Two recent cases have cast a light upon the use of votes by parties (corporate and individuals), who are related to the insolvent company, to have Deed of Company Arrangement proposals accepted by the body of creditors. Often these votes are used to protect the insolvent company and/or its directors from investigations into past conduct that would ordinarily be conducted by a Liquidator should the insolvent company be wound up. Commonly the dividends to be paid to creditors from these Deeds of Company Arrangement are minimal and just above that which ‘may’ be able to be paid should the company go into liquidation.
Both of these cases talk to Deed proposals that were passed through the use of related party votes. Of note is that the Corporations Act dedicates Section 600A to the powers of a court to intervene where related party votes are used at meetings of creditors. The Retail Adventures case found that Deed to be prejudicial in favour of related party creditors whilst the case of Promoseven found that whilst the return to creditors would be greater under the Deed, the conduct of the directors of the insolvent company ought to be investigated for the greater good of the public.
The two cases are Helenic Pty Ltd as trustee of the Mastrantonis Family Trust v Retail Adventures Pty Ltd (Administrators Appointed) [2013] NSWSC 1973 (commentary can be found here) and the second is Promoseven Pty Ltd v Project Development (Cairns) Pty Ltd (Subject to DOCA) & Ors (commentary can be found here).
These cases shine a light on the need to be very careful when planning to ‘push through’ a Deed proposal using related party votes. Consideration needs to be given to all aspects of a proposal and those who will be impacted by it.
Adrian Hunter 