Project Sea Dragon Pty Ltd (Subject to a Deed of Company Arrangement) v Canstruct Pty Ltd

Salient Provisions of the Act 7 Part 5.3A of the Act deals with the administration of a company's affairs with a view to executing a deed of company arrangement. The object of Pt 5.3A is set out in s 435A as follows: 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. 8 Part 5.3A then deals with the appointment of an administrator and the first meeting of creditors (Division 2), the assumption by the administrator of the control of the company's affairs (Division 3), the investigation by the administrator of the company's affairs (Division 4), and the meeting of creditors to decide the company's future, usually referred to as the second creditors' meeting (Division 5). Section 439C provides that, at the second creditors' meeting, the creditors may resolve that the company execute a deed of company arrangement, that the administration should end, or that the company be wound up. 9 Division 11 of Pt 5.3A deals with the variation, termination and avoidance of a deed of company arrangement, and includes s 445D(1) which provides as follows: 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; or (d) there has been a material contravention of the deed by a person bound by the deed; or (e) effect cannot be given to the deed without injustice or undue delay; 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; or (g) the deed should be terminated for some other reason. 10 Division 12 of Pt 5.3A deals with the transition to a creditors' voluntary winding up in certain circumstances, and includes s 446AA which provides (among other things) that if the Court at a particular time makes an order under s 445D terminating the deed of company arrangement, then the company is taken to have passed at that time a special resolution under s 491 that the company be wound up voluntarily, and to have done so without a declaration of solvency by the directors under s 494. I note that until 1 March 2017 a provision to the same effect as s 446AA was included in reg 5.3A.07 of the Corporations Regulations 2001 (Cth) (the Regulations). 11 Division 13 of Pt 5.3A deals with the powers of the court, and includes s 447A which provides relevantly as follows: (1) The Court may make such order as it thinks appropriate about how this Part is to operate in relation to a particular company. (2) For example, if the Court is satisfied that the administration of a company should end: (a) because the company is solvent; or (b) because provisions of this Part are being abused; or (c) for some other reason; the Court may order under subsection (1) that the administration is to end.

Salient Facts 12 The primary judge referred to SFG as a public listed company and the ultimate parent company of the corporate group known as the "Seafarms Group", of which PSD is a member: [10]. At all relevant times, the directors of the two companies were identical, except for a small number of immaterial exceptions: [10]. The overall business of the Seafarms Group involves the construction of prawn aquaculture facilities for the growing and harvesting of prawns, and the intended sale of the resulting produce in Australia and overseas: [11]. As indicated above, PSD is a special purpose vehicle which was incorporated to develop and operate the Project: [12]. The Project involves the development of prawn aquaculture facilities in five separate locations, comprising three in the Northern Territory and two in Western Australia: [13]. The only operational site at present is in Exmouth, Western Australia, where a founder stock facility has been established and PSD has employed a number of personnel: [13]. The other sites remain in various stages of development. The dispute between Canstruct and PSD concerns the construction of facilities at Legune Station, a large cattle station in the Northern Territory where PSD holds a sublease for which it pays rent of approximately $2 million per annum: [13]. 13 PSD has had no income of its own with which to meet the costs that it has incurred, and also has had no substantial assets and no formal financial facilities on which to draw in order to meet those costs: [14]. Mr Dyer, a director of PSD and a director and the CEO of SFG, gave evidence that PSD was wholly reliant on SFG, as well as other entities in the Seafarms Group, for both financial and operational assistance but there has been no formal loan agreement in place by which SFG or any other company in the corporate group has assumed an obligation to provide funding: [14]. PSD was effectively funded by third party investment in SFG, which was procured by the issuing of new shares in SFG by way of a share placement in June 2021: [15]. SFG's announcements to the Australian Securities Exchange (ASX) made clear that the funds were to be directed specifically to the Project: [15]. 14 The primary judge referred to Mr Dyer's evidence that PSD obtained funds from SFG to meet its debts by a particular process, as part of which it would "call" for SFG to transfer funds into its account to pay invoices and other obligations shortly before they fell due: [16]. Accounts staff would assemble the necessary supporting documents and would send them by email to certain persons within SFG with a request that they authorise the payments. The "approvers" with authority to authorise payments were Mr Dyer, Mr Whitcombe (another director of SFG), and Mr Leijer (the CFO of SFG). Payments generally required authorisation from any two of those persons, while transfers from SFG to PSD required authorisation from only one. Calls to transfer funds from SFG to PSD were made only if further funds were required to make certain payments. The process included a weekly "payment run" for invoices relating to PSD to be raised to SFG, a fortnightly payment of wages for Exmouth employees, the monthly payment of a salary to the manager of the Exmouth facility and the payment of payroll tax as well as PAYG tax and superannuation: [17]. The primary judge said that while the obligation to make these payments fell on PSD, SFG consistently put its subsidiary in funds by way of this established process in order to allow the necessary payments to be made: [17]. 15 As a consequence of the implementation of this process, the amount of PSD's indebtedness to SFG steadily increased. The primary judge said that it was not in doubt that SFG was entitled to demand repayment of its debt at any time: [18]. However, the primary judge referred to Mr Dyer's assertion that such a demand would never be made, expressed as follows in his affidavit evidence (quoted at [18]): Any amounts owed by PSD to SFG would technically be payable on demand but that demand will never be made. In my capacity as director of SFG I would never move to or cause the board to move to call up SFG's loans to PSD while the project was ongoing. It is commercially illogical and against commercial reality for SFG to do so because that would expose me to significant complaint and inevitably legal action by shareholders for breaching my duty as a director. The sole use of the funds raised was to develop and operate PSD. The very purpose of raising the funds and the reason for investors to invest is that there would be a significant incremental value in their share value as the project was developed. That is the commercial reality regarding the use of the funds. It is simply not open to the directors of SFG to abandon the project and call up the loan funds in circumstances where the very purpose for which the funds were raised would fail. The commercial reality is that SFG could not call up the funds in circumstances whereby doing so the Project would immediately fail. 16 The primary judge then held that, ultimately, the only conclusion that can properly be drawn is that the funding of PSD continued entirely at the discretion of SFG, and the decision to advance funds was made only as and when the need for additional funding arose: [19]. 17 At the time these proceedings were commenced, PSD had undertaken a great deal of preparatory work on the Project, including negotiating leases, entering into agreements with native title holders, securing environmental approvals and licences, producing feasibility studies, and establishing the founder stock facility at Exmouth: [20]. However, the primary judge said that it was not entirely clear how substantially the development at Legune Station specifically had progressed: [20]. 18 Canstruct was engaged by PSD to carry out certain construction work at Legune Station pursuant to a "Framework Agreement", which was entered into on 10 May 2021. Pursuant to the Framework Agreement, "Work Orders" could be issued by PSD to Canstruct, after negotiations between them, which would then constitute separate and legally binding agreements for the carrying out of certain work: [21]. The Framework Agreement also required Canstruct to provide security for the performance of its obligations by way of an unconditional undertaking issued by an Australian bank in the amount of $12 million, which was given in the form of two $6 million bank guarantees: [21]. In September and October 2021, PSD issued three Work Orders, and Canstruct undertook a substantial amount of work pursuant to those Work Orders: [22]. 19 Pursuant to the Framework Agreement, PSD was entitled unilaterally to suspend works at the site and was also entitled to terminate the three Work Orders for convenience: [23]. On 24 December 2021, PSD unilaterally suspended all works at the site: [24]. In about January 2022, a dispute arose between Canstruct and PSD in relation to the money owed following the suspension of the works. On 27 April 2022, PSD terminated each of the three Work Orders for convenience: [24]. On 15 September 2022, Canstruct submitted payment claims in relation to the Work Orders to both PSD and the Superintendent on the Project, seeking payment of approximately $27.83 million: [25]. On 30 September 2022, the Superintendent (on behalf of PSD) issued payment certificates to Canstruct in response to the payment claims, pursuant to which Canstruct was paid approximately $780,000 in connection with the first and third Work Orders. The Superintendent certified that the amount payable by PSD in respect of the second Work Order was a negative amount of approximately $270,000, but the primary judge said that this amount does not seem to have been paid by Canstruct: [25]. 20 The primary judge found that the termination of the Work Orders was not the result of any disputation between PSD and Canstruct in connection with the work at Legune Station. Instead, it was the result of growing financial difficulties and internal corporate issues within the Seafarms Group: [27]. The primary judge referred to the statement in the Annual Report for SFG for the financial year ended 30 June 2022 that the year had been a "turbulent" one, and that two new directors had been appointed and three others had resigned in the first half of the year: [28]. There was also a change in the chairmanship of the board and the appointment of a new CEO and CFO: [28]. Although it was noted that construction on the Project had commenced early in the year, it was explained that in November 2021 the new board announced a review of PSD and that decisions taken during this time included the curtailment of all debt funding activity, and the termination of PSD contracts and most of the PSD construction team, effectively placing the majority of PSD on hold: [28]. In connection with these events, a major shareholder moved to have the then-new CEO removed, and the CEO subsequently resigned from his position and from the board, along with the Company Secretary. In late May 2022, Mr Dyer was appointed as CEO, Mr Leijer as CFO, and Mr Whitcombe as Company Secretary, and Mr Dyer and Mr Whitcombe were also appointed to the board: [29]. The Annual Report also referred to the termination of the construction contracts with Canstruct, and the placing of further work on hold at Bynoe and Kununurra, while progressing a reduced scope of work at the Exmouth facility: [20]. It was stated that work was continuing to be undertaken in order to maintain all permits and approvals: [30]. In the notes to the financial statements of SFG in the Annual Report, it was explained that: The Group commenced construction of Project Sea Dragon in August 2021, which was suspended in December 2021 due to the wet season. In the same month, the Group terminated negotiations on debt funding, which were at an advanced stage, due to the cessation of negotiations by the previous management. In April 2022 the major construction contracts for the construction of ponds and other infrastructure at Legune Station were terminated to preserve cash as the future of the project is re-assessed…. [F]ollowing the termination of the construction contracts, the Group received a number of claims from the construction company and after assessment of the currently available information, recorded a provision for general contractual liabilities of $8,730,094. 21 The primary judge also referred to SFG's report for the half-year ended 31 December 2022, which included the following (quoted at [32]): At 31 December 2022, the Group had net current assets of $18,796,286, including $20,426,850 cash and cash equivalents. The Directors note material uncertainties relating to the decision to continue with Project Sea Dragon, if so whether adequate funding will be obtained to fund the continuance, if not whether the remaining Project Sea Dragon related expenses will be successfully reduced and ceased, as to the final amount payable to meet Project Sea Dragon contractual liabilities, and as to the future profitability and cash flow from improvements at Queensland Farms and the ability of these to cover corporate expenditure. 22 The primary judge referred to Mr Dyer confirming in his evidence that the statements made in the reports by SFG were accurate: [33]. The primary judge drew the conclusion that the Work Orders issued from PSD to Canstruct were terminated because the viability of the project had become less certain on account of financial concerns that were emerging at that time: [33]. 23 On 7 November 2022, Canstruct filed four adjudication applications pursuant to the CCSA Act, three of which related to the work performed under each of the Work Orders: [34]. By those applications, Canstruct sought determinations that PSD was liable to pay to it the full amount of its payment claims. By its fourth application, Canstruct sought the return of one of its bank guarantees in the amount of $6 million, which had been provided by way of security under the Framework Agreement. On 3 February 2023, three determinations were made in favour of Canstruct in respect of the three Work Orders in an amount which was subsequently adjusted to $13,994,955.32, including GST and interest: [35]. In addition, the adjudicator made a fourth determination that the outstanding guarantee was to be returned to Canstruct: [35]. I will follow the primary judge in referring to the four determinations cumulatively as the "adjudicator's decision". 24 On 3 February 2023, SFG made an announcement to the ASX indicating that, whilst it had provisioned an amount of $8.7 million for a settlement of the dispute with Canstruct in its 2022 accounts, it was "extremely disappointed" with the adjudicator's decision and expressed the belief that the determination was excessive: [37]. On 8 February 2023, Herbert Smith Freehills (HSF), who were the solicitors for PSD at that time, wrote to Canstruct's solicitors, Thomson Geer, advising that PSD rejected the adjudicator's decision and asserted a number of jurisdictional errors, adding that PSD intended to commence proceedings in the Supreme Court of the Northern Territory to obtain relief in the nature of certiorari in respect of the adjudicator's decision: [38]. On 9 February 2023, HSF wrote to the adjudicator to inform him that PSD was considering the imminent commencement of proceedings: [39]. 25 The primary judge referred to Mr Dyer's evidence that he was extremely disappointed with the adjudicator's decision, as were the other directors of PSD and SFG: [40]. Accordingly, the directors explored the legal options available to them at the time. The primary judge referred to Mr Dyer saying that they felt that there were jurisdictional errors affecting the decision, although Mr Dyer could not elaborate upon them: [40]. The primary judge referred to Mr Dyer's evidence that the directors had discussed the possibility of litigation to challenge the adjudicator's decision, but they did not get to the point of instructing HSF to commence proceedings: [40]. 26 The primary judge then referred to Mr Dyer's evidence that he spoke to Mr Cox of Mills Oakley, the current solicitors for PSD and SFG, in connection with the same matters: [41]. Following that discussion, contact was made with Mr McKinnon of BDO Business Restructuring Pty Ltd (BDO) in order to determine whether he was prepared to act as voluntary administrator of PSD. The primary judge referred to the evidence of Mr McKinnon that the prospect of a voluntary administration was first raised with him in a telephone discussion with Mr Cox on or about 8 February 2023: [41]. 27 The primary judge then referred to the evidence of Mr Dyer in cross-examination that the directors had considered whether the voluntary administration of PSD would be a preferable course for the Seafarms Group to take, as against the commencement of court proceedings: [42]. Mr Dyer's evidence was that, in doing so, they discuss several matters, including whether making payment to Canstruct in accordance with the adjudicator's decision would undermine the group's ability to pursue the Project, and whether it would result in the termination of employees, and they ultimately concluded that making the payment to Canstruct would compromise the business of the group: [42]. The directors also considered that, if they were to pursue the option of litigation, they would be required to pay the money into court, or to Canstruct, which would cause PSD to be "in trouble", and it was thought that the litigation might remain on foot for over two years: [42]. The primary judge said that, according to Mr Dyer, the directors understood at the same time that, if the option of voluntary administration was pursued, then Canstruct would be precluded from enforcing payment of the adjudicator's decision as soon as the process commenced: [42]. They also understood that, if a DOCA was approved by the creditors of PSD, then Canstruct's ability to recover the amount awarded to it by the adjudicators would be limited to whatever the DOCA provided for it to be paid, and the liability arising out of the adjudicator's decision could be discharged: [42]. 28 The primary judge said that it emerged from Mr Dyer's cross-examination that, during their deliberations, the directors took into account the fact that a DOCA could only be adopted in the context of a voluntary administration if it was approved by a majority of creditors in both number and value: [43]. The directors discussed the fact that SFG would have to make a financial contribution under the DOCA in order to ensure that the creditors, or most of them, would do better under the deed than in a liquidation scenario: [43]. The primary judge said that the $3.5 million sum that was ultimately put up was apparently calculated by working out the allowance that would need to be made for: (a) the fees of the administrator and the other costs of the administration to be paid; (b) all of the unrelated creditors of PSD, other than Canstruct, to be paid 100 cents in the dollar; and (c) Canstruct to receive a return on its adjudication debt of about 10 cents in the dollar. Mr Dyer explained that the directors' decision to pay Canstruct about 10 cents in the dollar was made because the amount that Canstruct would stand to receive under the DOCA as a result was equivalent to the amount that the directors thought that it was properly owed: [44]. 29 As for the unrelated creditors, the primary judge referred to Mr Dyer's evidence as follows at [45]-[46]. Mr Dyer initially asserted that the decision to pay them 100 cents in the dollar had not been made in order to encourage them to vote in favour of the DOCA. However, he conceded that the directors had discussed "how the voting might balance out"; that is, "the values and the numbers of all of the creditors and how that might fall out". The directors had recognised that the majority of the creditors by value were related entities, which would vote in favour of the DOCA. They had then discussed whether they could get a majority by number of creditors to approve the DOCA and, in doing so, discussed the likelihood that offering 100 cents in the dollar to the unrelated creditors would entice them to vote in favour of the deed. According to Mr Dyer, the discussion went no further. While it was acknowledged that offering the unrelated creditors a full return was "likely" to encourage them to vote for the DOCA, that was apparently not the reason that a full return was offered. There were approximately 50 unrelated creditors of PSD, other than Canstruct and the company's employees, which were owed about $420,000. The group of unrelated creditors affected by the DOCA excluded the landlords with whom PSD was engaged in respect of its various leases, whose entitlements remained unaffected. Mr Dyer's affidavit set out a list of trade creditors which had lodged proofs of debt at the second meeting of creditors of PSD and asserted that each of those creditors was a "critical supplier or provider to the operations" of PSD, and he was cross-examined in some detail on that assertion, particularly as it seemed to suggest that there was some basis for the different treatment of those creditors relative to Canstruct. 30 The primary judge said that the cross-examination on this topic revealed that many of the unrelated creditors who were to be paid in full under the DOCA had indeed provided services of some importance to PSD during the 16 months since April 2022 in which the Project had been on hold: [48]. These creditors supplied services that were necessary for the ongoing maintenance of the facilities established by PSD, and for the maintenance of the status quo on the Project more generally, given the prospect that it might recommence: [48]. However, not all of the creditors who were to be paid in full were providing ongoing services to PSD, and Mr Dyer accepted that the DOCA was not structured so as to tie payment in full to the ongoing provision of a service: [48]. The primary judge said that the cross-examination revealed that there were certain creditors of PSD who could not, on any reasonable view, be said to be critical suppliers or providers, such as PSD's former solicitors, HSF, and a supplier of indoor plants, thus belying Mr Dyer's justification for paying all of the arm's-length creditors in full, except for Canstruct: [49]. 31 The primary judge then referred to Mr Dyer's cross-examination confirming that the directors of SFG well understood that, if SFG ceased to fund PSD, then the directors of PSD would place it into voluntary administration, and the administrators would continue the operations of the company with funds provided by SFG: [50]. Mr Dyer also confirmed that the directors' intention was that, once PSD was in administration, SFG would propose a DOCA for the purposes of which it would make a financial contribution in order to ensure that the deed offered the creditors a better return than they would receive in a liquidation: [50]. Mr Dyer agreed that the directors had discussed that the plan would be to structure the DOCA so that all of the unrelated creditors, apart from the landlord and Canstruct, would receive 100 cents in the dollar: [50]. Mr Dyer denied the directors had discussed whether this was likely to entice a vote in favour of the DOCA, but admitted that the amount paid to Canstruct was calculated to afford it a better return than it would receive in a liquidation, describing it as a "subjective amount": [50]. 32 The primary judge referred to Mr Dyer acknowledging that the directors had discussed that, once the DOCA was executed, control of PSD would return to its directors and FSG would resume funding of PSD to continue its operations: [51]. Mr Dyer ultimately accepted that the only substantial difference in PSD before and after its administration was that it would be released from its liability to Canstruct in connection with the adjudication and would therefore retain the money that it would otherwise have been obliged to pay: [51]. Mr Dyer candidly acknowledged that the objects of the voluntary administration and DOCA process were to achieve a situation where the funds did not have to leave the Seafarms Group to go to Canstruct pursuant to the adjudicator's decision, and PSD would get a release from all liability to Canstruct through the deed: [51]. 33 On 13 February 2023, the directors of SFG resolved to withdraw funding to PSD: [52]. A meeting of the board of directors of PSD was held on the same day, the minutes of which note (among other things) that: 4. the financial position of the Company is such that the Company does not, by itself, have the ability or the means to pay the Adjudicated Amount; 5. the Company has received notice from its ultimate holding [company, namely SFG] that SFG is withdrawing funding support to the Company and specifically that they will not pay the Adjudicated Amount; 6. further the Company cannot give any assurance to SFG that Canstruct will be capable of repaying the funds in the amount that it is ultimately determined that the Adjudicated Amount was not in fact due and payable; 7. the board has formed the view that without the financial support of SFG, the Company will likely become insolvent in the near future; and 8. Shaun McKinnon and Andrew Fielding of BDO Business Restructuring Pty Ltd should be appointed as Joint & Several Administrators of the Company pursuant to Section 436A of the Corporations Act 2001 (Cth). On 14 February 2023, Mr McKinnon and Mr Fielding were appointed as joint and several administrators of PSD. 34 On 15 February 2023, SFG released an ASX announcement, which included the following statement: As a result of the decision made by the adjudicator on 3 February 2023 regarding a construction dispute, the voluntary administration became a necessary step for Project Sea Dragon. 35 The primary judge referred to the fact that, on 17 February 2023, SFG entered into a "Funding Agreement" with the administrators, pursuant to which it agreed to provide a working capital facility of $1.65 million for the administrators' use: [55]. Those funds were intended to cover the administrators' fees and expenses, as well as all expenses involved in continuing to operate the business of PSD, including the cost of continuing to employ PSD's existing employees, paying all lease payments that fell due, and meeting supplier payments and other operational costs: [55]. 36 On 23 February 2023, being the same date as the first meeting of the creditors of PSD, Canstruct lodged with the administrators a formal proof of debt in the amount of $13,994,955.30: [56]. The proof of debt form cited the three determinations of the adjudicator on 3 February 2023, relating to each of the Work Orders. 37 Mr McKinnon deposed that, on 13 February 2023, he attended a meeting with certain other representatives of BDO and some of the directors of PSD. The primary judge said that at that meeting, it was allegedly communicated by the directors that their intention was to keep the company and the project alive, and that they intended to propose a DOCA, although they had to confirm their position and consider financial models before doing so: [57]. On 13 March 2023, SFG proposed a DOCA to the administrators of PSD, the terms of which were in line with what is now known to have been the intention of the directors of SFG prior to the cessation of its funding of PSD: [58]. 38 The primary judge said at [59] that the purpose of the proposed DOCA was identified in the following terms: The proposed DOCA for the Company is intended to satisfy the objectives of Part 5.3A of the Act, including to maximise the chances of the Company, or as much as possible of its operations, continuing in existence, or to achieve better outcomes for the Company, compared to the expected outcome were the Company to be immediately wound up and assets liquidated. The primary judge noted that this passage seems to have been intended to encapsulate or reflect the object identified in s 435A of the Act, but it contained a significant error: instead of the DOCA seeking to achieve "a better return for the company's creditors and members than would result from an immediate winding up of the company" (in the words of s 435A(b)), it apparently seeks to achieve "better outcomes for the Company, compared to the expected outcomes were the Company to be immediately wound up and assets liquidated": [60]. 39 The primary judge described the key elements of the DOCA at [61] as being as follows: (a) SFG would contribute $3.5 million (described as the "Seafarms Contribution") to a "Deed Fund", which would first be used to repay the working capital facility provided by SFG for the administrators' expenses, after which an amount of $1.9 million to $2.03 million would be available for creditors. (b) The remainder of the Deed Fund would be distributed according to a priority arrangement so as to: (i) meet the claims of employees and "Small Claim Creditors" (presenting claims of $300,000 or less) such that they received 100 cents in the dollar; and (ii) thereafter, pay the "Balance Creditors" (ie Canstruct) an estimated amount of 10.11 cents to 11.11 cents in the dollar, equating to approximately $1.4 to $1.55 million. (c) Other than the repayment of the interim funding, neither SFG nor any of the other related companies in the Seafarms Group would receive anything from the Deed Fund. (d) Upon the effectuation of the DOCA, all claims against PSD would be released and extinguished in full, save for any claims by any landlord in respect of premises occupied by PSD. 40 On 14 March 2023, being the following day, the administrators sent to creditors of PSD a report pursuant to s 75-225 of the Insolvency Practice Rules (Corporations) 2016 (IPR) and s 439A of the Act (the 14 March 2023 Report), containing among other things information regarding the second meeting of creditors to be held on 21 March 2023: [62]. In the executive summary at the outset of the document, the administrators recommended that the company execute a DOCA, as the DOCA proposal before it would "result in a higher and more certain return to all unsecured creditors". In a later subsection of the executive summary, it was stated that the DOCA proposal "results in all classes of creditors receiving more than is estimated to be returned in a liquidation scenario": [62]. 41 The primary judge then referred to the more detailed commentary appearing later in the 14 March 2023 Report in respect of the DOCA proposal, including the following points (quoted at [63]):

• The DOCA effectively repays all creditors in full, other than Canstruct Group Pty Ltd . Other than related party creditors, Canstruct is the largest creditor by a significant value. Canstruct is estimated to receive more under the DOCA proposal than they would in a Liquidation scenario.
• The DOCA proposal would result in: The Company's operations to be continued; The ongoing employment of all thirteen staff members, and the avoidance of the crystallisation of the associated employee entitlements, including termination entitlements; These employee entitlements would be honoured by the Company post DOCA; The avoidance of the crystallisation of various contractual and contractual related damages clauses for future lease payments and remediation works associated with leases and other agreements, that would be required to be completed at various sites; A single upfront lump-sum payment and is therefore not subject to the uncertainty of recoveries associated with a Liquidation; Under the DOCA related party creditors of circa. $65 m would not claim; and A better financial return for all creditors than a liquidation. 42 The primary judge then referred to the next section of the 14 March 2023 Report, in which the administrators purported to estimate the return to creditors in two possible scenarios: [64]. It was suggested that, under the DOCA, all creditors would receive 100 cents in the dollar except for the one "Non-Small Claim Creditor", which was Canstruct. By contrast, it was suggested that, in a liquidation, all creditors would receive zero cents in the dollar. The primary judge referred to the administrators' statement that they had "not identified any potential claims that would provide any return to creditors of the Company in a liquidation scenario", and said that at least part of the basis for this conclusion seemed to be the following series of points (quoted at [65]):
• Based on our investigations, the Company was insolvent from 13 February 2023 being the date SFG resolved to no longer provide financial support.
• Prior to this date, the access to Capital and ongoing financial support of the parent allowed the Company to meet their debts as and when they fell due. Once the support was withdrawn, the Company became insolvent.
• A claim for insolvent trading is generally calculated by reference to the increase in liabilities in the period of insolvency. As the period in question is for the day prior to the Administrators [sic] appointment, we consider that this balance is nil. 43 The primary judge stated that it was an uncontroversial fact that, at the time that SFG proposed the DOCA, SFG had the ability to fund the payment of the debt owed by PSD to Canstruct: [67]. That was expressly stated by SFG in its ASX announcement of 3 February 2023, and was confirmed by Mr Dyer in the course of his evidence: [67]-[68]. Nevertheless, the primary judge said that SFG declined to fund the payment of that debt, giving the reason that it did not believe that the amount was properly due and owing: [69]. 44 The second meeting of the creditors of PSD took place on 21 March 2023. The primary judge referred at [70] to the creditors of PSD as at that date as including: (a) 13 employees, who were to be paid $11,133 if the DOCA was approved; (b) 50 trade creditors (apart from Canstruct), which were owed approximately $420,000; (c) Canstruct, which was owed approximately $14 million; and (d) related party creditors, who were owed a total of approximately $64.85 million. Among those related party creditors, SFG was owed $62.36 million: [71]. In addition, PSD had continuing commitments under certain lease arrangements, although those liabilities were to be met by the administrators as part of the continuation of the business, and were not dealt with in the DOCA: [72]. 45 The minutes of the second meeting of creditors recorded that 25 proofs of debt were received by the administrators, totalling approximately $128.15 million, of which approximately $80.37 million was admitted for voting purposes: [73]. Pursuant to s 75-115 of the IPR, for the DOCA to be passed by resolution at the meeting, there needed to be a vote in favour of the resolution by both a majority in number of the creditors voting and a majority in value of the creditors voting. When the resolution to enter into the DOCA was put, 19 creditors (including four related party creditors) voted in favour, and only Canstruct voted against: [75]. In terms of the value of the debts, those voting in favour had debts worth $65,364,096.15, of which $64,853,676.65 was attributable to related parties, and the only vote cast against the resolution was by Canstruct, whose debt was entered as $13,994,955.25: [75]. The resolution therefore attracted votes in favour by a majority in both number and value of the creditors voting. The DOCA was entered into on 23 March 2023, and in accordance with its terms, control of PSD was immediately returned to its directors: [76]. On 24 March 2023, SFG made an ASX announcement in which it stated, among other things, the following (quoted at [77]): As a result of entry into the DOCA, control of Project Sea Dragon has now returned to the directors. As previously announced no jobs were lost and the operations at Exmouth continued successfully throughout the Administration period. The directors expect that SFG operations will now return to normal and they will continue to assess advancing Project Sea Dragon including interim funding. Further funding to advance the project is being sought from third party funders. SFG has been advised that the DOCA discharges the claims against Project Sea Dragon by Canstruct (including the claim and claim amount announced by SFG on 3 February 2023). 46 On 5 April 2023, Canstruct commenced these proceedings. On 3 May 2023 orders were made restraining the administrators from finalising the DOCA, including distributing the Deed Fund to creditors, until the determination of the matter: Canstruct Pty Ltd v Project Sea Dragon Pty Ltd (Subject to a Deed of Company Arrangement) [2023] FCA 637. In any event, and despite the injunction against PSD, SFG paid the debts owed to nearly all of the arm's-length creditors of PSD, such that at the time of the final hearing the only unrelated creditors which had not been paid in full were Canstruct and HSF: [80]. The primary judge recorded that the entirety of Canstruct's debt remained unpaid: [81].

Termination of the DOCA for abuse of Pt 5.3A 47 Canstruct claimed that the DOCA should be terminated pursuant to s 447A and/or s 445D of the Act on a number of different grounds and also sought ancillary orders, including orders that the administration of PSD be brought to an end and that PSD be wound up in insolvency: [82]-[84]. 48 The first of the grounds considered by the primary judge was that the DOCA be terminated pursuant to s 447A and s 445D(1)(g) of the Act on the basis that the entry into it constituted an abuse of the provisions of Pt 5.3A. That is a ground specifically referred to in s 447A(2)(b) and falls within the scope of "some other reason" under s 445D(1)(g). The primary judge referred at [90] to the reasoning of Barrett J in Blacktown City Council v Macarthur Telecommunications Pty Ltd [2003] NSWSC 883; (2003) 47 ACSR 391 at [17] to the effect that the concept of "abuse" in s 447A(2)(b) is akin to the inherent jurisdiction to stay proceedings for abuse of process as explained in Williams v Spautz (1992) 174 CLR 509, and said at [93] that Barrett J's statement should not be taken to suggest that the jurisdiction in both instances is the same, as was observed by Sackville AJA in Re New Bounty Pty Ltd; Winpar Holdings Ltd v Baron Corporation Pty Ltd [2015] NSWSC 1060; (2015) 107 ACSR 504 at [198]. The primary judge referred also to the statement of Sackville AJA in New Bounty at [197] to the effect that a person who intends to use a process for the purpose for which it is designed does not abuse that process by having an "ultimate purpose" that is outside the scope of the proceedings. Further, the primary judge said that in order for there to be an abuse of process, the improper or collateral purpose must be the "predominant" purpose: [96]. The primary judge referred at [98] to the statement by Barrett J in Workers Compensation Nominal Insurer v Perfume Empire Pty Ltd [2011] NSWSC 379 at [22] that the cases in which courts have intervened to terminate a voluntary administration are all cases in which there has existed what might be termed some "ulterior element". The primary judge referred also to the power in s 447A usually being exercised having regard to the interests of the creditors as a whole and the public interest, the public interest including considerations of commercial morality and the interests of the public at large: Australian Securities and Investments Commission v Midland Highway Pty Ltd (Administrators Appointed) [2015] FCA 1360; (2015) 110 ACSR 203 at [67]-[68] (Beach J). In that case, Beach J also held at [69] that, in exercising its power under s 447A to set aside a resolution to enter into a DOCA and to order a winding up, the Court could apply by analogy any one or more of the principles applicable to s 445D: [100]. In that regard, the primary judge referred to the observations of Gordon J in TiVo, Inc v Vivo International Corporation Pty Ltd (Subject to Deed of Company Arrangement) [2014] FCA 789 at [58] to the effect that s 445D(1)(g) may be available where (inter alia) the proposal for the DOCA has a fraudulent or wrongful purpose, or the DOCA offers an unconscionable premium as a bribe to creditors to support an arrangement the consequence of which is that the directors' conduct will not be investigated. 49 In relation to s 445D(1)(g), the primary judge cited authorities which demonstrate that the ground of "some other reason" may be used by the Court: (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 interest 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. 50 At [103]-[104], the primary judge identified Canstruct's case as being that the real object of PSD and SFG in putting PSD into administration and proposing the DOCA was twofold: (1) avoiding having to fund payment of the adjudicator's decision that went against PSD, or avoiding most of the debt owed to Canstruct; and (2) avoiding scrutiny into possible insolvent trading by PSD over the previous two years, being scrutiny which might occur in a liquidation. 51 The primary judge held that the first part of Canstruct's case should be accepted: [105]. The primary judge said that the utilisation of the voluntary administration and DOCA process for the predominant purpose of expunging a particular trade creditor's debt may suffice to enliven the power under either s 447A or s 445D, saying that Pt 5.3A was not enacted to provide an avenue by which a corporate group might rearrange its affairs in order to expunge a particular trade creditor's debt or to wipe the unwanted debts of an operating company before returning it to business as usual: [105]. The primary judge held that the evidence established unequivocally that the predominant purpose of PSD and SFG in entering into the voluntary administration and DOCA process was to disencumber PSD of its liability to pay the adjudication debt to Canstruct: [106]. The primary judge referred to Mr Dyer explicitly acknowledging in cross-examination that the process effectively permitted the debt to Canstruct to be discharged by the payment of a substantially smaller sum while the position of PSD remained otherwise the same: [107]-[108]. 52 The primary judge referred to the submission by PSD and SFG that it is fallacious to reason from the outcome of the voluntary administration and DOCA process to an inference of an actual intention on the part of PSD's directors as to the purpose of that process: [109]. The primary judge said that while it can be accepted that the outcome alone may not, in every case, suffice to reveal the intention underlying a voluntary administration and DOCA, it will in many cases be relevant to the task of ascertaining that intention, and there is nothing inherently erroneous in reasoning that the outcome of a process might, to some extent, reflect the purpose behind it: [109]. In this case, the primary judge said that the outcome whereby all arm's-length creditors were to be paid in full except for Canstruct, and PSD otherwise continued to operate as it had prior to the administration, minus the debt owed to Canstruct, gave at least a prima facie indication that the purpose of the process was simply to avoid paying the full amount of that debt to Canstruct: [109]. The primary judge said that the prima facie indication of the purpose was not dispelled by the evidence of Mr Dyer, which conveyed a distinct impression that the purpose of the process was simply to avoid paying the Canstruct debt in full: [110]-[111]. 53 In any event, the primary judge said that the evidence that might be used to elucidate the purpose of the voluntary administration and DOCA process in this case did not consist solely of its perceptible outcome, in that it was apparent from the evidence of Mr Dyer in cross-examination that, in relation to the discussions that took place between the directors of PSD and SFG, Mr Dyer considered there to be three purposes to the voluntary administration and DOCA process: first, to avoid paying Canstruct in accordance with the adjudicator's decision; second, to release PSD from its liability to Canstruct; and, third, to ensure the survival of the Seafarms Group: [112]-[113]. As to the question of "predominant" purpose, the primary judge said that the second purpose of achieving a release from all liability to Canstruct was a necessary part of the first purpose of ensuring that the funds did not have to leave the Seafarms Group to go to Canstruct pursuant to the adjudicator's decision: [114]. The primary judge said that the third purpose of ensuring the survival of the Seafarms Group was difficult to accept as legitimate in circumstances where the Seafarms Group could not obviously be said to be in jeopardy in circumstances where SFG was, by its own admission, capable of paying the debt due to Canstruct: [114]. The primary judge said that that leaves the first object as the predominant purpose of the voluntary administration and DOCA process, namely that the object of the process was to avoid paying Canstruct in accordance with the adjudicator's decision: [114]. 54 The primary judge said that if it was necessary to go further to identify the predominant purpose of the voluntary administration and DOCA process, then an appropriate step would be to investigate why Canstruct was paid a different amount to the other arm's-length trade creditors; in other words, why the directors insisted upon payment in full to those other creditors: [115]. The primary judge said that Mr Dyer's evidence as to those matters was not entirely consistent, and certain aspects of it were difficult to accept, and noted the following matters. 55 First, the proposition advanced by Mr Dyer that the arm's-length creditors other than Canstruct ought to have received payment in full because each of them was a critical supplier or provider to the operations of PSD, was not made good, in that some of the creditors who were to receive payment in full were clearly not critical to the project. Accordingly, the primary judge said that there must be some other explanation for the decision to pay them in full, and for the decision to pay that group of creditors as a whole a different amount than would be paid to Canstruct: [116]. 56 Second, the primary judge referred to the context in which the voluntary administration and DOCA process was implemented as including the winding down of the Project due to financial difficulties, and the disputation with Canstruct in respect of the amount owing to it: [117]. Before the adjudicator's decision, SFG had made a provision to fund a payment to Canstruct in the amount of approximately $8.7 million, and although it had the capacity to fund PSD to pay the entire amount of the adjudicator's decision, it did not wish to do so. The primary judge referred to Mr Dyer saying that PSD considered challenging the adjudicator's decision in court, but found that such an intention, if it existed, changed abruptly shortly before 13 February 2023, and part of the reason for that change was (as Mr Dyer appeared to admit) the fact that such a course would require SFG and PSD to pay the full debt to Canstruct or into court. By contrast, as the directors knew, the consequence of the adoption of the voluntary administration and DOCA process would be that Canstruct's ability to recover anything would be limited in accordance with the terms of the DOCA, and it was in that context that SFG withdrew funding of PSD "as a result of the adjudication dispute": [117]. The primary judge found that SFG withdrew that funding for the further, related purpose of pursuing the voluntary administration and DOCA process, which it had calculated would permit it to discharge any indebtedness arising from the adjudicator's decision for a fraction of the amount assessed, and otherwise would allow the Project to proceed unimpeded. 57 Third, the primary judge referred to the fact that Mr Dyer denied that there was any discussion among the directors as to whether payment in full would encourage the arm's-length creditors to vote in favour of the DOCA, but conceded that there had been discussion about what result the voting process might produce, and discussion as to the likelihood that offering 100 cents in the dollar to those creditors would entice them to vote in favour of the DOCA: [118]. The primary judge referred to Mr Dyer trying to clarify that the discussion as to the "likely" enticing effect of payment in full never progressed to the point where it motivated the decision to offer payment in full in the final DOCA proposal, but said that Mr Dyer's clarification is difficult to accept in circumstances where his alternative justification for payment in full was defective (namely the proposition that the creditors were critical suppliers or providers to the operations of PSD). The primary judge said that the conclusion more readily drawn is that the payment in full to the other arm's-length creditors was intended to encourage them to vote in favour of the DOCA: [118]. The primary judge said that it must have been obvious to the directors that the critical obstacle to the passage of the DOCA and the discharge of the debt owed to Canstruct was the requirement that entry into the DOCA be favoured by a majority of the creditors of PSD by number: [119]. The primary judge said that it was difficult to believe Mr Dyer's evidence that, in those circumstances, the directors discussed the fact that payment in full was likely to entice arm's-length creditors to vote in favour of the DOCA, but did not consider that to be a motivating factor at all in their decision to offer payment in full (even as a factor additional to their desire to maintain a commercial relationship with those creditors): [119]. The primary judge noted that the related party creditors voted in favour of the DOCA even though they were to receive nothing under it and their debts would be released, whereas as creditors, they had an interest in recovering the debts that they were owed: [120]. Acting as prudent creditors, they would have assessed whether they would receive more under the DOCA or in a winding up scenario, and in circumstances where the former pathway explicitly offered them no return, the latter pathway was perhaps the obvious choice. The primary judge said that their votes in favour of the DOCA belied the suggestion that they were acting truly as creditors, and it was obvious that they voted as they did for the purpose of obtaining the collateral advantage of the benefit to the Seafarms Group in not having PSD pay the adjudication debt or be placed into liquidation: [120]. Accordingly, the primary judge said that the execution of the DOCA was seemingly assured by the related party creditors voting against their own interests as creditors and by the arm's-length creditors (other than Canstruct) being promised a full return: [120]. 58 The primary judge concluded that the result that the voluntary administration and DOCA process produced was the intended product of a strategy put in place because paying the amount determined as payable by the adjudicator was not in the interests of the Seafarms Group: [121]. The primary judge concluded that the predominant purpose of the voluntary administration and DOCA process was to avoid paying the debt owed to Canstruct, and no other purpose could properly be discerned when the evidence was considered in its totality: [121]. 59 The primary judge then rejected a submission by PSD and SFG to the effect that this line of reasoning blurs the distinction between the two companies as separate corporate entities, saying that the submission denies the reality of the situation: [122]-[123]. The primary judge referred to the directors of the two companies as being essentially the same and the financial ties between the two companies being especially close: [123]. The primary judge said that the voluntary administration and DOCA process in this case spanned the whole of the Seafarms Group, and it was artificial in the extreme to see the same group of directors as acting in accordance with that process for different reasons merely because, at one time, they happened to be representing SFG while, at another time, they happened to be representing PSD: [123]. 60 The primary judge said that, by the conclusion of the trial, it was not seriously in dispute that the predominant purpose of the voluntary administration and DOCA process was to allow PSD to avoid paying the full amount owed to Canstruct as a result of the adjudicator's decision: [124]. The primary judge said that that purpose was improper, and alien to that for which Pt 5.3A is to be used, and the process was not a bona fide attempt to use Pt 5.3A to achieve an arrangement by which PSD could continue in existence and provide a better outcome for creditors than a liquidation. Accordingly, the primary judge held that the voluntary administration and DOCA process constituted an abuse of the provisions of Pt 5.3A, and enlivened the powers in ss 447A and 445D(1)(g) to set aside both the administration and the DOCA: [124]. 61 The primary judge then turned to the second aspect of the improper purpose case contended for by Canstruct, namely the alleged purpose of avoiding scrutiny into possible insolvent trading on the part of PSD. The primary judge observed that the voluntary administration and DOCA process was not an inexpensive undertaking for SFG, costing it between $2 million and $3.5 million, whereas liquidation would not have involved any such costs and might have been a similarly effective means of avoiding payment of the amount awarded by the adjudicator: [125]. Further, SFG could have used another company to acquire PSD's business from the liquidator in order to continue the pursuit of the Project: [125]. The primary judge referred to the submission by PSD and SFG that this suggestion was "fanciful", pointing out that PSD had entered into agreements with native title holders regarding the use of the Legune Station land that could not be guaranteed to carry over to a new entity, and the lessor might be unwilling to contract on commercially acceptable terms with another company. The primary judge said that while the tenor of these submissions can be accepted, it is not entirely unreasonable to suppose that the native title holders and the lessor would have been willing to contract with the new entity in the Seafarms Group, represented by the same individuals, that was merely picking up where PSD left off on essentially the same terms: [127]. The primary judge said that it was unlikely that any third party would have sought to acquire the business of PSD, and thus a purchaser from within the Seafarms Group could have enjoyed immediate exclusivity in attempting to acquire the business. Further, a purchaser from within the Seafarms Group could have paid some of PSD's debts, as SFG ultimately did, in order to maintain good relations with local suppliers. The primary judge thus drew an inference that the liquidation of PSD was not an entirely unreasonable pathway for the Seafarms Group to follow in order to avoid satisfying the adjudication debt owed to Canstruct: [127]. 62 Canstruct submitted that, rather than pursuing that pathway, SFG was prepared to outlay between $2 million and $3.5 million because that process avoided any scrutiny being applied to PSD's finances in the period since the 2020 financial year, when the company began to incur significant debts and that scrutiny (it was submitted) would reveal that PSD had been engaged in insolvent trading throughout that period, for which the directors would be personally liable pursuant to ss 588G and 588M of the Act. The primary judge identified the critical issue to be determined in connection with Canstruct's submission as being whether PSD was insolvent prior to the date on which SFG decided to cease funding it: [129]. While it was common ground that PSD had no income stream or substantial assets of its own, the dispute concerned the extent to which PSD could rely upon SFG providing the funding that it required to pay its debts so as not to have been insolvent: [129]. 63 The primary judge said at [130] that there was no dispute that PSD's indebtedness grew substantially over the years, and referred to the following figures given in the 14 March 2023 Report as to the increasing amounts from 30 June 2020 to 14 February 2023 by which total current liabilities exceeded total current assets, and total liabilities exceeded total assets: Excess of Total Current Liabilities over Total Current Assets Excess of Total Liabilities over Total Assets 30 June 2020 $6.72 million $2.38 million 30 June 2021 $10.7 million $4.83 million 30 June 2022 $67 million $67.39 million 14 February 2023 $73.28 million $73.53 million

The primary judge stated that the overall indebtedness of PSD grew in essentially two main ways: first, as the company progressed the Project, it entered into contracts such as the Work Orders with Canstruct and the subleases for the Legune Station site, under which it incurred substantial liabilities; and second, the process by which it acquired funds to support its operations meant that it continued to incur liabilities to SFG and other companies in the Seafarms Group: [132]. 64 The primary judge said that it was not in dispute that PSD had not entered into an agreement with any entity for the provision of funding to allow it to meet liabilities that it stood to incur during the development phase of the Project, and did not make any arrangements with any entity pursuant to which it obtained a specific promise, commitment or assurance that the funding would be provided: [133]. Although funds were advanced by SFG from time to time when requested by PSD, the amounts in question simply became debts of the company, and there was no agreement as to when those debts were to be repaid to SFG or any agreement as to the terms on which the funds were provided, and there was no agreement that funding would continue at any time in the future: [133]. PSD thus had no control over whether SFG would continue to provide funds upon its request: [134]. The primary judge said that, although one might assume that SFG would ordinarily be inclined to provide those funds, that ultimately depended in each instance upon whether or not it took a favourable view of such a course, and it was at liberty to cease funding whenever it wished to do so: [134]. Indeed, the primary judge said that SFG did cease funding abruptly on 13 February 2023, when it determined to terminate the flow of funds to PSD without notice, and in doing so, it did not breach any agreement, commitment or understanding in place between the two companies: [134]. The primary judge said that, importantly, at all relevant times there was nothing preventing SFG from calling for the immediate repayment of the amounts owed to it by PSD: [135]. 65 The primary judge acknowledged that PSD was undeniably "balance sheet insolvent" from the 2020 financial year onwards by reference to its assets and liabilities, and stated that that is enough to justify a finding of insolvency at law unless it can be established that PSD had sufficient access to resources not reflected in its balance sheet, in particular through the provision of funding by SFG: [137]. 66 The primary judge referred to the definition of solvency and insolvency in s 95A of the Act at [138], namely: (1) A person is solvent if, and only if, the person is able to pay all the person's debts, as and when they become due and payable. (2) A person who is not solvent is insolvent. 67 The primary judge then referred to the observation of Palmer J in Lewis v Doran [2004] NSWSC 608; (2004) 208 ALR 385 at [111]-[113] that the omission of the words "from its own monies" from this definition is significant, and leaves the court free to determine insolvency, whether retrospective or prospective, as a question of commercial reality having regard to the particular facts of the case. Justice Palmer explained in that passage that where retrospective insolvency is an issue, the court can take into account that as at and after the alleged state of insolvency the company actually paid all its debts as they fell due because the third party made funds available to it without security. On the other hand, where prospective insolvency is in issue, the court would generally be sceptical of an assertion that a third party is willing to advance funds unsecured on such terms as would not bring about insolvency, and such willingness on the part of a third party would have to be cogently demonstrated at least as a matter of commercial reality. 68 The primary judge next referred to the reasons of Barrett J in Australian Securities and Investments Commission v Edwards [2005] NSWSC 831; (2005) 220 ALR 148 at [99] to the effect that funds which, on a realistic commercial assessment, are capable of being raised from outside sources are relevant to the question whether a company is solvent, but then continued in the same paragraph as follows: [T]he availability of such funds in the form of a loan will not enhance solvency (or have the potential to avoid a finding of insolvency) unless the loan terms are such as to exclude the loan liability from consideration in its own right as part of the debts due or near due. In other words, availability of loan funds for a very short term or payable on demand, as a source from which debts overdue may be paid, does not enhance solvency: it merely substitutes one form of immediate (or near immediate) obligation for another. … [T]he capacity to raise funds from external sources must be judged in a practical and businesslike way by reference to the commercial realities of the case, not by way of some theoretical textbook exercise. Possibilities are not enough. Genuine and realistic availability, as a matter of commercial reality, must be seen. 69 The primary judge then referred to various cases in which Barrett J's reasoning has been followed: [141]-[143]. The primary judge said that when assessing solvency, there is nothing inherently objectionable about taking into account loans from related parties where the evidence discloses that, as a matter of commercial reality, the related parties are likely to continue to provide finance: [145]. The primary judge referred to the observation of Morrison JA (with whom Gotterson JA and Boddice J agreed) in Chan v First Strategic Development Corporation Ltd (in liq) [2015] QCA 28 at [43] to the effect that, where the provision of funds cannot be compelled by legal arrangement, there must be a degree of assuredness that the financial support will be forthcoming and at such a level that one could say that the company was able to pay its debts as and when they fell due, rather than being possibly able to do so: [145]. The primary judge said that, as the inquiry is concerned with commercial realities, the funds that are said to be sufficient to maintain solvency must be genuinely and realistically available, when judged in a practical and businesslike way: [146]. 70 The primary judge said that, in the present case, there was limited evidence from the directors of SFG that the company was committed to providing the financial support from PSD into the future, and that it would not demand immediate repayment of a debt: [147]. The primary judge said that no director was able to give such evidence in the circumstances that prevailed as at the time of the hearing, when SFG had ceased providing financial support and had submitted a proof of debt to the administrators: [147]. The primary judge said that, although Mr Dyer deposed that a demand for payment would never be made by SFG and that it was commercially illogical and against commercial reality for the company to call up its loans to PSD while the Project was ongoing, the facts as they stand diminish the force of this evidence quite substantially, in that SFG did cause PSD to become insolvent: [147]. I note in passing however, that SFG never made any demand that PSD repay its debt. 71 The primary judge identified the key difficulty that PSD and SFG faced in making out their case as to the solvency of PSD as being that, on their characterisation of the facts, funding from SFG was assured and PSD was therefore solvent until, upon the emergence of a particular debt that the Seafarms Group found intolerable, that was suddenly no longer the case: [148]. The primary judge said that the natural question to be asked is whether the funding was ever truly assured, and whether PSD was ever truly solvent, in circumstances where the state of affairs between it and its parent company could (and did) change instantly at the parent's whim: [148]. The primary judge said, although it was true that in the past PSD had been able to meet its debts consistently with funds from SFG, which might have seemed to have little incentive to call upon the growing debt that was owed to it, one is left to wonder whether that situation existed only by coincidence and as a matter of convenience: [148]. The primary judge said that it seemed rather unsatisfying to ask whether a history of funding is sufficiently lengthy as to demonstrate solvency, in circumstances where there only exists a "history" to speak of because, by chance, the problem that ultimately arose did not arise sooner: [148]. 72 The primary judge at [150] distinguished the decision in International Cat Manufacturing Pty Ltd (in liq) v Rodrick [2013] QCA 372; (2013) 97 ACSR 200 on the basis that the Court accepted in that case at [106] that the commercial reality supported the conclusion that the most important consideration, being that of the degree of commitment to the continuation of financial support, was satisfied. The primary judge said that in that case, there were many factors which bound the third party providers of finance to the company, and which raised the assuredness of further finance beyond a mere discretionary payment, none of which existed in the present matter: [150]. The primary judge said that the analysis in that case demonstrates that to reach the required level of assuredness, there must be more than a mere discretion in the external funder to advance funds, such as where the third party funder is compelled to provide the financial report because it has provided a guarantee in respect of the company's obligations: [151]. The primary judge said that the definition of solvency requires the debtor being able to pay its debts when they fall due, and that ability does not exist in the absence of funds actually being available, although there are degrees of certainty as to the "availability" of funds: [152]. The primary judge said that for that reason, the line is drawn at a point where it can be objectively ascertained that a sufficient degree of assuredness exists that funds will be forthcoming to discharge the indebtedness, in contrast to a hope or mere expectation that a third party will favourably exercise their unfettered discretion to make, or continue to make, funds available: [152]. 73 The primary judge referred to the submission by SFG and PSD that the fact that PSD is a "special purpose vehicle" used for development purposes is a relevant consideration to be taken into account in determining solvency: [153]. The primary judge said that the question of the solvency of special purpose companies is not to be assessed differently because they are often used for speculative undertakings and have little in the way of assets of their own, and that while the support of directors and shareholders without security may be more common with such companies, neither the applicable test for insolvency nor its application are different from that which is ordinarily applied: [154]. The primary judge reiterated that the Court must take into account the commercial realities of a company's financial circumstances: [157]. In the present case, the primary judge said that when PSD incurred a liability with which SFG was displeased, SFG determined to withhold funds and it made no commitment to continue funding in relation to any other debts or for any period of time, and PSD's existing liability to SFG was repayable on demand: [157]. The primary judge recognised, however, that SFG's loan was not called up: [157]. 74 The primary judge said that the question whether the availability from SFG or other related companies was such that PSD was able to pay its debts as they fell due involved two related issues: first, whether the terms on which the funds were advanced deferred the existence of any indebtedness, in the sense that existing payable debts were not merely replaced with another; and second, whether there was an appropriate degree of assuredness that the funds would become available with insufficient time to meet the entity's liabilities: [159]. 75 As to the terms on which funds were advanced by SFG, the primary judge said that there was no agreement, commitment, assurance, or letter of comfort by SFG pursuant to which it would provide funding, which the primary judge regarded as possibly unusual given that the development involved many millions of dollars and a major undertaking, particularly where the nature of the relationship between SFG and PSD was intended, rather than accidental: [160]. However, the primary judge said that as no party made any point of this (presumably in reference to the possibly unusual nature of the lack of any agreement or commitment by SFG), it was not relevant to the consideration: [160]. The primary judge then said that the arrangement between PSD and SFG can be characterised as being one where, from time to time, PSD would indicate that it was indebted to a particular creditor and would produce to SFG evidence of the same, and SFG would then make an amount of funds available to PSD for it to pay the debt although it was under no obligation to do so: [161]. The primary judge said that there were no terms to the way the money was advanced, although it was apparent that the parties recognised it was not a gift and was recorded as a debt of PSD to SFG in PSD's accounts. The primary judge said that, at best and in the absence of any agreement to the contrary, the amounts advanced were repayable by PSD to SFG on demand: [161]. The primary judge said that the consequence of that was that, upon the provision of funds by SFG, an "immediate debt" to it in the amounts advanced was created: [161]. I note in passing that in making that finding, the primary judge did not deal with the further issue of whether such a debt was "due and payable" within the meaning of s 95A, and I do not read the word "immediate" as intended to convey that it was. The primary judge then said that mere substitution of one debt for a loan which is payable on demand will not enhance the borrower's solvency, citing ASIC v Edwards at [99] (Barrett J), as affirmed by the New South Wales Court of Appeal in Edwards v ASIC [2009] NSWCA 424; (2009) 264 ALR 723 at [163] and in Treloar Constructions Pty Ltd v McMillan [2017] NSWCA 72; (2017) 120 ACSR 130 at [79]. The primary judge said that, that being so, by substituting its creditors' debts with other debt, PSD remained in a position where it was unable to pay its debts as they fell due within the meaning of s 95A of the Act, and as such, the availability of funds from SFG does not avoid a finding that PSD was insolvent from at least the time when it commenced accruing liability to SFG: [163]. 76 The primary judge then turned to the question as to whether there existed a sufficient assuredness of support from SFG by the provision of further funds, the question being whether it could be said that PSD was able to pay its debts because, as a matter of commercial reality, the required funds were, at the relevant times, genuinely and realistically available from SFG: [164]. The primary judge referred to PSD's and SFG's submission that the assuredness of funding was established by SFG having provided funds for the development since inception, combined with the assumption that it would continue to do so because it was in its commercial interest to ensure that the development was completed: [165]. The primary judge said that the difficulty was that the events prove that any such commitment by SFG was "illusory", in that SFG provided funding only to the extent to which it thought, from time to time, that doing so was in the group's interests: [165]. The primary judge said that there was no suggestion in March 2023 that SFG had failed to comply with any assurance, commitment or expectation which it had generated, and the absence of any such suggestion indicates that SFG acted in the manner expected of it, which is not sufficient to enhance the solvency of PSD or avoid a finding of insolvency: [165]. 77 The primary judge accepted that it was correct to say that up until February 2023, SFG had provided funding for all of PSD's debts as they arose: [166]. However, the primary judge did not accept the submission that the investment of some $62 million in the development reflected a significant commitment to it which established that the commercial realities were that SFG could be regarded as having committed itself to the future funding of the project. The primary judge identified as the first and obvious difficulty with that submission being that SFG was not committed to the Project in the sense that it would continually meet PSD's liabilities, in that as soon as a debt arose which SFG considered unfavourable, it simply ceased its provision of funding: [167]. The primary judge said that SFG's ability to cease funding without breaching any agreement, understanding or promise reflected that SFG was not committed to PSD, nor had it provided any financial support by the provision of security for PSD's debts: [167]. The primary judge said that the second difficulty with the submission was that the corporate structure, deliberately or otherwise, ensured the absence of any commitment by SFG to discharge the debts of PSD, there being no formal or informal agreement to provide funding to PSD and, in a business sense, PSD was dispensable because it was not inevitable that its loss would substantially impact the continuation of the development: [168]. The primary judge acknowledged that PSD held the leases over the development site but said that there was a reasonable inference that it would be in the interests of the lessors to renegotiate any leases with another entity in the Seafarms Group if PSD were to fail and the renegotiation of the leases would be far from impossible: [168]. In addition, the primary judge said that the evidence did not suggest the existence of any third party who might be interested in pursuing the development itself: [168]. The primary judge found that there was nothing to indicate that the local Indigenous groups would be averse to entering into new agreements, especially in circumstances where they would be dealing with essentially the same persons: [169]. The primary judge then found that, in both a financial and corporate manner, PSD was capable of being easily untethered from the corporate group, reflecting an absence of any real commitment to it by the Seafarms Group: [170]. The primary judge did not regard the mere fact that PSD was indebted to SFG in the amount of $62 million as a significant factor, as the value was in the development which had been undertaken which could probably be secured in any event: [171]. The primary judge thus concluded that there was insufficient evidence in the case to conclude that there was such a degree of commitment on the part of the provider of the financial support to continue it such that it could be said that at any point of time it was likely to be continued, with the result that, at any of those times, the company was able to pay its debts as and when they fell due: [172]. 78 The primary judge thus drew the conclusion that PSD was insolvent from at least June 2020, saying that from that time it had substantial indebtedness, whether to its trade creditors or to entities in the Seafarms Group, and no funds which rendered it able to discharge that indebtedness: [173]. Although the primary judge said that PSD received funds from SFG to meet its debts to trade creditors, it was simply replacing one existing liability with another, and there was no assuredness at any time that the payment of any or all non-related party debts would be funded: [173]. 79 The primary judge then turned to the consequences of PSD's insolvency, and in particular to Canstruct's submission that it followed from the conclusion that PSD was insolvent from around mid-2020 that there were grounds on which a liquidator might pursue the directors for damages for contraventions of s 588G of the Act relating to insolvent trading: [174]. In support of that submission, Canstruct submitted that there were reasonable grounds for suspecting that PSD was insolvent and that a reasonable person in the position of PSD's directors would have been aware, throughout the period from June 2020, that there were grounds for suspecting that PSD was insolvent, namely that PSD was incurring substantial liabilities to third parties which were met by incurring substitute liabilities to related entities with the absence of any assurance or indication that the funding would continue to the finalisation of the Project: [174]. The primary judge found the PSD's directors were aware of those facts and circumstances: [175]. The primary judge found that PSD's directors were at a real risk of liability at the suit of a liquidator if PSD were to be wound up, and because of the interlocking directorships, there was a not insignificant risk that SFG would be liable pursuant to ss 588V and 588W of the Act as the holding company of PSD for the losses sustained by PSD's insolvent trading, and the potential recoveries could extend to all the liabilities incurred since June 2020, including the debt presently owed to Canstruct: [175]. 80 The primary judge then found that it should be accepted that entry into the DOCA had the benefit of preventing a liquidator from examining the conduct of PSD's directors and SFG in relation to possible recovery actions for insolvent trading: [176]. The primary judge said that that, combined with the improper purpose for which the voluntary administration and DOCA process was used, was sufficient to establish that the entry into the DOCA constituted an abuse of Pt 5.3A: [176]. 81 The primary judge said that it was most unlikely that the directors of SFG and PSD would not have been alive to the risk that the liquidation of PSD might expose them and SFG to claims in respect of PSD's insolvent trading: [177]. The primary judge said that the directors must have been aware, at least in a general sense, that their established corporate structure, which permitted PSD to accumulate substantial liabilities whilst being bereft of any identifiable support, raised the likelihood that, on PSD's insolvency, not insubstantial claims of insolvent training might be levelled against them and SFG: [177]. The primary judge said that a real advantage of entering into the DOCA was that it would prevent any investigation of those matters, and it was "somewhat inconceivable" that the added benefit that PSD's directors and SFG would be spared the risk of recovery action by a liquidator of PSD did not play a part in the utilisation of the voluntary administration and DOCA process: [177]. The primary judge said that there was sufficient evidence to infer that this was part of the intended purpose of the DOCA, and that provided an additional justification for terminating it under s 447A or s 445D(1)(g) of the Act. The primary judge did not, however, say that any such purpose was the predominant purpose of the DOCA. 82 The primary judge then turned to the administrators' opinions on insolvent trading. While his Honour accepted that administrators have a very brief period in which to investigate the affairs of an insolvent company during a voluntary administration, the primary judge said that in this case PSD was obviously insolvent: [178]. The primary judge said that it was apparent from the 14 March 2023 Report that the administrators made no inquiry into the nature of the financial arrangements between SFG and PSD, except to observe that there were no formal arrangements in place regarding the indebtedness arising in favour of SFG: [178]. The primary judge referred to the administrators' statement that their investigations indicated that PSD "was able to call on funds as required and creditors were generally met within terms", but said that the source of that information was not cited and the evidence indicated that there was no such ability: [179]. The primary judge said that the arrangement was merely that SFG would provide funds in its discretion: [179]. The primary judge regarded the apparent lack of investigations by the administrators into the "obvious key questions" relating to PSD's insolvency as revealing their view to be unreliable: [180]. 83 The primary judge concluded that the entry into the DOCA had the consequence of avoiding scrutiny of whether PSD had engaged in insolvent trading and had incurred debts in respect of which its directors and parent company might become liable: [181]. The primary judge then said that, although there is "a real possibility" that this was the intended outcome of the entry into the DOCA, it is unnecessary to go so far, in that the fact that the DOCA was entered into for an improper purpose and produced that consequence further enlivens the power to set it aside and provides an added justification for doing so: [181]. 84 The primary judge then reiterated the conclusion that the DOCA was entered into for the purpose of the Seafarms Group relieving itself of the debt owed by PSD and to continue with the Project as if that debt were never incurred: [182]. The primary judge said that the avoidance of an unwanted indebtedness is not an appropriate purpose for a DOCA, and that no aspect of Pt 5.3A is designed to permit a company to use the DOCA process to rid itself of a liability, merely to restart operations in an almost identical position to the pre-DOCA state save for the existence of the erstwhile debt: [183]. The DOCA in the present case was thus entered into to achieve a purpose which was alien to the objects of Pt 5.3A, which is more than sufficient to warrant setting aside both the administration and the DOCA: [183]. The primary judge said that that conclusion necessarily involves an acceptance of the commercial reality that PSD acted as part of the Seafarms Group, and the purpose of the voluntary administration and DOCA process should be regarded in that light: [184]. That is, the Seafarms Group, or at least SFG and PSD, acted in concert with the intention to orchestrate PSD's claimed insolvency from February 2023 in order to utilise the voluntary administration and DOCA process to extinguish Canstruct's debt, and then continue PSD's business as before: [184]. The primary judge rejected the submission that PSD had to be considered on its own and be regarded as a company which had lost the support of its parent, such that the DOCA was the only option apart from liquidation: [185]. I note that in expressing those conclusions, the primary judge relied only on the first of the alleged improper purposes, namely the purpose of avoiding the debt owed to Canstruct, and not the second alleged improper purpose, namely avoiding scrutiny into possible insolvent trading. 85 The primary judge then turned to the question of how the Court's discretion should be exercised, and said that the seriousness of the misuse to which Pt 5.3A has been put in this case is sufficient on its own to warrant the exercise of the Court's power to terminate the DOCA and the administration: [186]. The primary judge said that if the misuse of s 436A were permitted to stand, Canstruct would be denied any possibility of a substantial recovery of its debt, and might also be seen as giving the Court's imprimatur to inappropriate commercial conduct: [186]. 86 The primary judge then considered the factors which had been relied upon by the parties as either supporting or telling against the making of such orders. PSD and SFG submitted that a reason for not exercising the discretion to terminate the administration or the DOCA was that it was unlikely that there would be sufficient funding for the further investigation of any insolvent trading claims and their prosecution: [188]. The primary judge referred to the competing evidence as to the likely costs of the insolvent trading proceedings of $750,000 (by Canstruct's solicitor) and $1.4 million (by PSD's and SFG's solicitor), and rejected the latter estimate, albeit noting that that the defences raised by SFG and PSD's directors might make the litigation more complex than it might otherwise be: [189]. The primary judge said that Canstruct has access to sufficient funds to fund any future litigation by a liquidator in relation to insolvent trading, and had more than sufficient motivation to provide the funding necessary to see the litigation through to completion: [188]. The primary judge referred to the provision which Canstruct had made for the funding of public examinations during any liquidation in an amount of $150,000 as an indication of the bona fides of Canstruct's intention to pursue recovery against PSD's directors and SFG: [190]. 87 The primary judge referred also to the potential for recovery from any insolvent trading claim as being an issue relevant to the exercise of the discretion: [191]. However, the primary judge found that the amounts available to PSD for recovery from insurance policies and any other assets held by SFG are likely to be unaffected by the amount owed to SFG, and there is a "not unrealistic possibility" that a liquidator will recover a substantial amount in any litigation: [193]. 88 The primary judge then referred to the submission by PSD and SFG that the powers to set side or terminate a DOCA should be exercised in accordance with the object of Pt 5.3A as identified in s 435A of the Act, and in particular that priority should be given to preservation of the company and its business over the rights or interests of particular creditors: [194]. However, the primary judge said that, while Pt 5.3A generally vests control of the company's future in the hands of the majority of the company's creditors, there is no acceptance of the absolute tyranny of the majority over the minority, and the protection of individual creditors (or groups of creditors) is ensured by provisions such as s 445D of the Act: [194]. The primary judge referred in particular to s 445D(1)(f) as allowing for a certain amount of detriment to be sustained by those creditors whose interests might diverge from the majority by permitting discrimination or prejudice, but limiting it to such conduct so long as it does not become "unfair": [194]. 89 The primary judge referred also to Canstruct's submission that, to allow PSD to remain in its current state would expose other creditors to similar behaviour in the future: [195]. The primary judge said that there was little evidence as to how SFG intended to fund PSD in the future, and no assurance has been given that SFG will fund PSD for a specific period, or that it will fund all indebtedness incurred by it regardless of whether it agrees with particular debts, nor was there any indication that the funds to be provided by SFG will be on deferred terms: [196]. The primary judge said that the necessary consequence is that it is likely that PSD will resume its insolvent trading behaviour into the future, thus putting at risk creditors who might deal with it and to whom it becomes liable, who are likely to be met with the same strategy adopted in this case: [196]. In these circumstances, the primary judge said that the protection of persons who might possibly deal with PSD is an additional reason for setting aside the DOCA and winding up PSD: [197]. The primary judge added that the returning of a company to insolvent trading status by allowing the DOCA to be fulfilled, of itself, constitutes an abuse of process which would justify the DOCA being set aside and the winding up of the company in any event: [198]. The primary judge said that, although the interest of creditors is a primary consideration, so is the protection of the public interest which includes the consideration of whether the continuation of the DOCA is conducive or detrimental to commercial morality: [199]. The primary judge regarded the misuse of Pt 5.3A in this case as falling well below what might be regarded as an acceptable standard of commercial morality: [199]. 90 The primary judge then drew the conclusion on the exercise of the discretion that the seriousness of the abuse of Pt 5.3A and the damage to Canstruct justifies the exercise of the Court's discretion to terminate the DOCA, bring the administration to an end, and to wind up PSD: [201]. Further, the primary judge said that the matters raised in relation to the exercise of the discretion support that conclusion and none detract from it: [201].

Termination under s 445D(1)(f) 91 Canstruct submitted that the Court's discretion to terminate the DOCA was also enlivened under s 445D(1)(f) because the DOCA is oppressive or unfairly prejudicial to Canstruct, in that it discriminates between Canstruct and other trade creditors, deprives Canstruct of the ability to have a liquidator appointed to investigate PSD's affairs, and is contrary to the interests of the creditors as a whole: [204]. The primary judge said that the parties generally agreed upon the relevant principles, referring to the summary by McKerracher J at first instance in Decon Australia Pty Ltd v TFM Epping Land Pty Ltd (No 2) [2021] FCA 32 at [202]-[203], and the two Full Court decisions which have cited that passage with approval, namely Decon Australia Pty Ltd v TFM Epping Land Pty Ltd [2022] FCAFC 54 at [168] and Sino Group International Ltd v Toddler Kindy Gymbaroo Pty Ltd [2023] FCAFC 110 at [64]-[65]. 92 The primary judge found that the DOCA discriminates against Canstruct in a number of ways: [209]. As an arm's-length creditor, it might receive at most 10 cents in the dollar in respect of its debt, and it is treated differently from others of that character, who are to receive 100 cents in the dollar. The primary judge referred to "a bizarre statement" in the 14 March 2023 Report, in which it was suggested that the basis for the difference was that it reflected the priorities for small creditors in a liquidation set out in the Act: [209]. The primary judge said that no such differentiation exists in the Act and the statement was misleading: [210]. The relevant passage referred to creditors whose debts were $300,000 or less being identified as "Small Claim Creditors", but no such nomenclature appears in the Act and the passage wrongly suggested that such creditors are accorded the same priority as employees of insolvent companies in the Act: [210]. The primary judge said that there was a clear inference that these erroneous statements were invented to provide a justification for the differential treatment between Canstruct, on the one hand, and the other unrelated unsecured creditors, on the other hand: [210]. 93 The primary judge said that the facts indicate that those advancing the DOCA merely wished to seek the support of the other unsecured creditors in order to secure its passing, and they could do nothing but vote for it given that it offered them full payment of their debts, as opposed to the possible recovery of some of their debts in the future on a winding up: [212]. Accordingly, the primary judge found that the purpose was to provide an irresistible incentive to the other unsecured creditors to vote in favour of the DOCA so as to secure the majority by number of the creditors voting in favour of the resolution as required by s 75-115(1)(a) of the IPR: [212]. The primary judge said that SFG and PSD wish to limit the amount paid to Canstruct: [212]. The primary judge then rejected the proposition that the discrimination against Canstruct was justifiable, and therefore not unfair, on the basis that the DOCA sought to protect the relationship between PSD and creditors who were necessary to PSD's future operations: [213]. The evidence did not support the purported justification on that basis, pointing to the favourable treatment of HSF as PSD's former solicitors and also the favourable treatment of Darwin Indoor Plant Hire: [213]-[215]. The primary judge observed that there was no evidence by PSD and SFG as to that purported justification, which was raised for the first time in their written submissions: [215]. The primary judge then said that the fact that the dual justifications for the discrimination have been shown to be fictitious does not simply mean that such justifications did not exist, but also demonstrates that the advancing of them was disingenuous and for the purpose of concealing the DOCA's true purpose, being to cause the release of Canstruct's debt: [216]. That was not only found to be an improper purpose, but also has the consequence that it is unfairly prejudicial to, or unfairly discriminatory against Canstruct within the meaning of s 445D(1)(f) so as to enliven the Court's discretion to set the DOCA aside: [216]. 94 The primary judge said that it was not necessary to consider the additional submission that s 445D(1)(f) would be enlivened because the approach of SFG and PSD could lead to the general misuse of the voluntary administration and DOCA process: [219]. The primary judge rejected the submission that the Court should take into account the fact that, since the interlocutory injunction was granted restraining the administrators from dealing with the Deed Fund, SFG has paid the debts to all the unrelated unsecured creditors (except for HSF which has received a partial payment), in that the question is whether the DOCA would work to unfairly prejudice or unfairly discriminate against Canstruct: [220]. 95 The primary judge said that the mere differential in the payments between creditors was not the only prejudicial or discriminatory factor, in that the DOCA also precludes the largest unrelated and unsecured creditor from having the opportunity to seek to recover more on a winding up than it was able to obtain under the DOCA, bearing in mind that the amount of the indebtedness incurred since June 2020 may be recoverable from the directors of PSD or from SFG: [221]. The primary judge said that, in this regard, Canstruct is greatly prejudiced by the DOCA, and the circumstances suggest that it should be permitted the opportunity for the claim against the PSD directors and SFG to be pursued, especially in circumstances where all of the unsecured creditors (except for HSF and Canstruct) have been paid in full and will not suffer any detriment if the litigation is not as successful as Canstruct hopes: [223].

Termination under s 445D(1)(e) 96 Canstruct also relied upon s 445D(1)(e) of the Act as a basis to terminate the DOCA on the ground that "effect cannot be given to the deed without injustice": [224]. Canstruct submitted that an injustice was established in the present case as the effect of the DOCA was to avoid a proper investigation of the relevant transactions of PSD, and it will deny Canstruct the prospect in a liquidation of a much greater return than 10 cents in the dollar: [225]. 97 The primary judge accepted both of those grounds. The entry into the DOCA was found to have had the consequence of avoiding scrutiny into whether PSD had engaged in insolvent trading and had incurred debts in respect of which its directors and parent company might become liable: [226]. In addition, the primary judge found that there are grounds on which a liquidator might pursue PSD's directors and SFG for insolvent trading, and there is a not unrealistic prospect of Canstruct recovering more in a liquidation by a liquidator pursuing such a claim than it would receive if the DOCA were performed: [227]. The primary judge said that each of those injustices was aggravated by two factors: first, by the fact that the vote by the majority of creditors in value in favour of the DOCA was achieved by the votes of related party creditors; and second, by the fact that there is an inference open on the material that the votes by the majority of creditors in number may have been influenced by the discrimination in the DOCA to pay all creditors in full, except for Canstruct: [228].

Termination under s 445D(1)(b) 98 The primary judge observed that the application of s 445D(1)(a)-(c) does not require intention on the part of the person making the representation, which is important where the misrepresentations are alleged to have been made in the administrators' report to creditors, namely in the present case the 14 March 2023 Report: [230]. 99 Canstruct relied upon the misstatement in the 14 March 2023 Report (quoted by the primary judge at [231]) that purports to justify the distribution of the Deed Fund under the proposed DOCA in the following terms: Employee and Small Claim Creditors (being claims of $300k or less) will be paid at 100c in the dollar in accordance with the priorities set out in sections 556, 560 and 561 of the Act as though those priorities were applied (in priority to Admitted Claims that are not Small Claim Creditors). Current Estimate of $420k. 100 The primary judge said that the erroneous part is the suggestion that creditors whose debts are $300,000 or less are referred to as Small Claim Creditors, and that payment to them of 100 cents in the dollar was in accordance with the priorities set out in ss 556, 560 and 561 of the Act: [232]. The primary judge said that there was no question that the statements were misleading and were intentionally made to provide some justification for the differential treatment of Canstruct and the other unsecured creditors: [232]. The primary judge said that there was no reason to determine whether the statements were deliberately misleading: [233]. 101 The primary judge referred to the reasons in Sino Group International Ltd v Toddler Kindy Gymbaroo Pty Ltd [2023] FCAFC 110 concerning the principles to be applied when determining whether an omission from a document given to creditors was false or misleading and can reasonably be expected to have been material to creditors deciding to vote in favour of a DOCA, the question being one concerning the objective quality of the information that is to be assessed and not whether any person was in fact misled: [62]. The primary judge said that whilst the misleading statements must be of a quality that they can reasonably be expected to have been relevant and might have affected the outcome, that is the limit of any causality: [235]. 102 The primary judge said that the fact that the information in this case was contained in the 14 March 2023 Report, being a report written by the administrators, is objectively likely to accord it greater weight, and that, while the creditors were likely to vote in favour of the DOCA because they were offered a return of 100 cents in the dollar, the assertion that they would otherwise be entitled to that on a winding up was likely to give them comfort: [236]. In addition, the primary judge said that the erroneous statement that the differential payments were the same as found in the Act on a winding up was likely to have provided succour to the creditors in the sense that they would perceive the existence of a justification or fairness for their favoured position: [236]. The primary judge thus concluded that the statements were material to the creditors' decisions to vote in favour of the DOCA: [236]. The primary judge found that the elements of para (b) of s 445D(1) are satisfied, in that the information in the 14 March 2023 Report was false or misleading and it could be reasonably expected to have been material to creditors in deciding whether to vote in favour of the DOCA: [237]. Accordingly, the discretion to terminate the DOCA under s 445D(1)(b) also arises: [237].

Termination under s 445D(1)(c) 103 Canstruct relied on a number of alleged material omissions from the 14 March 2023 Report as a ground for setting aside the DOCA pursuant to s 445D(1)(c). 104 The first asserted omission was the real and intended purpose of the DOCA, being to circumvent the payment of the adjudicated amount to Canstruct, save for 10 cents in the dollar, whilst continuing with the maintenance of the Project. The primary judge found that that true purpose of the DOCA was omitted from the 14 March 2023 Report and it would have been undoubtedly material to the creditors in deciding whether to vote in favour of the resolution to enter into the DOCA: [239]. The primary judge said that, if told of the true purpose, the creditors would have been likely to have questioned the propriety of entry into the DOCA, and may well have been concerned as to what adverse consequences might arise in the future, including that it might be set aside: [239]. The omission was in a document within the scope of para (c): [239]. 105 The second omission relied upon was the absence of any statements to the effect that there existed a real question as to whether PSD had been trading whilst insolvent for a number of years, that this was a matter which a liquidator might properly investigate, and that there were avenues of recovery from both SFG and PSD's directors of the amount of the debts incurred whilst the company was insolvent and which have not been satisfied: [240]. The primary judge found that the matters identified existed and were not included in the 14 March 2023 Report. The primary judge said that there are more than reasonable grounds to support the existence of a liquidator's claim to recover from SFG and PSD's directors amounts equal to the debts incurred while PSD was insolvent, and those recoveries are possibly extensive, and said further that the 14 March 2023 Report vastly understated the potential for recovery from insolvent trading claims and no qualifying statements were made by the administrators which could justify the absence of any reference to that potential: [241]. The primary judge said that that was especially true in circumstances where the contrary information was advanced: [241]. Although the primary judge did not make an express finding of materiality, such finding appears to be implicit in the primary judge's reasoning at [241]. 106 The third alleged omission was that the creditors were not told that the real purpose of the discrimination in distributions to the arm's-length trade creditors was to "bribe" the majority in number of trade creditors to vote in favour so as to achieve the majorities required: [242]. The primary judge treated the reference to a "bribe" as meaning an "irresistible incentive", and found that there was a misleading omission of this matter, which was material to the creditors' decision whether to vote in favour of the DOCA, the materiality being increased by reason of the misstatements made in the 14 March 2023 Report which suggested that the discrimination was justifiable by reference to the priorities which arise in a liquidation: [243]. 107 The fourth omission relied upon was that the creditors should have been told that if the DOCA was approved and PSD was returned to the directors' control, it would continue to incur debts and no arrangement was in place for meeting them. The primary judge found that the evidence indicates that SFG would resume its previous method of funding PSD, being one which did not require it to provide funding, to give any assurance of funding, or to make any commitment at all, such that PSD would continue with the financial arrangements which it had in place prior to the voluntary administration and DOCA process: [244]. The primary judge accepted that an omission was made in relation to PSD's future financial circumstances following the completion of the DOCA: [244]. However, the primary judge found that that omission was not material in the circumstances, in that it was not clear why that matter should be of concern to PSD's existing creditors or why it would impact their decision to vote in favour of the DOCA: [246]. Nonetheless, the primary judge held that the first three omissions relied upon were sufficient (either individually, collectively or in some combination) to further enliven the discretion to terminate the DOCA: [247].

Exercise of discretion under s 445D 108 The primary judge observed that the discretionary power under s 445D is conditioned upon the satisfaction of a subjective fact, being the Court reaching the state of satisfaction required of any of the subsections, and that state of satisfaction had been reached in relation to paras (b), (c), (e) and (f) of s 445D(1): [248]. The primary judge said that the conclusions in respect of each of those paragraphs being satisfied were weighty considerations in favour of terminating the DOCA, and each or any combination of them supported the exercise of the discretion to terminate: [249]. 109 The primary judge referred also to the protection of the public interest, and to his Honour's conclusion that the financial and corporate arrangements which SFG and PSD put in place effectively permitted an insolvent company to continue to trade and incur substantial expenditure: [250]. The primary judge referred to PSD being in a position whereby it may incur a large debt which it determined it should not pay and, with the overwhelming voting power in value and resources of its related entities, it could use the voluntary administration and DOCA process to cause that debt to be released, and then continue business as before, without risk of liability to its directors or holding company for insolvent trading: [250]. The primary judge referred to PSD as being essentially "a stalking horse for undertaking high risk business and one which presents a real risk to others who might deal with it": [251]. The primary judge said that if the Court were not to terminate the DOCA and wind PSD up, it would be allowed to continue to trade whilst insolvent, which is contrary to the public interest: [251]. The primary judge referred to there being a realistic possibility that the causes of action available against PSD's directors and SFG will provide a substantial return which would be available to be used to meet the claims of the two remaining creditors: [252]. In addition, the primary judge said that it does not accord with the protection of the public interest or the proper administration of Pt 5.3A to permit those whose conduct deserves to be investigated to use their voting power, via related entities, to avoid investigation: [252]. Further, SFG self-evidently voted to advance the group's corporate interest rather than its interest as a creditor, the group's interest being likely to have included the avoidance of the investigations which might arise on liquidation: [252]. The primary judge said that in the present case, the votes of the debts by value were substantially increased by the related party creditors whose interests must have been influenced by the potential recovery actions which might occur in a winding up, and if the votes of the related parties were notionally excluded, the value of the votes in favour of the DOCA was only $510,420 whereas the value of the vote against was $13.9 million: [254]. The primary judge said that, in this case, there is no need to be concerned with the claims of the smaller unrelated creditors in the exercise of the discretion as those creditors have been paid by SFG in any event, except for HSF whose debt has been paid down to some extent and $242,000 remains outstanding: [255]. 110 The primary judge said that a significant consideration is that the result of the DOCA is that PSD would resume trading, despite being insolvent, that being an especially good reason to set the DOCA aside: [256]. The primary judge said that except in the most extreme case, if any, the Court should not permit insolvent companies to continue to engage in business: [256]. The primary judge found that the intention to fund into the future carried no greater assuredness than was the position prior to entry into the DOCA, thereby reinforcing the conclusion that winding up PSD would be in the public interest: [257]. 111 The primary judge also referred to the reliance placed on s 446AA of the Act to the effect that, if the DOCA is terminated, then PSD will proceed to liquidation as if it was placed in voluntary liquidation under s 491 of the Act, without the directors having made a declaration of solvency under s 494: [258]. The primary judge said that, in that situation, it does not necessarily follow that the only option for the liquidators is to cease the business and sell it, and the liquidators are at liberty to appoint an administrator with a view to SFG making a further DOCA proposal: [258]. The primary judge noted that any further DOCA might be fair and not contravene the provisions of Pt 5.3A. Alternatively, the primary judge said that the liquidation might be stayed if PSD is able to establish that it is solvent after rearranging its financial structures: [258]. Accordingly, the primary judge said that the termination of the DOCA does not ineluctably lead to the cessation of PSD's business. The primary judge said that, whilst it may be true that a future liquidator might seek to appoint an administrator rather than pursue the winding up, any such decision would necessarily need to consider the issues raised in his Honour's reasons, including the apparent availability of substantial claims against SFG and PSD's directors, adding that whether a liquidator would seek the appointment of an administrator in those circumstances may be questionable bearing in mind that there would need to be a proper analysis of all the circumstances, but the mere possibility is not a reason for not exercising the discretion to wind up PSD in this case: [258]. 112 The primary judge referred to a further factor being that the only two remaining unrelated creditors are Canstruct and HSF. Canstruct wishes to have the DOCA set aside and HSF (which was notified of the proceedings) has not appeared to make any submissions in opposition to that order. Accordingly the only known desire of the remaining unrelated creditors is for the DOCA to be set aside: [259]. 113 The primary judge concluded that the relevant considerations weigh heavily in favour of terminating the DOCA and winding up PSD: [260]. Accordingly, the primary judge ordered that the DOCA be set aside and that PSD be wound up: [261]. In addition, the primary judge held that Canstruct is entitled to an order pursuant to s 75-41 of the Insolvency Practice Schedule (Corporations), being Sch 2 to the Act (IPS) setting aside the resolution of creditors on 21 March 2023 to the effect that PSD execute the DOCA, substantially for the same reasons given in relation to s 445D(1)(f) for terminating the DOCA: [263]. The primary judge said that, as PSD was and is insolvent, it ought now be wound up in insolvency, and appointed two liquidators who had consented to act as joint and several liquidators of PSD: [264]. The primary judge also released Canstruct from its undertaking to pay damages occasioned by the granting of the interlocutory injunction granted on 3 May 2023 restraining the administrators from completing the DOCA: [265].

The standard of appellate review 114 It is common ground between the parties that the question whether the DOCA should be terminated involves a two-stage process: first, whether the Court is satisfied that a ground for termination is established; and second, whether the Court in its discretion should order termination. There is, however, a controversy as to whether appellate review in relation to the first step is governed by: (a) the correctness standard pursuant to Warren v Coombes (1979) 142 CLR 531 at 551-2, whereby the appellate court determines for itself the correct outcome (while making due allowance for the advantages available to the trial judge); and see Fox v Percy [2003] HCA 22; (2003) 214 CLR 118 at [23]; or (b) the standard applicable to discretionary decisions pursuant to House v R (1936) 55 CLR 499 at 505, whereby appellate intervention is limited to circumstances where the trial judge acted upon a wrong principle, allowed extraneous or irrelevant matters to affect the decision, mistook the facts, failed to take into account some material consideration, or made a decision that was unreasonable or plainly unjust. I note that the present case is brought on the basis of both ss 445D and 447A of the Act, but both parties appear to accept that the same principle is applicable to both provisions. 115 In Decon Australia Pty Ltd v TFM Epping Land Pty Ltd [2022] FCAFC 54 at [144]-[147], Yates, O'Callaghan and Halley JJ held in relation to a decision whether to terminate a DOCA that the first of the two stages involves an objective evaluation of the relevant circumstances viewed as a whole, and concluded that appellate review of a decision made under s 445D is confined by the principles in House v R. That reasoning was followed in Sino Group International Ltd v Toddler Kindy Gymbaroo Pty Ltd [2023] FCAFC 110; (2023) 168 ACSR 311 at [87]-[88] (Farrell, Cheeseman and Feutrill JJ). The essence of the Full Court's reasoning in both cases is that the evaluative nature of the decision as to whether a ground is established under s 445D(1) required the application of the principles in House v R. 116 However, in GLJ v The Trustees of the Roman Catholic Church for the Diocese of Lismore [2023] HCA 32; (2023) 414 ALR 635, Kiefel CJ, Gageler and Jagot JJ held that an exercise of power under s 67 of the Civil Procedure Act 2005 (NSW) to permanently stay proceedings on the ground that they are an abuse of process, because any trial will be necessarily unfair, or so unfairly and unjustifiably oppressive as to constitute an abuse of process, is an evaluative but not a discretionary decision, and accordingly the applicable standard of appellate review is the "correctness standard" as explained in Warren v Coombes, not the standard specified in House v R: [15]. Their Honours said that the relevant essential characteristic of a discretionary judicial decision is that it is a decision where more than one answer is legally open: [16]. If there is only one legally permissible answer, even if that answer involves a value judgment, then the correctness standard applies: [16]. Their Honours said further that, if a trial will be necessarily unfair or so unfairly and unjustifiably oppressive as to constitute an abuse of process, a court must not permit the trial to be held, and conversely if a fair trial can be held and will not be so unfairly and unjustifiably oppressive as to constitute an abuse of process, a court ordinarily has a duty to hear and decide the case, from which it follows that it would be wrong in principle for the appellate court to decide the appeal in such a case on other than the correctness standard: [23]. Steward J (at [95]) and Gleeson J (at [161]) agreed with those aspects of the majority's reasoning. Further, in Moore v R [2024] HCA 30 at [15], the High Court unanimously held that a determination of which appellate standard of review is applicable does not depend on whether the reasoning to be applied is evaluative, or in respect of which reasonable minds may differ. Rather, their Honours said that the determination turns on whether the legal criterion to be applied demands a unique outcome, in which case the correctness standard applies, or tolerates a range of outcomes, in which case the House v R standard applies. 117 The upshot of the reasoning in those two High Court cases is that the reasoning of the Full Court in Decon and Sino has been superseded, in that the evaluative nature of a decision does not necessarily mean that the House v R standard is applicable to appellate review. Further, it is clear from GLJ that appellate review of a decision as to an abuse of the court's process is not governed by House v R, but by the correctness standard of Warren v Coombes. 118 In the present case, the question of abuse of Pt 5.3A is not a question of abuse of the Court's process, but the authorities have treated the two cases as analogous, as the primary judge indicated in his Honour's reasoning at [90]-[96] by reference to Blacktown City Council and Re New Bounty (see [48] above). Critically, both principles involve questions of whether there is an improper purpose and whether that improper purpose is predominant. As with abuse of the Court's process, the question of abuse of the provisions of Pt 5.3A is evaluative and involves value judgments, but only one legally permissible answer is available. Accordingly, applying the High Court's reasoning in GLJ and Moore, the appropriate standard of appellate review of a question of abuse of Pt 5.3A is the correctness standard. 119 It is not determinative that s 447A merely requires that "the Court is satisfied" that the provisions of Pt 5.3A are being abused. Where the context otherwise suggests that a correctness standard should be applied, the word "Court" can be read as including a court of appeal: see New South Wales Crime Commission v Vu [2009] NSWCA 349, [16] (Spigelman CJ, with whom Allsop P and Hodgson JA agreed). 120 Canstruct submitted that in relation to a two-stage process, if the second stage is discretionary then the whole process is governed by the House v R standard of appellate review. In support of that submission, Canstruct relied on Singer v Berghouse (1994) 181 CLR 201, in which Mason CJ, Deane and McHugh JJ held that the statutory provision for testator's family maintenance required the court to carry out a two-stage process (at 208), and although the first stage was one of objective fact, albeit involving the making of value judgments (at 211), their Honours held that the principles governing appellate review of discretionary decisions should apply (at 212). However, their Honours' reasoning was directed specifically to the context of family provision cases (as was made clear at 212). Their Honours emphasised (at 209-10) that the determination of the second stage in that specific context involved similar considerations to the first. Indeed, their Honours said that in the first stage of the process, the court may need to arrive at an assessment of what is the proper level of maintenance and what is adequate provision, in which event, if it becomes necessary to embark upon the second stage of the process, that assessment will largely determine the order which should be made in favour of the applicant. Accordingly, I do not regard Singer v Berghouse as authority for the general proposition advanced by Canstruct, as distinct from reasoning directed to the specific context of family provision cases. A similar point was made by Basten AJA in Cooke v Tweed Shire Council [2024] NSWCA 50 at [36] (with whom Ward P and Gleeson JA agreed). 121 Canstruct relied also on Coal and Allied Operations Pty Ltd v Australian Industrial Relations Commission [2000] HCA 47; (2000) 203 CLR 194, in which Gleeson CJ, Gaudron and Hayne JJ held that a decision to terminate an industrial bargaining period under very broadly expressed statutory criteria that "involved a degree of subjectivity" could be described as a discretionary decision: [20]. However, their Honours held in that case that the decision-maker had some latitude as to the decision to be made (at [21]), and thus appear to have proceeded on the basis that, on the proper construction of the statutory provision, there was more than one legally permissible decision. 122 In the present case, the ground of abuse of Pt 5.3A relied on by Canstruct for the termination of the DOCA yields only one permissible legal answer, despite its evaluative nature. Accordingly, I regard the reasoning by the Full Court in Decon and Sino as having been superseded by GLJ and Moore, and the applicable appellate standard is the correctness standard in the sense expounded in Warren v Coombes. 123 The grounds stated in s 445D(1) for the termination of a DOCA are either more or less evaluative and value-laden than the question of improper purpose or abuse of process. Some of those grounds are prescriptive, and by their nature would yield only one legally permissible answer, such as the giving of misleading material information (paras (a) and (b)), a material omission (para (c)), and a material contravention of the deed (para (d)). Other grounds are open-textured, such as injustice or undue delay (para (e)), oppression, unfair prejudice or unfair discrimination (para (f)) and "some other reason" (para (g)). The diverse nature of the grounds contained in s 445D(1) raises a difficult issue, because it is arguable that a harmonious construction and application of s 445D(1) requires the same principle of appellate review to be applicable to all such grounds. But it is not necessary to resolve that issue in order to decide the present dispute. Even assuming in the appellants' favour that the correctness standard applies to each ground contained in s 445D(1), their argument that the primary judge erred in setting aside the DOCA pursuant to that subsection should be rejected.

Grounds 1(a)-(d): Should the DOCA be terminated for improper purpose or abuse of Pt 5.3A? 124 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. The appellants challenged the primary judge's reasoning on two principal bases. First, the appellants submitted that the primary judge erred as a matter of fact in finding that the predominant purpose of PSD and SFG in putting PSD into administration and proposing the DOCA was to avoid having to pay (or fund the payment of) the adjudicator's decision in favour of Canstruct, except to the extent of about 10 cents in the dollar: see the summary of the primary judge's reasons at [51]-[60] above. Second, the appellants submitted that, even if that factual finding as to purpose were correct, it is insufficient to constitute an improper purpose. 125 As to the question of fact concerning the predominant purpose of PSD and SFG in putting PSD into administration and proposing the DOCA, the salient evidence begins with a note to the financial statements for SFG for the year ended 30 June 2022 (published on 31 October 2022) in relation to a provision for contractual liabilities to Canstruct in the amount of $8,730,094. The note refers to the Seafarms Group having received claims totalling approximately $27 million as a result of the termination in April 2022 of contracts relating to the construction of PSD's Project. While the note says that almost all of the claims have been rejected by the Group on advice, the note states the following (p 67): Due to ambiguity in the legal terms of the contracts and uncertainties relating to work performed, variations, and suspension and termination claims made under the contract, the Group has recognised a provision for contractual liabilities including costs incurred of $8,730,094, based on the best estimate of the probable outflow, taking into consideration the information available as at the date of this report and assuming that additional supporting information will be provided. The Directors note that, the extent to which the Group may be considered liable for the rejected aspects of the claims are a key judgement by the Board, and that quantifying the provision to be recognised involved significant estimation uncertainty. The recognition of a provision is not an acknowledgment of debt. The Group intends to continue to reject the claim until valid supporting information and convincing legal grounds are provided and it is certified as payable by the project superintendent and an independent certifier. 126 On 3 February 2023, the day on which the adjudicator's decision was made, SFG made an ASX announcement referring to the adjudicator having determined that a total amount of $13.9 million (excluding GST) is payable to Canstruct following the suspension of work on the Project in December 2021 and later termination of contracts in 2022. Mr Dyer, the CEO, is quoted as saying: We are extremely disappointed with the decision of the adjudicator in the contractual dispute with Canstruct. Seafarms provisioned $8.7 million for a settlement of this dispute in its 2022 accounts, and has the capacity to cover the balance. We believe the determination to be excessive and are now considering our next steps on this matter, including legal redress. Mr Dyer accepted in his cross-examination that his statement as to SFG having the capacity to pay the full amount of the adjudicator's decision was true (T62.10-12). 127 Mr Dyer gave evidence in his affidavit of 23 June 2023 as to the way in which the provision of $8.7 million was calculated (para 8) as follows: (a) costs of the litigation as estimated by HSF to challenge the Canstruct claim were $2.5 million, with an expectation that it would take three years to achieve a final judgment; (b) a possible adverse costs order related to the challenge to the Canstruct claim would be $2 million; (c) the range of liability for the Canstruct claim was from nil to $2.2 million; (d) Mr Dyer's estimate of $6.7 million was discussed with SFG's external audit team; and (e) following that discussion, the auditor told Mr Dyer that, in order to secure an unqualified audit opinion, the provision should be increased to $8.7 million out of an abundance of caution to allow for any variation in the legal costs estimates and the claim amount. 128 On 8 February 2023, HSF wrote to Canstruct's solicitors, Thomson Geer, saying that PSD's position is that the adjudicator's decision suffered from a number of jurisdictional errors and instances where the adjudicator failed to afford PSD procedural fairness, such that one or more of the determinations was liable to be set aside. The letter stated that PSD shortly intended to commence proceedings in the Supreme Court of the Northern Territory in order to obtain, among other things, relief in the nature of certiorari to set aside the adjudicator's decision. The letter expressed a concern that if the amounts which were the subject of the adjudicator's decision were paid to Canstruct, then Canstruct may not subsequently have the capacity to repay those amounts to PSD. On 9 February 2023, Thomson Geer responded disputing that there were any jurisdictional errors and complaining of the inadequate explanation as the basis for PSD's contentions as to jurisdictional error and denial of natural justice. The letter insisted on payment of the amounts awarded to Canstruct in accordance with the adjudicator's determination, pursuant to what it described as the "pay-now-argue-later" policy of the CCSP Act. The letter indicated that Thomson Geer had instructions to accept service on behalf of Canstruct, and an email from the adjudicator of the same date indicated that he would accept service of documents by email. 129 Mr Dyer gave evidence in his affidavit of 28 April 2023 (para 30) that between 3 and 13 February 2023, the directors of SFG considered whether it would fund the payment to Canstruct. The directors of SFG resolved on 13 February 2023 that it would not fund the payment to Canstruct having regard to the following matters: (a) PSD disputed the amount set out in the adjudication decision; (b) PSD had no immediate legal recourse to challenge the adjudication decisions; (c) PSD would need to litigate in the Supreme Court of Northern Territory to challenge the adjudication decisions, which litigation was unlikely to be resolved for two years; (d) PSD would not see the return of any amount overpaid to Canstruct until the litigation was concluded; and (e) a payment to Canstruct of $13 million would impact the operations of other members of the Seafarms Group. That evidence was supplemented by the evidence in Mr Dyer's affidavit of 2 June 2023 (para 47) that the board of SFG would not agree to pay money to Canstruct in circumstances where they had a reasonable basis to believe that the money was not due and owing. 130 13 February 2023 was a Monday, and the first business day after the due date for payment of the adjudicator's decision on Friday 10 February 2023. On 13 February 2023, the board of SFG met and resolved to withdraw funding to PSD at close of business that day. 131 Mr Dyer gave evidence in his cross-examination to the effect that the directors of SFG considered that making the payment to Canstruct pursuant to the adjudicator's decision would compromise the Seafarms Group, and if it were to pursue legal action PSD would be required to pay that money into court or to Canstruct (T50.5-7). Mr Dyer said that the directors discussed whether PSD would have to make the payment if it pursued a voluntary administration, and in that context the directors discussed that the normal voluntary administration process would be that Canstruct will be precluded from enforcing payment of the adjudicator's decision as soon as the voluntary administration began, and that if a DOCA were approved by creditors then Canstruct would not be able to recover any more than the deed provided for (T50.9-29). 132 As I have indicated at [53] above, the primary judge referred to the evidence of Mr Dyer in cross-examination (at T65.44-66.8) that Mr Dyer considered there to be three purposes to the voluntary administration and DOCA process: first, to avoid paying Canstruct in accordance with the adjudicator's decision; second, to release PSD from its liability to Canstruct; and, third, to ensure the survival of the Seafarms Group. The primary judge then identified the predominant purpose by saying that the second of those purposes (namely, achieving a release from all liability to Canstruct) was a necessary part of the first purpose of ensuring that the funds did not have to leave the Seafarms Group to go to Canstruct pursuant to the adjudicator's decision, and the primary judge did not accept the third purported purpose of ensuring the survival of the Seafarms Group in circumstances where SFG was, by its own admission, capable of paying the debt due to Canstruct. Accordingly, the primary judge found that the first object was the predominant purpose of the administration and DOCA process, namely to avoid paying Canstruct in accordance with the adjudicator's decision. 133 Mr Dyer also gave evidence in his cross-examination that the amount of $3.5 million provided by SFG for the purposes of the DOCA was not calculated by using some sort of financial model (T52.3-4), but was arrived at by working out what allowance would need to be made for the fees of the administrators and the cost of the administration and paying enough money so that all of the unrelated creditors (other than Canstruct) could be paid 100 cents in the dollar, and then to provide a return to Canstruct of about 10 cents in the dollar (T52.6-16). Mr Dyer accepted that the directors discussed that they would propose the DOCA on terms that all the employees and the unrelated creditors (other than Canstruct) would be paid 100 cents in the dollar before anything was paid to Canstruct (T52.18-20). Mr Dyer said that the amount to be paid to Canstruct would provide a better outcome for Canstruct than in a liquidation, but described it as "a subjective amount" (T64.11-14). 134 In my view, that evidence provided a compelling basis for the primary judge's finding as a matter of fact that the predominant purpose of PSD and SFG in putting PSD into administration and proposing the DOCA was to avoid having to pay (or fund the payment of) the adjudicator's decision in favour of Canstruct, except to the extent of about 10 cents in the dollar, and that that was the predominant purpose of PSD and SFG. Indeed, it is difficult to see how any other conclusion could have been drawn on the evidence. 135 As to the legal issue arising on the appellants' second line of challenge, the appellants submitted that a purpose of expunging a particular creditor's debt is not sufficient to constitute an improper purpose. The appellants submitted that the release of debts owed by the company in administration is an important aspect of the statutory regime concerning a DOCA, pointing to s 444A(4)(d) which requires that a DOCA must specify to what extent the company is to be released from its debts, and s 444H which provides that a DOCA releases the company from a debt only in so far as the deed provides for the release and the creditor concerned is bound by the deed. The appellants also relied upon the statement by Barrett J in Blacktown City Council v Macarthur Telecommunications Pty Ltd [2003] NSWSC 883; (2003) 47 ACSR 391 at [19] to the effect that the statement in s 435A of the object of Pt 5.3A is a broad statement only, and examination of Pt 5.3A as a whole shows that there are several purposes which together contribute to the widely stated object, one of which is that, if creditors so desire, a legacy of debt may be left behind and winding up (which would normally be the product of an intolerable debt burden) may be avoided, implicit in which is the proposition that a company will thereby be permitted to return to the mainstream of commercial life. 136 In my view, those submissions miss the fundamental point of the primary judge's reasoning. The primary judge did not proceed on the basis that a purpose of obtaining a release of debts owed to creditors generally was alien to the purposes of Pt 5.3A. Rather, the primary judge's reasoning, particularly at [182]-[185] (which I have summarised above at [84]), was that a purpose of expunging a particular creditor's debt which was unwanted, while paying all other arm's-length creditors in full before restarting operations in an almost identical position to the pre-DOCA state save for the existence of the particular unwanted debt, was alien to the objects of Pt 5.3A. I respectfully agree with the primary judge's reasoning. Such a purpose stands in stark contrast with the broad statement of objects of Pt 5.3A set out in s 435A which I have extracted above, and finds no support in any of the provisions of Pt 5.3A. 137 That conclusion is fortified by the lack of principled justification for the differential treatment of Canstruct compared to other arm's-length creditors, which I deal with below in relation to Ground 3 and s 445D(1)(f). However, the conclusion as to improper purpose does not depend on that matter. I note also that there is a strong similarity between the present case and the termination of the DOCA as an abuse of Pt 5.3A in Re Academy Construction and Development Pty Ltd (subject to Deed of Company Arrangement) [2024] NSWSC 808 at [80]-[87], in which a party seeking to claim damages for defective building work against the deed company was singled out in the DOCA as having its claim subject to a cap in an arbitrary amount whereas other (smaller) claims were paid in full under the DOCA. In my view, the present case is even stronger than Re Academy Construction, in that in the present case there has actually been a determination on the merits of Canstruct's claim, whereas in Re Academy Construction the DOCA was proposed and adopted before any such determination.

Grounds 1(e)-(f): Was PSD insolvent from mid-2020 and did the DOCA have the effect of avoiding scrutiny into insolvent trading by PSD? 138 As I have outlined at [50] above, the second aspect of Canstruct's case as to the alleged misuse of Pt 5.3A was an alleged purpose of avoiding scrutiny into possible insolvent trading by PSD over the previous two years, being scrutiny which might occur in a liquidation. Ultimately, the primary judge found that avoiding such scrutiny was an objective consequence of the DOCA (see [83] above) and was part of the intended purpose of propounding the DOCA (see [81] above), but made no finding as to that having been the predominant purpose. Accordingly, those findings were treated by the primary judge as providing an additional justification for terminating the DOCA, in conjunction with the predominant improper purpose of avoiding having to pay the unwanted debt to Canstruct (see [81] above). The question whether PSD was insolvent from mid-2020, and the question whether the DOCA had the effect of avoiding scrutiny into insolvent trading by PSD since that time, are relevant also to the way in which a number of other grounds were found to be established. 139 The threshold question is whether PSD was insolvent since mid-2020. At the outset, it should be emphasised that the question of a company's solvency is a question of fact: Lewis v Doran [2005] NSWCA 243; (2005) 219 ALR 555 at [109] (Giles JA, with whom Hodgson and McColl JJA agreed). The same point was made by Palmer J at first instance in Lewis v Doran [2004] NSWSC 608; (2004) 208 ALR 385 at [106], in a passage approved by the Full Federal Court in Clifton v Kerry J Investment Pty Ltd [2020] FCAFC 5; (2020) 379 ALR 593 at [215] (Besanko, Markovic and Banks-Smith JJ). So much was accepted by Canstruct in its argument on appeal (T69.12-19). As the question is one of fact, one must be cautious not to elevate reasons given in relation to the particular facts in other cases to the status of legal principles of general application. 140 The key concept, as identified in s 95A of the Act, is the ability to pay the company's debts as and when they fall due and payable. There is a large number of cases where a company claims to be solvent because of its ability to raise funds from external sources. It has often been said that the question of solvency in such cases depends on whether those funds are genuinely and realistically available as a matter of commercial reality: Australian Securities and Investments Commission v Edwards [2005] NSWSC 831; (2005) 220 ALR 148 at [99]; Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation [2001] NSWSC 621; (2001) 53 NSWLR 213 at [54] (Palmer J); Treloar Constructions Pty Ltd v McMillan [2017] NSWCA 72; (2017) 120 ACSR 130 at [80] (Beazley P, Gleeson JA and Emmett AJA); Barboutis v Kart Centre Pty Ltd (No 2) [2020] WASCA 41 at [141] (Buss P, Mitchell and Vaughan JJA). 141 Some authorities then speak of the need for a degree of assuredness or commitment that the financial support will be forthcoming and at such a level that one could say that the company was "able" to pay its debts as and when they fell due, rather than being "possibly able" to do so: Williams v Scholz [2008] QCA 94 at [110] (Muir JA); Chan v First Strategic Development Corporation Limited (in liq) [2015] QCA 28 at [43]-[44] (Morrison JA, with whom Gotterson JA and Boddice J agreed); International Cat Manufacturing Pty Ltd (in liq) v Rodrick [2013] QCA 372; (2013) 97 ACSR 200 at [106] (Morrison JA, with whom Holmes and Gotterson JJA agreed). However, it must be borne in mind that the question of solvency is a factual question, and whether that particular proposition is appropriate will depend on the circumstances of the particular case, and may not be invariably necessary. 142 From those authorities, the primary judge derived a proposition that in order to reach the required level of assuredness, there must be more than a mere discretion on the part of the external funder in deciding whether to advance funds: [151] (to which I refer at [72] above). In the present case, the primary judge said that SFG's decision whether to advance funds to PSD from time to time was discretionary: [19], [134] and [167]. The primary judge said that the funds advanced in the present case were not advanced on deferred terms, but were repayable on demand, which the primary judge referred to as an "immediate debt": [161] (to which I refer at [75] above). I take the expression "immediate debt" to mean that the demand for repayment could be made at any time, and upon demand being made the debt was immediately due and payable. Further, the primary judge said that the mere substitution of one debt for a loan repayable on demand will not enhance the borrower's solvency: [162], citing ASIC v Edwards at [99] (to which I refer at [75] above). The primary judge concluded that there was no sufficient assuredness of support by the provision of further funds in the present case: [164] (to which I refer at [76] above). The primary judge said that SFG provided funding only to the extent to which it thought, from time to time, that doing so was in the group's interests, and any "commitment" by SFG was "illusory": [165] (to which I refer at [76] above). 143 I respectfully disagree with the primary judge's analysis of the issue of insolvency. I recognise, however, that the argument before us proceeded somewhat differently than it did before the primary judge, and in particular a number of relevant matters were conceded by Canstruct in argument before us, in contrast to the way in which the argument developed before the primary judge. 144 At the outset, it is important to note that the directors of PSD were essentially the same as the directors of SFG, and both companies had a congruent economic interest in the development of the Project and in the expenditure of money to achieve that development. In addition, SFG had the undoubted capacity to pay PSD's liabilities in relation to the Project, having raised funds on the market for that purpose. From those basal propositions, it followed as a matter of commercial common sense and rationality that liabilities knowingly and voluntarily incurred by PSD would be met by SFG, as Canstruct accepted in argument before us (T65.8-13, 65.38-42). 145 Indeed, the common directors of both companies put in place a process for the funding of PSD's liabilities by SFG to occur. That process was followed from mid-2020 until early February 2023. PSD's employees, lessors and other trade creditors were paid. Approximately $32 million was paid to Canstruct for its construction work (see Mr Dyer's affidavit of 23.6.23 at [16] and [21]). The aged creditor analysis in the 14 March 2023 Report (p 51) by the administrators showed that as at the date of their appointment (that is, 14 February 2023), 98.40% of creditors were aged at 30 days or less, totalling about $412,000. On the evidence, all the debts of PSD which fell due were actually paid by PSD up until early February 2023, its ability to do so arising by reason of SFG putting it in sufficient funds. 146 In Lewis v Doran [2004] NSWSC 608; (2004) 208 ALR 385 at [107]-[115], Palmer J drew a distinction between the question of a company's solvency arising retrospectively (for example, where a liquidator is seeking to recover an unfair preference or to set aside an insolvent transaction), and the question of a company's solvency arising prospectively (such as where a company is sought to be wound up in insolvency and the company's ability to pay its debts must be determined not only by reference to debts payable as at the date of trial but also by reference to its ability to pay debts which will fall for payment sometime in the near future). Palmer J observed at [108] that where the question is one of retrospective insolvency, the court has the benefit of hindsight and can see the whole picture before, as at and after the alleged date of insolvency. Palmer J commented that by having reference to what actually happened, rather than to conflicting experts' opinions, the court's task in assessing insolvency as at the alleged date should not be very difficult. Palmer J added at [112] that, where retrospective insolvency is in issue, the court can take into account that as at and after the alleged date of insolvency the company actually paid all its debts as they fell due because a third party made funds available to it without security, and said that looking at what actually happened avoids the possibility that the court is forced to conclude that a company could not pay all of its relevant debts when, as a matter of fact, the company clearly did pay those debts. Palmer J's reasons were cited with approval by the Full Federal Court in Clifton v Kerry J Investment Pty Ltd [2020] FCAFC 5; (2020) 379 ALR 593 at [215] (Besanko, Markovic and Banks-Smith JJ). I note that the Full Court in Clifton at [216] also cited with approval a passage from the judgment of Giles JA (with whom Hodgson and McColl JJA agreed) in the Court of Appeal in Lewis v Doran [2005] NSWCA 243; (2005) 219 ALR 555 at [103], to the effect that the ability to pay debts as and when they become due and payable must be determined in the circumstances as they were known or ought to have been known at the relevant time, without intrusion of hindsight. To the extent that that proposition qualifies the reasoning of Palmer J, it appears to have been intended to favour those contending for the solvency of the company, in that the passage goes on to say that the unexpected later discovery of a liability, or the later quantification of a liability at an unexpected level, may be excluded from consideration if the liability was properly unknown or seen to be in a lesser amount at the relevant time. 147 That approach to the retrospective assessment of solvency is highly pertinent to the issue in the present case, in that on the evidence before the primary judge, all the debts of PSD which fell due between mid-2020 and early February 2023 were actually paid by PSD by reason of its parent, SFG, having put it in funds to do so. In circumstances where PSD actually paid its debts as and when they fell due, it follows that PSD had the ability to do so. 148 Returning to a point to which I referred earlier, there was no evidence before the primary judge that any of the liabilities which were incurred and paid between mid-2020 and early February 2023 were other than knowingly and voluntarily incurred by PSD, as Canstruct accepted (T66.8-13). Canstruct did not dispute that such liabilities were obviously going to be paid by means of funds provided by SFG, such that there was little (if any) practical point in getting an assurance from SFG in relation to such liabilities (T66.21-33). The vulnerability of PSD in meeting its liabilities arose only in circumstances where there was a liability which was not knowingly and voluntarily incurred by it, such as a liability imposed by an external party over whom PSD and SFG had no control, in an unexpected amount, as Canstruct accepted (T67.34-41). In my view, it was only in that circumstance that there was a realistic possibility of SFG refusing to fund PSD for the liability. 149 That circumstance did not occur until February 2023. On 3 February 2023, the adjudicator's decision was made. That determination was expressed to be payable on Friday 10 February 2023, which was the date when it was due and payable pursuant to ss 40 and 45 of the CSSP Act. The amount of the adjudicator's decision was subsequently adjusted on 13 February 2013 but the date for payment remained 10 February 2023. On Monday 13 February 2023, the board of SFG resolved to withdraw funding to PSD at close of business that day. The administrators concluded that the company was insolvent from 13 February 2023: see the 14 March 2023 Report at p. 52. Canstruct argued that those circumstances might have happened earlier (T68.1-29). However, the solvency test under s 95A applies only to liabilities which are actually due and payable, not those which might hypothetically have arisen but did not in fact arise. 150 In my view, the statement by Barrett J in ASIC v Edwards at [99], to the effect that the substitution of a debt for a loan which is payable on demand does not enhance the borrower's solvency, must be understood as referable to the facts of that case, not as a principle of law of general application. That case involved a debtor company which substituted a loan of one month on onerous terms for a debt that was overdue, as recognised by Barrett J at [210], and also by the Court of Appeal in Edwards v ASIC [2009] NSWCA 424; (2009) 264 ALR 723 at [163] (Macfarlan JA, with whom Spigelman CJ and Campbell JA agreed). As White J said in Coates Hire Operations Pty Ltd v D-Link Homes Pty Ltd [2011] NSWSC 1279 at [76], Barrett J should not be understood as saying that it is always necessary to treat a loan payable on demand as a debt that is due or near due and to be taken into account on a determination of solvency, and that it depends upon whether the court is satisfied that demand will not be made within the reasonably immediate future. White J's reasoning was approved in International Cat Manufacturing Pty Ltd (in liq) v Rodrick [2013] QCA 372; (2013) 97 ACSR 200 at [111] (Morrison JA, with whom Holmes and Gotterson JJA agreed). I respectfully agree. The question is simply one of fact based on the commercial realities of the circumstances. 151 There was no challenge to the evidence given by Mr Dyer which I have quoted at [15] above, to the effect that SFG would never have made a demand on PSD to repay the amounts which SFG had advanced, and that any such demand would be commercially illogical and against commercial reality. In fact, it is common ground that SFG never made a demand for repayment by PSD, and still has not done so. The force of that commercial reality is not diminished by the fact that SFG refused to continue paying PSD's liabilities when confronted with the adjudicator's decision. While it may be said that SFG's refusal to continue funding PSD from the close of business on 13 February 2023 had a similar consequence to making a demand for repayment of the $62 million which had been advanced, namely bringing about the insolvency of PSD, it is important to bear in mind the distinction to which I have referred above between liabilities knowingly and voluntarily incurred, on the one hand, and those imposed in an unexpected amount by an external party over whom PSD and SFG had no control, on the other hand. The liability of $62 million by PSD to SFG had been knowingly and voluntarily incurred, and there was a practical certainty that it would not be the subject of a demand for repayment for the unchallenged reasons given by Mr Dyer in his affidavit evidence (to which I refer at [15] above). 152 Accordingly, on the evidence before the primary judge, in my view PSD was solvent at all times up to 13 February 2023. However, I do not regard the primary judge's findings as to PSD's insolvency from mid-2020, or the consequence that may have had for avoiding scrutiny of insolvent trading during that period, as necessary elements of his Honour's finding that there was an improper purpose and abuse of Pt 5.3A.

Ground 3: Should the DOCA be terminated under s 445D(1)(f)? 153 Canstruct contends that the DOCA is oppressive or unfairly prejudicial to, or unfairly discriminatory against, Canstruct within the meaning of para (f)(i) of s 445D(1). The primary judge referred to the principles expressed by McKerracher J in Decon Australia Pty Ltd v TFM Epping Land Pty Ltd (No 2) [2021] FCA 32 at [202]-[203], which was approved on appeal in that case ([2022] FCAFC 54 at [168]), and by the Full Federal Court in Sino Group International Limited v Toddler Kindy Gymbaroo Pty Ltd [2023] FCAFC 110; (2023) 168 ACSR 311 at [64]-[65], in the following terms (omitting citations): (a) Pt 5.3A of the Act assumes that the creditors are best placed to judge their interests, so a setting aside will not be ordered lightly; (b) the mere fact that a creditor is prejudiced by the operation of the deed is not a sufficient reason to terminate a deed; the mere existence of the deed procedure usually means that some creditors will gain something and some creditors will lose something out of the arrangement; (c) the test under s 445D(1)(f)(i) is not merely discrimination or prejudice, but unfair discrimination or unfair prejudice; some degree of discrimination is not necessarily unfair, and thus it is clear that a DOCA may provide for differential dividends among creditors. Part 5.3A does not require a pari passu distribution; what is required is a better return to creditors than an immediate winding up, and that object is met if some creditors are better off than in a winding up and none are worst off under the DOCA than they would be under a winding up; (d) when deciding whether a deed unfairly prejudices or discriminates against a creditor or group of creditors, consideration must be given to what those purportedly prejudiced creditors would receive, or would be likely to receive, on a winding up, and the reasonableness of any conclusions reached by the administrator on that question; and (e) in respect of determining what is unfairly discriminatory: (i) there must be reasonable grounds for differentiation between creditors of an equal class (for example, ordinary unsecured creditors) that accord with the object and spirit of Pt 5.3A, and circumstances may exist where certain creditors must be paid in full to ensure their continued support for the company to allow it to continue to trade; (ii) there will be circumstances when ordinary commercial common sense will demand, in the case of priority creditors, a loss of priority, and in the case of unsecured creditors, some degree of discrimination; (iii) where a deed proposes to preserve the company to achieve the objects of Pt 5.3A, there should be no expectation of equal treatment of unsecured creditors where such treatment would defeat that purpose; and (iv) ultimately, if there is no prima facie evidence of misfeasance, concealment or a materially inadequate preliminary examination, and 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 in litigation 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. 154 The authorities indicate that, depending on the circumstances of the particular case, a relevant factor is a comparison with what the allegedly prejudiced creditors would receive (or be likely to receive) on a winding up: Lam Soon Australia Pty Ltd v Molit (No 55) Pty Ltd (1996) 70 FCR 34 at 48C-E, 50D (von Doussa, O'Loughlin and Lehane JJ); TiVo, Inc v Vivo International Corporation Pty Ltd [2014] FCA 789 at [54] (Gordon J); Britax Childcare Pty Ltd v Infa Products Pty Ltd [2016] FCA 848; (2016) 115 ACSR 322 at [93]-[94], [115]-[116] (Burley J). In Lam Soon at 48C-E, after observing that general propositions are dangerous in this context, the Full Federal Court said that, in that particular case, their Honours could not see why fairness "necessarily" demanded that significantly more be contributed by the relevant external source of funds for the DOCA than was necessary to ensure that all creditors receive benefits of a value at least equal to those they would receive if the deed were not executed, emphasising the use of "necessarily" by reason of the judgment required to be made in light of the particular circumstances. The appellants sought to elevate that reasoning to a proposition of law that a DOCA cannot be oppressive, unfairly prejudicial or unfairly discriminatory if it provides creditors with a better result than in a winding up. The appellants submitted that, if the finding of insolvency since mid-2020 is wrong, thus undermining Canstruct's claim for insolvent trading before 13 February 2023, then a winding up would yield a negligible return for Canstruct whereas the DOCA would provide Canstruct with a return of about $1.3 million. The authority relied on by the appellants for the proposition of law which they advanced was the Full Court decision in Sino Group at [67], in which Farrell, Cheeseman and Feutrill JJ said: For the purpose of s 445D(1)(f)(ii), it is not necessary to establish, on the balance of probabilities, that if the company is placed in liquidation the creditors will receive a better return. It is sufficient that there is a not unrealistic prospect that there may be a better return to creditors on a winding up than under the deed - that there is a serious case for the recovery of assets in the liquidation that would result in a better return to creditors: Britax Childcare Pty Ltd v Infa Products Pty Ltd (admins apptd) (2016) 115 ACSR 322; [2016] FCA 848 at [93] to [94]. 155 The appellants' submission turns on a misreading of that paragraph in the Full Court's reasons. It is obvious that the Full Court was there discussing para (f)(ii) as to a DOCA being contrary to the interests of creditors as a whole, not para (f)(i). Although the Court said at [66] that the two limbs of para (f) are often considered in combination, there is no indication that their Honours were doing that in their reasons at [67]. Indeed, their Honours expressly dealt with para (f)(ii) on its own. Similarly, the reasoning of the Full Court in Shafston Avenue Construction Pty Ltd v McCann [2020] FCAFC 85 at [91] (Farrell, Davies and Moshinsky JJ), on which the appellants rely in relation to the exercise of discretion, is expressly concerned with para (f)(ii), not para (f)(i). 156 It may be thought that a more promising authority for the appellants' submission would be that cited in proposition (c) in McKerracher J's reasons in Decon at [202], to the effect that Pt 5.3A requires a better return to creditors than an immediate winding up, which is met if some creditors are better off than in a winding up, and none are worse off under the DOCA than they would be in a winding up. The only authority cited in support of that proposition by McKerracher J was the decision of Master Newnes in Fleet Broadband Holdings Pty Ltd v Paradox Digital Pty Ltd (subject to a deed of company arrangement) [2005] WASC 261; (2005) 228 ALR 598 at [62]. However, Master Newnes in turn cited the Full Federal Court in Lam Soon for that proposition, which (as I have indicated two paragraphs above) was heavily qualified by reference to the particular circumstances of the case and the danger posed by stating general propositions in this context. Accordingly, in my view, the principles set out my McKerracher J (and approved twice by the Full Federal Court) must be understood as general propositions which are subject to the particular circumstances of the case, not rules of law to be applied dogmatically as though they were part of the Act itself. In any event, McKerracher J's analysis of the particular element of unfair discrimination at [203] of Decon (which I have set out in sub-para (e) of my summary three paragraphs above) did not contain any such principle. 157 In the present case, unfair prejudice or unfair discrimination is established by the lack of any acceptable justification for paying Canstruct about 10 cents in the dollar under the DOCA, whereas all other unrelated arm's-length creditors were to be paid in full. The primary judge rejected the justifications sought to be advanced by the administrators and PSD (see [93] and [94] above). In the 14 March 2023 Report, the administrators suggested that the basis for the differential treatment was that it reflected the priorities for small creditors in a liquidation set out in the Act, which the primary judge correctly referred to as a "bizarre statement" (at [209]), and the appellants did not seek to defend it in their argument before us. PSD sought to justify the differential treatment as being in favour of entities with which PSD would likely engage in business in the future, but the evidence did not support that submission, notably because HSF (which was owed about $291,000, comprising over 50% of the unrelated unsecured creditors' debts) was to be fully paid even though it was PSD's former solicitor and thus not an entity with which PSD would be likely to do business in the future (as the primary judge found at [214]). Further, as the primary judge said, there was no affidavit evidence to the effect that this was the justification for the discrimination against Canstruct in the DOCA, and the suggestion was raised for the first time in PSD's written submissions before the primary judge (at [215]). 158 The primary judge found that advancing these fictitious justifications was disingenuous, and undertaken for the purpose of concealing the true purpose, namely to cause the release of Canstruct's debt: [216]. In my view, the lack of a valid justification for discrimination against a particular creditor is capable in itself of constituting unfair prejudice or unfair discrimination, even if there is no realistic prospect of that creditor being better off in a winding up than under the DOCA. A similar conclusion was reached by Black J in Re Academy Construction at [77], where no rational basis was shown for the different treatment of a particular creditor compared to other unsecured creditors, even if it could be shown that they would all receive a better return under the DOCA than they would in a liquidation. In that case, the limit on the potential recovery under the DOCA by the creditor which was discriminated against was simply the arbitrary amount chosen by the proponents of the DOCA as the basis on which its claim would be extinguished: see [71] and [75]. 159 I note that an additional ground relied on by the primary judge was that unfair prejudice or unfair discrimination were established in the present case by reason of the DOCA precluding the largest unrelated unsecured creditor from pursuing recovery by way of indemnifying a liquidator to pursue insolvent trading proceedings: see the primary judge's reasoning at [221]-[223] (to which I refer at [95] above). I do not regard that matter as being established, for want of proof of insolvency before 13 February 2023. However, this additional ground is not necessary to the conclusion that para (f)(i) of s 445D(1) is established.

Ground 4: Should the DOCA be terminated under s 445D(1)(e)? 160 The primary judge accepted Canstruct's submission that "injustice" is established on the basis that the effect of the DOCA is to avoid a proper investigation of insolvent trading allegations, and to deny Canstruct the prospect in a liquidation of a much greater return than 10 cents in the dollar: see [225]-[227], to which I refer at [96]-[97] above. 161 Given my conclusion that Canstruct has not established that PSD was insolvent before 13 February 2023 on the evidence adduced before the primary judge, the alleged "injustice" has not been established. Accordingly, in my view, the ground under para (e) of s 445D(1) as advanced by Canstruct is not satisfied.

Ground 5: Should the DOCA be terminated under s 445D(1)(b)? 162 The misleading information relied on by Canstruct concerns the statement in the 14 March 2023 Report which was quoted by the primary judge at [231] (which I have referred to at [99] above). The appellants accept that the information was misleading, as the primary judge found at [232]. The only issue on the appeal was whether the information could 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, within the meaning of para (a)(ii) of s 445D(1). It is common ground that, in this context, "material" means something that was relevant, and either did affect or might have affected the decision to vote in favour of the DOCA: Sino Group at [62], proposition (11); Commissioner of Taxation v Comcorp Australia Ltd (1996) 70 FCR 356 at 392B (Carr J, with whom Lockhart J agreed). 163 The primary judge reasoned that, while the creditors were likely to vote in favour of the DOCA because they were offered a return of 100 cents in the dollar, the erroneous assertion that they would otherwise be entitled to that on a winding up was likely to give them comfort, and the erroneous statement that the differential payments were the same as found in the Act on a winding up was likely to have provided succour to the creditors in the sense that they would perceive the existence of a justification or fairness for their favoured position: [236] (to which I refer at [102] above). In other words, the primary judge reasoned that it was not certain or inevitable that creditors who were offered 100 cents in the dollar would vote in favour of the DOCA; rather, that was likely, but the likelihood was strengthened by the misleading information contained in the 14 March 2023 Report. In my view, that is plainly sufficient to establish a realistic possibility that the misleading information might have affected the decision by creditors to vote in favour of the DOCA, and the information was plainly relevant to that decision. Accordingly, the primary judge was correct to find that para (b) of s 445D(1) was satisfied.

Ground 6: Should the DOCA be terminated under s 445D(1)(c)? 164 The primary judge found three omissions from the 14 March 2023 Report, which his Honour held could reasonably be expected to have been material to creditors in deciding whether to vote in favour of the resolution that PSD execute the DOCA, namely: (a) that the real and intended purpose of the DOCA was to circumvent the payment of the adjudicated amount to Canstruct, except for 10 cents in the dollar, while continuing with the Project, being a matter which (if disclosed) would be likely to have led to creditors questioning the propriety of entering the DOCA and becoming concerned that it may be set aside (at [239]); (b) that there was a real question as to whether PSD had been trading while insolvent for a number of years, which a liquidator might properly investigate, and there were avenues of recovery against PSD's directors and SFG (at [240]-[241]); and (c) that the real purpose of the discrimination in favour of arm's-length creditors was to provide a majority of creditors in number with an irresistible incentive (or "bribe") to vote "yes", and the materiality of that matter was increased by the misleading information in the 14 March 2023 Report suggesting that the discrimination was justifiable by reference to the priorities in a liquidation under the Act (at [242]-[243]). 165 In my view, the second of those matters is not established on the evidence, consistently with my finding that PSD was solvent at all material times until 13 February 2023. However, the primary judge's reasoning in relation to the first and third of those matters is compelling, and the appellants have not demonstrated any error in the primary judge's reasoning in relation to those matters. 166 The appellants submitted that any omission within para (c) of s 445D(1) must relate to a matter which is required to be disclosed by the statutory provisions relating to the contents of the administrator's report to creditors. The appellants referred to s 438A of the Act which provides as follows: As soon as practicable after the administration of a company begins, the administrator must: (a) investigate the company's business, property, affairs and financial circumstances; and (b) form an opinion about each of the following matters: (i) whether it would be in the interests of the company's creditors for the company to execute a deed of company arrangement; (ii) whether it would be in the creditors' interests for the administration to end; (iii) whether it would be in the creditors' interests for the company to be wound up. 167 The appellants also referred to s 75-225(3) of the IPR to the effect that the notice of the second creditors' meeting convened under s 439A of the Act must be accompanied by: (a) a report by the external administrator about the company's business, property, affairs and financial circumstances; and (b) a statement setting out the following: (i) whether, in the administrator's opinion, it would be in the creditors' interests for the company to execute a deed of company arrangement; (ii) whether, in the administrator's opinion, it would be in the creditors' interests for the administration to end; (iii) whether, in the administrator's opinion, it would be in the creditors' interests for the company to be wound up; (iv) the reasons for the opinions referred to in subparagraphs (i) to (iii); (v) such other information known to the administrator as will enable the creditors to make an informed decision about each matter covered by subparagraph (i), (ii) or (iii); (vi) whether there are any transactions that appear to the administrator to be voidable transactions in respect of which money, property or other benefits may be recoverable by a liquidator under Part 5.7B of the Act; (vii) if a deed of company arrangement is proposed - details of the proposed deed. 168 Even taking that submission at its highest, it is difficult to see how it would assist the appellants in avoiding the application of para (c) of s 445D(1). The purpose of the DOCA (that is, the end which is sought to be achieved by the DOCA) is relevant to whether it is in the interests of creditors for the company to execute the DOCA. That point was well made by the primary judge at [239] (to which I refer at [104] above). Contrary to the appellants' submission, the first and third grounds of omission under para (c) were not merely matters of motivation, but pertained to the purpose of the DOCA, consistently with the primary judge's reasoning. Further, even if one were to accept the appellants' submission that the administrators need not have proffered an opinion as to why some creditors were favoured under the DOCA relative to Canstruct, the fact is that the administrators did proffer a justification for that discriminatory treatment in the present case, which was simply wrong, and therefore in the present case there was a material omission in not giving the true explanation. Similar reasoning was adopted by Campbell J in applying para (c) of s 445D(1) in Bidald Consulting Pty Ltd v Miles Special Builders Pty Ltd [2005] NSWSC 510; (2005) 226 ALR 510 at [177]. 169 In any event, the submission that para (c) of s 445D(1) is limited to material required by statute is contrary to an unbroken phalanx of authority, which I regard as correct, requiring that matters which are relevant and material should be conveyed to the creditors irrespective of whether statutory provisions specifically require such matter to be in the report or statement: Hagenvale Pty Ltd v Depela Pty Ltd (1995) 17 ACSR 139 at 148 (Cohen J); Le Meilleur Pty Ltd (subject to deed of company arrangement) v Jin Heung Mutual Savings Bank Co Ltd [2011] NSWSC 1115; (2011) 256 FLR 240 at [331] (Ward J); Re Recycling Holdings Pty Ltd [2015] NSWSC 1016; (2015) 107 ACSR 406 at [33]. As Brereton J said in the last of those authorities at [33]: Thus an administrator may need to make inquiries to obtain relevant information beyond the duty to investigate under s 438A, depending on "an assessment of the nature of the question to be investigated, the information in the administrator's hands, the cost and difficulty of making further investigation, and (most importantly) the significance of the issue under investigation to the creditors' decision", and a DOCA may be set aside if failure to make such inquiries results in a material omission: Bovis Lend Lease Pty Ltd v Wily (2003) 45 ACSR 612; 21 ACLC 1737; [2003] NSWSC 467 at [325] (Bovis per Austin J). However, in assessing the adequacy of the information contained in a report, the court must recognise that the administrator's investigation has to be conducted in a short timeframe, and with limited resources and limited powers of compulsion. Together with the reference in s 439A(4)(b)(v) to "such other information known to the administrator" as will enable the creditors to make an informed decision, this is indicative, that, at least generally speaking, there will not be an omission if the information in question is not known, or reasonably capable of being ascertained, by the administrator. 170 In my view, the first and third matters of material omission referred to above were either known, or reasonably capable of being ascertained, by the administrators, and constituted omissions from the 14 March 2023 Report which can reasonably be expected to have been material to the creditors in deciding whether to vote in favour of the resolution that PSD execute the DOCA. Accordingly, para (c) of s 445D(1) is established.

Ground 7: Should the resolution of creditors be set aside under s 75-41 of the IPS? 171 The appellants sought leave during the argument on appeal to amend their Notice of Appeal to include a ground of appeal challenging the primary judge's finding at [263] (to which I refer at [113] above), that the resolution of creditors that PSD execute the DOCA should be set aside pursuant to s 75-41 of the IPS, substantially for the same reasons given in relation to termination of the DOCA under s 445D(1)(f). Leave to amend the Notice of Appeal was not opposed, provided that the new ground did not extend beyond the existing challenges to the primary judge's reasons. On that basis, leave should be granted to the appellants to file the Amended Notice of Appeal which was sent to us on the afternoon of the second day of the appeal. 172 Section 75-41 of the IPS provides relevantly 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 (2). (2) For the purposes of subparagraph (1)(c)(ii), the matters are: (a) the benefits resulting to the related creditor, or to some or all of the related creditors, from the proposal if passed, or from the failure to pass the proposal, as the case may be; and (b) the nature of the relationship between the related creditor and the company, or of the respective relationships between the related creditors and the company; and (c) any other relevant matter. (3) The Court may make one or more of the following: (a) an order that the proposal be considered and voted on at a meeting of the creditors convened and held as specified in the order; (b) an order directing that the related creditor is not, or such of the related creditors as the order specifies are not, entitled to vote on: (i) the proposal; or (ii) a resolution to amend or vary the proposal; (c) if the proposal was passed - an order setting aside the resolution passing the proposal; (d) such other orders as the Court thinks fit. (4) In this section: related creditor, for the purposes 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. 173 As to sub-s (1)(b) if one disregards the votes of related creditors, the value of votes in favour of the DOCA was $510,420, whereas the value of votes against the DOCA was approximately $13.9 million, as the primary judge found at [254] (see [109] above). 174 As to sub-s (1)(c)(ii), the passing of the proposal caused prejudice to Canstruct to an unreasonable extent, having regard to the benefits to related creditors and the relationship between them and PSD, in particular the control of PSD by SFG, which was by far the largest creditor of PSD. The prejudice to Canstruct is established by reason of the matters which I have found constituted the ground of termination under para (f) of s 445D(1), particularly in that Canstruct is to be paid only about 10 cents in the dollar under the DOCA whereas all other unrelated unsecured creditors are to be paid in full, and there is no principled justification for that discrimination or prejudice. The conclusion is fortified by the primary judge's finding at [120] (to which I refer at [57] above), to the effect that the related creditors were not in reality voting in their capacity as creditors, given that the DOCA gave them no return at all, but were voting to obtain a collateral advantage, namely a release of Canstruct's debt (as the primary judge found at [216]) before resuming normal business operations (as the primary judge found at [183]).

Ground 2: Should the Court exercise its discretion to terminate the DOCA? 175 The primary judge dealt with the exercise of the Court's discretion in two separate passages of his Honour's judgment. First, after having found an abuse of the provisions of Pt 5.3A, the primary judge said the following at [186]: The seriousness of the misuse of the misuse to which Pt 5.3A has been put in this case is sufficient on its own to warrant the exercise of the Court's power to terminate the DOCA and the administration. On any view, the consequence of the misuse of s 436A, if it were permitted to stand, would be that Canstruct would be denied any possibility of a substantial recovery of its debt. It might also be seen as giving the Court's imprimatur to inappropriate commercial conduct. The reference to denying Canstruct any possibility of a substantial recovery of its debt is a reference to what the primary judge regarded as a prospective insolvent trading claim by a liquidator of PSD against PSD's directors and SFG. However, several paragraphs earlier at [183], the primary judge made it clear that the DOCA should be set aside irrespective of that perceived consequence, saying: The avoidance of an unwanted indebtedness is not an appropriate purpose for a DOCA. No aspect of Pt 5.3A is designed to permit a company to use the DOCA process to rid itself of a liability, merely to restart operations in almost identical position to the pre-DOCA state save for the existence of the erstwhile debt. In that sense, the DOCA in the present case was entered into to achieve a purpose which was alien to the objects of Pt 5.3A. That is more than sufficient to warrant setting both the administration and the DOCA aside. Accordingly, the primary judge would have exercised the discretion to terminate the DOCA irrespective of any findings as to insolvency of PSD before 13 February 2023. 176 The primary judge referred to the exercise of discretion again later in the judgment, after dealing with the grounds under paras (b), (c), (e) and (f) of s 445D(1). The primary judge said that satisfaction of those grounds was itself a "powerful" consideration in the exercise of discretion (at [248]), and that the conclusions as to satisfaction of those other grounds are "weighty considerations" in favour of terminating the DOCA, either taken on their own or collectively. However, in that passage of the judgment, the primary judge did take into account his Honour's findings as to a history of trading by PSD while insolvent: [250]-[253], [257] and [260]. In contrast to the earlier passage relating to the exercise of discretion, the primary judge did not say in the second passage that the DOCA should be terminated irrespective of any finding of insolvency before 13 February 2023. 177 The appellants submitted that the primary judge's error in relation to insolvency before 13 February 2023 has the consequence that his Honour's exercise of discretion must be re-exercised. I reject that submission. The primary judge expressly stated at [183] that the misuse of Pt 5.3A was more than sufficient to lead to termination of the DOCA, irrespective of PSD's insolvency before 13 February 2023. Accordingly, the issue of insolvency could not rationally have led to any different exercise of discretion, and no occasion for this Court to re-exercise the discretion arises. 178 In any event, even if the discretion were to be exercised afresh, I would come to the same conclusion as the primary judge, namely that the DOCA should be terminated by reason of the satisfaction of multiple grounds for termination, and the lack of any sufficient countervailing factor or factors. 179 The appellants submitted that the winding up of PSD is a pointless exercise and serves no useful purpose. The appellants submitted that the company has no realisable assets, and there are no recovery proceedings to be brought by a liquidator, and accordingly PSD is unable to pay any significant distribution to its unsecured creditors. The appellants further submitted that a winding up may jeopardise native title agreements and permits that are in place. Further, the appellants submitted that Canstruct is substantially better off under the DOCA, which provides it with a return of about $1.3 million. 180 However, Canstruct has been advised by experienced solicitors and counsel, and has no need for any judicial paternalism to ensure that it is acting in its best interests. HSF is the only other unrelated unsecured creditor not to have been fully paid, and it decided not to seek leave to appear as an interested party to oppose termination of the DOCA, as the primary judge said at [259]. I note also that, while I have taken a negative view of the liquidator's prospects in any insolvent trading proceedings on the evidence as it currently stands, the evidence to be adduced in any such proceedings may conceivably be different from that adduced before the primary judge in the present case, and the matter would involve the directors of PSD who are not parties to the present case. I therefore express no view as to what the liquidator's prospects may be on any evidence beyond that which was adduced before the primary judge. 181 In my view, the appellants have not demonstrated any ground for the setting aside of the primary judge's exercise of discretion.

Formal matters 182 There are two aspects of the orders made by the primary judge which are not the subject of specific challenge by the appellants, but which call for comment, at least as a matter of form. 183 First, Order 2 made by the primary judge was that pursuant to s 447A of the Act, the administration of PSD be brought to an end forthwith. As a matter of law, the administration as such came to an end when the DOCA was executed on 23 March 2023: s 435C(1)(b). There was thus no need for the Court to make Order 2, although given that it confirms the position which arose in any event under the Act, it appears innocuous. 184 Second, Order 4 made by the primary judge was that PSD be wound up "in insolvency". The primary judge noted at [258] that s 446AA relevantly has the effect that, if the DOCA is terminated pursuant to s 445D, PSD will proceed to liquidation as if it had been placed in voluntary liquidation under s 491 of the Act, without the directors having made a declaration of solvency under s 494. I note that, until 1 March 2017, a substantially identical provision was contained in reg 5.3A.07 of the Regulations. The Court is able to make an order under s 447A affecting the operation of s 446AA, just as it was able to do so in relation to the predecessor provision, namely reg 5.3A.07: Re Bosnjak Holdings Pty Ltd; Fexuto Pty Ltd v Lombe [2009] NSWSC 565; (2009) 72 ACSR 377 at [41]-[48] (Austin J). As the appellants concede that the PSD has been insolvent since 13 February 2023, the fact that the winding up of PSD is in insolvency, rather than a creditors' voluntary winding up, does not appear to be inappropriate or to cause any prejudice to any party.

Conclusion 185 In my view, the appeal should be dismissed with costs. The order as to costs should include the costs of the interlocutory applications filed by PSD and SFG on 19 March 2024 and 12 April 2024 in relation to the stay pending the determination of this appeal, which were heard on 19 March 2024 and 18 April 2024, in respect of which costs were reserved to the hearing of the appeal: Canstruct Pty Ltd v Project Sea Dragon Pty Ltd (Subject to a Deed of Company Arrangement) (No 5) [2024] FCA 479 at [97]. The appropriate orders are as follows: (1) Leave be granted to the appellants to amend the Notice of Appeal in the form provided to the Court on 13 August 2024. (2) The appeal be dismissed. (3) The appellants pay the respondent's costs of the appeal, and of their interlocutory applications in QUD 124 of 2023 filed on 19 March 2024 and 12 April 2024. I note that the stay of the primary judge's orders operates until the determination of this appeal, and has therefore now come to an end. I certify that the preceding one hundred and eighty-three (183) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Jackman.