of any such claim uncommercial.
There was no evidence to challenge this estimate of costs. There were no submissions advanced by the Owners Corporation as to why the views of the Administrators regarding the significant barriers to bringing a claim, the costs of pursuing such a claim, the need for funding for such a claim, and the lack of commerciality in pursuing any such claim, should not be accepted.
In addition to contending that the Administrators had “accepted” that an insolvent trading claim was available against the Director, the Owners Corporation submitted that the payments between the Company and the Related Creditors were “suspicious and require investigation to determine how and why they occurred”.
As I have noted above, the Administrators have carried out preliminary investigations into these payments and have not identified any claims for unreasonable director-related transactions. There was no attempt, in the Owners Corporation’s evidence or submissions, to examine any individual transactions, or to examine the investigations undertaken by the Administrators, or to ask Mr Prasad any questions about these matters, or to identify any particular claim that was, or might be, available in respect of any particular transaction, or the quantum of any such claim.
In Mediterranean Olives at [195], Dodds-Streeton J observed as follows (emphasis added):
“if there is no prima facie evidence of misfeasance, concealment or a materially inadequate preliminary examination; the DOCA offers both real financial benefits credibly estimated on preliminary investigation to exceed those available on liquidation and indirect or collateral benefits from the survival of the company’s business; and no worthwhile avenues for further recovery on liquidation are identified, a major creditor’s curiosity or preference for further exploration of speculative claims is unlikely to render termination of the DOCA in the interests of the creditors as a whole.”
The Owners Corporation’s submissions regarding the payments to Related Creditors do not rise higher than a curiosity or preference for further exploration of claims which may or may not exist.
Further, it is necessary to grapple with the issue of how such investigations, and any resultant litigation, would be funded. As Beach J observed in Midland Hwy (at [68], emphasis added):
“A winding up will be beneficial from a public interest perspective where investigations and recovery proceedings are likely to be funded and the investigations and appropriate recovery proceedings could realistically lead to the relevant persons who have engaged in the suspect transactions being brought to account …”
There was in evidence a Loan Contract dated 8 December 2023 between the Owners Corporation and Austrata Finance, providing a facility with a total amount of $300,000 at a variable interest rate of 9.95% per annum. The Loan Contract records that “the loan will be used to fund legal proceedings”.
The most recent Loan Statement in evidence was dated 14 July 2025. It records that the loan has a maturity date of 20 December 2026. As at the date of this Loan Statement, the remaining (undrawn) balance of the facility was around $125,000. Plainly, substantial costs will have been incurred by the Owners Corporation since that date, both in relation to the administration of the Company and in this proceeding. There is no evidence as to whether any amount of the facility limit remains to be drawn down, and no reason to assume that, if any such amount does remain, it is substantial.
There was no evidence as to the Owners Corporation’s willingness or ability to obtain any further funding, whether from Austrata Finance, from another financier, or from Unit Owners.
Counsel for the Owners Corporation submitted as follows:
“the owners corporation can levy and owners are required to pay that levy and that's almost a strict debt. So, the owners corporation here is at liberty to levy ‑ and there is an approval of members ‑ to levy for anything if the members agree and the members are required to pay that levy. …
So, if something is put to the members of the [Owners Corporation] and they approve it, they have to fund it …”
However, there was no evidence that the Owners Corporation had put any such proposal to fund a liquidator’s investigation to the Unit Owners, let alone that the Unit Owners had agreed, and the possibility of such a proposal being made is of little significance in circumstances where both the amount which would be proposed to be raised by way of such a levy, and the attitude of Unit Owners to a levy of that amount and for that purpose, are unknown.
For those reasons, it has not been established that, if the DOCA were to be terminated and the Company were to be wound up, there are, or might be, valuable claims which the liquidator would be able to pursue, or that there would be funding to pursue any such investigations or claims. In those circumstances, any potential recovery from such claims in a liquidation is speculative.
In contending that there was “no public interest served in permitting [the Company] to continue to trade”, the Owners Corporation submitted that:
the Company has “no discernible prospects of becoming a going concern or paying Related Creditors”; and
the Director has shown “a cavalier disregard for meeting the company’s lawful obligations and responsibilities”.
As regards the first submission, there was evidence that the Company intends to return to trading once the outcome of this proceeding is known. In particular, there have been two tenders for work issued by the Company since the execution of the DOCA, dated 5 September 2025 and 15 November 2025, in amounts of around $1.28m and $2.06m respectively. The Owners Corporation submitted that it was not clear which entity in the Mercon Group had issued these tenders. However, each of the tenders was issued under cover of a letter from “George Merhi, Director” and, according to the Second Report to Creditors, Mr George Merhi is the sole director of the Company, with Mr Andre Merhi being the director of other entities in the Mercon Group.
Accordingly, it does appear that the Director intends to use the Company to resume conducting a construction business, and there is no reason to conclude, on the available evidence, that such a business would not be a going concern.
As regards the second submission, I do not consider that it is open to the Owners Corporation to advance this contention regarding the Director. No such allegation was pleaded or particularised in the Points of Claim, and the Director has not been given any opportunity to address it by way of evidence.
Further, the sole basis on which the submission was advanced was that the Company had a liability to the ATO of $115,583 as at 30 June 2023, and a liability of $63,725 on 8 July 2025. Those matters do not provide a sufficient basis for any such submission.
In addition, the Company’s external accountant, Mr Karam, has sworn an affidavit in which he explains the reasons for the delay in filing returns, and also identifies that there has been a substantial reduction in the balance owing to the ATO since July 2025, as the result of a tax return for the Company being lodged, with the amount owing as at October 2025 being $6,850.40.
In its Points of Claim (at [83]-[94]), the Owners Corporation alleges that the DOCA should be terminated because it is oppressive or unfairly prejudicial to the Owners Corporation and the Unit Owners, or because effect cannot be given to the DOCA without injustice.
In this regard, the Owners Corporation relied on the Court’s power to terminate a deed of company arrangement where the grounds in either s 445D(1)(e) or s 445D(1)(f) are established.
(1) The Court may make an order terminating a deed of company arrangement if satisfied that:
…
(e) effect cannot be given to the deed without injustice …; or
(f) the deed or a provision of it is, an act or omission done or made under the deed was, or an act or omission proposed to be so done or made would be:
(i) oppressive or unfairly prejudicial to, or unfairly discriminatory against, one or more such creditors; or
(ii) contrary to the interests of the creditors of the company as a whole; …
“(1) the section ‘draws attention to the effect of the deed’ instead of the deed’s purpose or any of its provisions, or ‘the purpose of those who implement the deed’ …;
(2) a deed may not be able to be given effect without injustice within the meaning of s 445D(1)(e) if its effect would be to avoid a proper investigation of the relevant transactions …;
(3) the Court’s power to terminate the DOCA is not enlivened because it forms the view that irregular transactions may have occurred, but it is sufficiently enlivened where a deed has the effect of denying proper liquidation scrutiny …; and
(4) the Court may terminate a DOCA pursuant to s 445D even where creditors would be better off under the DOCA than with a liquidation …”
As regards the ground in s 445D(1)(f), the question whether a deed of company arrangement is oppressive or unfairly prejudicial or discriminatory under s 445D(1)(f) will be determined by reference to the general principles underlying Pt 5.3A, including a creditor's right to be paid or wind up a company or have the company administered by the administrator in a way which will see the creditor paid from the company's property: Guo v Song at [148].
In University of Sydney v Australian Photonics Pty Ltd (subject to deed of company arrangement) [2005] NSWSC 412 at [37], Palmer J observed that:
“In determining whether a deed should be terminated under s 445D(1)(f), the court does not make a judgment founded upon mere possibility or speculation; it makes a determination on the characteristics of the deed as they are seen to be at the date of hearing. If a deed is to be terminated under s 445D(1)(f), it has to be seen as having operated, or as presently operating, or as highly likely to operate in the future, in a way which is oppressive, unfairly prejudicial, unfairly discriminatory or contrary to the interests of the creditors as a whole. If the future operation of a deed is in question under s 445D(1)(f), the court should be satisfied that its adverse effect is not a mere possibility or speculation but is, at least, highly likely.”
In Britax Childcare at [115], Burley J observed, in that in deciding whether a deed is oppressive or unfairly prejudicial within s 445D(1)(f), the Court will have regard to the following factors (citing TiVo, Inc v Vivo International Corporation Pty Ltd (subject to deed of company arrangement) [2014] FCA 789 at [54] (Gordon J)):
the objects of Pt 5.3A;
the interests of other creditors, the company and the public;
the comparable position of the creditor on a winding up compared with their position under the deed; and
other relevant facts such as the relative position of all creditors under the Deed (that is, whether they are better off), the existence of a collateral benefit to the shareholders and the whole of the effect of the Deed.
In its written submissions, the Owners Corporation addressed the grounds in s 445D(1)(e) and s 445D(1)(f) together, relying on the same six matters as establishing either or both of those grounds.
First, the Owners Corporation submitted that “the consequence of a deed of company administration will be that director-related transactions will not be examined and an insolvent trading claim for $114,464 will not be commenced”. I have already addressed those matters at paragraphs [260]-[280] above.
Secondly, the Owners Corporation submitted that its claim “will be extinguished by the DOCA, when votes at the first meeting of creditors and the second meeting of creditors were decided by Related Creditors”. As I have noted above, there was no relief sought in respect of the First Meeting, or the resolution to replace the Administrators which was defeated at that meeting, and the submissions regarding those matters can therefore be put to one side. As regards the Second Meeting, while the Related Creditors voted in favour of the resolution to execute the DOCA, the position would have been no different if (despite my findings above) the proofs of the Related Creditors had not been admitted for voting purposes, and only unrelated creditors had voted. In such a scenario:
the resolution would have been passed on value (with $197,951.74 in favour, and $7 against);
the resolution would have been tied on the number of votes (with seven in favour, and seven against); and
a casting vote would likely have been exercised in accordance with the Administrators’ recommendation that the DOCA be executed (see paragraph [193] above).
Thirdly, the Owners Corporation submitted that its claim “will be extinguished by the DOCA where it is the largest creditor and the Administrators’ decision to admit its proof to vote for $1 meant that the [Owners Corporation’s] claim did not count at a poll in determining the outcome of a vote by value”. This submission implicitly depends on the proposition that the Administrators were wrong to admit the Owners Corporation’s proof of debt for $1 for voting purposes at the Second Meeting. I have already addressed, and rejected, this contention (see paragraphs [104]-[122] above).
Fourthly, the Owners Corporation submitted that “the return the DOCA estimates of 2.85c/$ is paltry”. The estimated return of 2.85 cents in the dollar is based on a scenario in which the claims of each of the Owners Corporation and Unit Owners (who were admitted for $1) were admitted for the full face value of their proof of debt, totalling $4,380,783. In the event that some of those claims are excluded, or admitted for a lesser amount, the return, in terms of cents in the dollar, will increase.
Further, the Owners Corporation is to be treated the same as all other unrelated creditors, in that there will be pari passu distribution of the deed fund between the unrelated creditors to the extent that their proofs are admitted.
“Ordinarily, any variation of a deed of company arrangement should be by resolution of creditors under s 445A. But it is, I think, sufficiently established that the court's power under s 447A enables it, in an appropriate case, to vary a deed of company arrangement or, more accurately, to cause Part 5.3A to operate in relation to the subject company as if some provision of the deed were varied: see, for example, Mulvaney v Rob Wintulich Pty Ltd (1995) 18 ACSR 384; Re Pasminco Ltd [2003] FCA 265; (2003) 45 ACSR 1; Brandrill Pty Ltd v Newmont Yandal Operations Pty Ltd [2006] NSWSC 974; (2006) 24 ACLC 1179.
Generally speaking, however, the court should be reluctant to exercise this power (and thereby to deprive creditors of their role under s 445A) except in circumstances that are uncontentious, in the sense that no prejudice to creditors is involved: Re Paradox Digital Pty Ltd; Ex parte Smith [2001] WASC 182…”
In circumstances where there is a policy of insurance which responds to a particular creditor’s claim, which would be extinguished by operation of a deed of company arrangement, the Court may exercise such power to order that the deed of company arrangement be amended so that the creditor’s claim is not subject to the provisions in the deed which would otherwise apply so far as concerns the extinguishment of claims and the adjudication of proofs: see, for example, In the matter of Nahas Construction and Development Pty Limited (Subject to Deed of Company Arrangement) (ACN 083 581 257) [2014] NSWSC 628 (Brereton J).
No such application is presently before the Court. However, the determination of the issues in the current proceeding will not preclude such an application from being made, in the event that it emerges, following further investigation and consideration, that there is a policy of insurance which likely responds to the claims of the Owners Corporation and the Unit Owners.
For those reasons, the Owners Corporation has not established either that effect cannot be given to the DOCA without injustice (s 445D(1)(e)), or that the DOCA (or a provision of it, or any act or omission under it) would be oppressive, or unfairly prejudicial or unfairly discriminatory against the Owners Corporation and the Unit Owners, or contrary to the interests of the creditors as a whole (s 445D(1)(f)).
For the reasons given above, the Owners Corporation has failed to establish grounds for any of the relief which it seeks in the Originating Process. It follows that its application must be dismissed. There is no reason why costs should not follow the event.
Accordingly, I make the following orders:
The Originating Process filed on 26 August 2025 be dismissed.
The Plaintiff pay the Defendants’ costs, as agreed or assessed.
**********
(2000) 203 CLR 172
(2000) 200 CLR 270
(2010) 183 FCR 384
(2024) 305 FCR 465
(2003) 177 FLR 85
fifthly, that the DOCA was unfairly prejudicial to, or unfairly discriminatory against, the Owners Corporation and effect could not be given to the DOCA without injustice.
Unit 2: $20,000.00;
Unit 4: $25,000.00;
Unit 14: $25,000.00;
Unit 15: $7,465.50;
Unit 22: $50,000.00;
Unit 27: $57,000.00; and
Unit 29: $5,000.00.
Total: $189,465.50
Also on 17 July 2025, the solicitor for the Owners Corporation advised the Administrators that his client intended to move a resolution at the First Meeting that the Administrators be removed and be replaced by Mr Mark Robinson and Mr Ken Whittingham.
On 18 July 2025, around 40 minutes prior to the First Meeting, the Administrators sent an email to the solicitor for the Owners Corporation which stated, relevantly, as follows:
the Company was insolvent from 30 June 2025, and ceased trading on 3 July 2025; and
there were no unreasonable director-related transactions.
In section 4.1 of the Second Report to Creditors, the Administrators set out the Company’s asset and liability position as disclosed by the Director in the ROCAP and the Administrators’ estimate of the realisable value (ERV) of those assets and liabilities as follows:
Similarly, McKerracher J observed in Sands Contracting Pty Ltd v Foodcorp (VIC) Pty Ltd [2020] FCA 1274 at [94], with reference to Bovis Lend Lease, Selim and other authorities, that is an acceptable practice, where it is not possible to assess a just value of a proof of debt, to admit the creditor to vote in the amount of one dollar.
It is the claimant who bears the onus of adducing sufficient material to enable the administrators to evaluate their claims, and if they do not, then they are likely to be admitted for $1 only: In the matter of SurfStitch Group Limited [2018] NSWSC 164 at [23] (Brereton J).
Accordingly, if, on an appeal from the administrator’s determination of a proof of debt for voting purposes, there is insufficient evidence to establish the amount of any debt owing to the relevant creditor, the Court may determine that the proof should be allowed, but only for a nominal amount: see, for example, El-Saafin v Franek at [196]-[199].
In Bacnet Pty Ltd v Lift Capital Partners Pty Ltd (in liquidation) (2010) 183 FCR 384; [2010] FCAFC 36, an administrator received, two days before a meeting of creditors, “voluminous proofs of debt which contained, expressly or impliedly, assertions which could not be tested without careful and lengthy evaluation”. Keane CJ and Jacobson J said (at [86]) that: “In our view, the correct approach is to be found in a decision of the High Court of the Hong Kong Special Region in Re UDL Holdings Ltd [2000] HKCFI 1567.” Their Honours explained that, in that case, an issue arose as to the correctness of a decision as to a just estimate of a debt made in the context of eligibility to vote at a meeting of creditors to consider a scheme of arrangement. The disputed creditor claimed to be a creditor of the scheme company in an amount of $343 million under parent company guarantees in respect of subcontract works in relation to an airport development. The claim was estimated at nil value and the disputed creditor was not permitted to vote at the meeting. Their Honours described the following statement from the judgment of Seagroatt J on appeal as “pertinent” (at [88]):
Secondly, the Owners Corporation claimed an amount of $171,182.85 for the cost of the insurance policy to be taken out in respect of the rectification works, calculated at 5% of the contract value for those works. Again, this is a figure derived by applying the specified percentage rate to the amount of $3,423,657 (being the sum of the total figure shown in the Amended Scott Schedule and the “escalation entitlement”). It follows that the comments set out above regarding those two elements of the Owners Corporation’s claim also apply to this element.
Thirdly, the Owners Corporation claimed an amount of $562,148.22 (incl GST) in respect of the costs of the Technology and Construction List Proceeding, which were stayed upon the Company’s entry into administration. In circumstances where there is significant uncertainty regarding the Owners Corporation’s claim for loss and damage in the Technology and Construction List Proceeding, there is plainly significant uncertainty regarding the prospects of the Owners Corporation obtaining an order for costs. Further, the Defendants pointed out (and the Owners Corporation did not dispute) that the narratives provided with the solicitor’s invoices that were attached to the proof of debt indicate that some of the work did not relate to the claims against the Company made in the Technology and Construction List Proceeding. For example, there are various entries relating to claims in the liquidations of Baltimore and Harcourts. In any event, the award of costs is a matter in the Court’s discretion: Civil Procedure Act 2005 (NSW), s 98. In Expile Pty Ltd v Jabb’s Excavations Pty Ltd [2004] NSWSC 284 at [33], Palmer J observed as follows (emphasis added):
the Administrators were provided with signed loan agreements from all four Related Creditors;
the Administrators reviewed the terms of those loan agreements (and a summary of those terms is provided in the Second Report to Creditors);
the Administrators also reviewed the individual loan accounts of each of the Related Creditors; and
in addition, the Administrators reviewed the underlying transactions recorded in the loan accounts.
Having regard to those matters, I reject the Owners Corporation’s (un-pleaded) contentions that the Administrators failed to make “just estimates” of the proofs of debt lodged by the Related Creditors or that the decision to admit those proofs for voting purposes at the Second Meeting should be set aside.
It follows that the Owners Corporation has not established any of the matters on which it relied in support of an order under s 75 – 41 of the IPS setting aside the DOCA Resolution. The claim for such relief must therefore be dismissed.
In the present case, the Owners Corporation is significantly hampered in seeking to establish that the Administrators’ opinion on the date of the Company’s insolvency was misleading, by reason that:
the Owners Corporation did not lead evidence from any insolvency practitioner regarding the date of the Company’s insolvency;
the Owners Corporation chose not to cross-examine Mr Prasad regarding the extent or adequacy of the Administrators’ investigations and the basis for the opinions expressed in the Second Report to Creditors; and
the Owners Corporation did not put into evidence the terms of the loan agreements between the Related Creditors and the Company, or any documents relating to those loan agreements, such as the loan accounts or any communications between the Related Creditors and the Company, but instead sought that inferences be drawn regarding the nature of the loan arrangements and the “commercial reality” of the support provided by the Related Creditors from the statements contained in the Second Report to Creditors (which were expressed at a high-level, being the Administrators’ summary of matters which they had ascertained from their investigations to date).
Further, the Owners Corporation’s submissions appear to have proceeded on the basis that, having regard to the statements made in the Second Report to Creditors regarding the withdrawal of support by the Related Creditors, the loan agreements were, despite their terms, payable on demand, at the whim of the lenders, and were not genuinely and realistically available.
However, the Administrators expressly stated in the Second Report to Creditors that “the loan agreements indicate that the related party loans were not due and payable” (emphasis in original). The Second Report to Creditors does not contain any statement to the effect that the Related Creditors were able to, or did, demand repayment of the amounts which had previously been loaned to the Company. Instead, the Second Report to Creditors explains that the event which led to insolvency was not a demand for the repayment of sums already loaned, but the decision by the Related Creditors not to advance further sums after 30 June 2025, in circumstances where the Company was facing significant ongoing costs in the defence of the Technology and Construction List Proceeding. (The report explains that following this withdrawal of support from 30 June 2025, the Company entered into external administration which, in turn, constituted an event of default under the loan agreements and meant that the full balance of the loans thereby became due and payable.)
For those reasons, I am not satisfied that the Owners Corporation has established that the opinion expressed by the Administrators regarding the date of insolvency was false or misleading.
Further, I do not accept the submission that the Company made no serious attempt to defend the Technology and Construction List Proceeding and had “used the proceedings to buy time”. Although the proceeding was commenced in 2022, the Owners Corporation did not file its expert evidence until July 2024, and then made amendments to its List Statement and to its Scott Schedule in February 2025, following which orders were made for the filing of an amended List Response (which occurred in April 2025). The Company did not comply with the order to file expert evidence by June 2025, but this order was extended, and the Company went into administration before the deadline for compliance with the extended order.
Having regard to the matters stated by the Administrators in the Second Report to Creditors, the position in fact appears to be that the Related Creditors made a decision, around 30 June 2025, that they did not want to advance further funds to the Company, particularly having regard to the ongoing costs of the defence of the Technology and Construction List Proceeding, and that the withdrawal of this funding support led to the Company’s insolvency and its entry into voluntary administration (see paragraphs [211]-[219] above).
In any case, it is difficult to see why it is alleged that, in circumstances where the Company “had no financial capacity to … pay the [Owners Corporation] any monies whatsoever”, the purpose or effect of entering into the DOCA was “to frustrate the [Owners Corporation’s] claim”. If it is correct that the Company was in a position, prior to entry into administration, where it could not pay the Owners Corporation “any monies whatsoever” in respect of its claim, then it follows that the Owners Corporation’s position has been improved by the Company’s entry into the DOCA. That is because the DOCA establishes a deed fund for distribution to unrelated creditors of the Company and the Owners Corporation will, depending on the adjudication of any proof of debt lodged pursuant to the terms of the DOCA, receive a dividend from that fund in respect of its claim.
Further, the submissions about the Company’s purpose in executing the DOCA ignore the fact that the Company executed the DOCA pursuant to a resolution that was passed at the Second Meeting, with all of the unrelated creditors (other than the Owners Corporation and Unit Owners) voting in favour of that resolution.
Insofar as the issue raised by the Owners Corporation depends on a comparison between the position pursuant to the DOCA and the position that would apply in a liquidation, the Administrators have estimated that there would be a nil return to creditors in a liquidation scenario. The only basis on which that conclusion appears to be challenged by the Owners Corporation is that there may be claims available in a liquidation, which may result in a recovery for the benefit of creditors. However, as discussed below, this requires consideration of what claims may be available, what is the value of those claims, what are the prospects of those claims being established, what would be the costs of investigating and pursuing those claims and, importantly, how any such investigations and litigation would be funded.
In any case, in assessing whether the return is “paltry”, it is necessary to consider the alternative. The Administrators estimate, in the Second Report to Creditors, that the return to unrelated creditors on a liquidation scenario would be nil. The only basis on which the Owners Corporation has challenged the Administrators’ assessment of the return to unrelated creditors in a liquidation scenario is by advancing submissions that there are insolvent trading claims and may be unreasonable director-related transactions (which I have addressed above).
Fifthly, the Owners Corporation submitted that “given the manner in which the [Owners Corporation’s] proof has been considered to date, there is no guarantee that the [Owners Corporation’s] rights will be properly considered”. This submission implicitly depends on the proposition that the Owners Corporation’s proof of debt was not “properly considered” by the Administrators when determining whether it should be admitted for voting purposes at the Second Meeting. I have determined that the Administrators made a “just estimate” of that proof of debt for voting purposes, having regard to the material provided in support of that proof.
The Owners Corporation will be entitled to lodge a proof of debt to claim against the deed fund pursuant to cl 8.2 of the DOCA. It will be a matter for the Owners Corporation as to what material it chooses to submit in support of any such proof. There is no reason to conclude that the Administrators will not properly discharge their duties in adjudicating any such proof.
Finally, the Owners Corporation submitted that “execution of the DOCA meant that the [Owners Corporation] and the individual unit owners were immediately deprived of the benefit of a potential claim under public and product liability policies of insurance taken out by [the Company] that might be pursued by a liquidator of the company”.
The Owners Corporation did not advance any submission that there is, in fact, a policy of insurance which responds to any defects claim. Instead, the highest that the submission was put was that policies of insurance have been produced “that appear to respond to the losses suffered by [the Owners Corporation and the Unit Owners] … however full policy wording has not been provided and no details of notification to the relevant insurers by [the Company] in respect to the claims of the [Owners Corporation] or unit owners have been provided”.
No such issue was pleaded in the Points of Claim, and no evidence was led to address this issue. At the commencement of the hearing, the Owners Corporation sought to tender (without prior notice to the Defendants) documents which were described as “Insurance policies and certificates of currency issued for a number of periods, years, and issued to Mercon Group that may or may not respond to the defects liability claim made by the owners’ corporation” (emphasis added). Counsel for the Owners Corporation conceded that his client did not know “whether they respond”. The tender was not pressed on the basis that the proposition which the Owners Corporation sought to advance by the tender of those documents was that “there may be policies of insurance which respond” to the claims of the Owners Corporation and Unit Owners, and the Defendants did not seek to be heard against that proposition.
Given those matters, I have addressed the Owners Corporation’s submissions on the basis that there may be policies of insurance which respond to those claims (but, in circumstances where the terms of those policies are not before the Court, and have not been the subject of any submissions, it is not possible on this application to determine, one way or the other, whether or not this is in fact the case).
I do not consider that the potential existence of a policy which responds to the Owners Corporation’s claim provides a sufficient basis to establish that the DOCA is oppressive or unfairly prejudicial to the Owners Corporation and Unit Owners and should be terminated.
Further, if it were established that there is a policy of insurance which responds to the defects claims of the Owners Corporation and the Unit Owners, or if it were shown, by reference to the terms of any such policy, to be reasonably arguable that this was the case, it would not follow that the appropriate exercise of the Court’s power would be to terminate the DOCA, as opposed to varying its terms.
The Court has power to vary a deed of company arrangement by an order made under s 447A of the Act as an alternative to a deed administrator seeking a variation of the deed of company arrangement by a creditors’ resolution under s 445A: Longley (deed administrator), in the matter of Dixon Advisory & Superannuation Services Pty Ltd (subject to deed of company arrangement) [2024] FCA 70 at [49] (Beach J).
In Re Derwent Howard Media Pty Ltd [2011] NSWSC 1164 at [11]-[12], Barrett J observed that: