THE USE OF SECTION 444GA – THE BENEFITS, THE PROCESS AND THE COSTS

Cost is a function of complexity and people

The timetable of a voluntary administration process involving a Section 444GA application will vary based on a number of factors, including:

• The size and complexity of the company or group, and the nature of its underlying assets;
• The key transaction principles, and the levels of interest in the Administrator’s sale process;
• The Court’s view on whether there has been unfair prejudice to shareholders;
• The identity and skills of the Insolvency Practitioner, and the related legal and expert advisors.

In our recent observation, it is common for the process to take 6 to 12 months and the specific cost burden to be $1 million to $2 million, or more.  

Wexted Experience

Wexted Advisors were recently appointed Voluntary Administrators of a publicly listed technology company, that had raised approximately $50 million in debt and equity, mostly from close associates.  In summary, after our appointment as Administrators, and the usual processes, a purchasing party sought to acquire the shares through a Deed of Company Arrangement, which included:

• The Deed Administrators making an application to obtain leave from the Court pursuant to section 444GA to transfer all shares in the Company for no consideration to the purchaser; and
• The Deed Administrators making an application to ASIC for relief from the takeover provisions in section 606 of the Act, in relation to the Nominee’s acquisition of 100% of the Company’s share capital.

Wexted considered this a relatively straightforward matter, so it was a reasonable case study to assess:

• What are the key steps and milestones to complete the process; and
• What should the cost of those processes be, where there is not any material contest or dispute, and where FIRB approval is not required.

Wexted were assisted by Maddocks

Four months is a fair timetable

The external administration and section 444GA application process, from commencement to DOCA effectuation took around four (4) months. The key milestones and dates are summarised below: 

For the case in question, we were highly cognisant that, while the process was necessary to enable a valuable transition of employee claims, and to permit creditor compensation, it was important to ensure the process was aggressively managed, and that the necessary Court and regulatory processes were undertaken in a positive and efficient manner. 

Ensure the expert understands their role

Share transfers under s444GA that require relief from Section 606 require an Expert Report to help: 

• ASIC in determining whether to grant relief from s606;
• Members, creditors, interested persons and ASIC in any decision to oppose leave of the court; and
• The court in its decision to grant leave. 

When selecting an expert to assess the value of the business, group and underlying assets, IP’s should refer to ASIC’s Regulatory Guides (see below):

Ensure the Expert has an AFSL

ASIC’s recent Corporate Finance Update Corporate Finance Update - Issue 23 | ASIC reminded external administrators and advisors that an IER in connection with a share transfer under section 444GA should generally be authored by an expert who holds an Australian financial services licence.  

• ASIC will generally only grant relief where an IER that is prepared consistent with RG111, to assist retail shareholders understand why their shares are being transferred without any consideration.
• IERs typically constitute giving financial product advice, so an expert must hold an AFS licence. 
• Although section 911A(2)(f) of the Corporations Act contains an exemption from the requirement to hold an AFSL for persons performing functions or exercising powers in their capacity as external administrators, the expert is not acting in this capacity and so must generally hold an AFSL.

Make sure the costs are understood

Professional costs for section 444GA Applications can be significant. 

• They will vary depending on a range of matters including the complexity and nature of the business or group, the insolvency practitioner, lawyers, expert(s) and other parties that are required to be engaged.
• Hourly rates or initial cost estimates provided by IP’s should not be the sole determining factor, other factors such as experience, credentials and qualifications should also be considered.   
• Between 1 July 1982 and 1 July 2000, the Insolvency Practitioners Association of Australia (IPAA), now ARITA, provided a recommended scale and guide to hourly rates.  This guide was used by courts in establishing the remuneration of certain categories of administrators and in determining matters brought before the courts for consideration.  The prescribed hourly rates ceased on 1 July 2000, and since this time, market forces have largely driven insolvency practitioners’ hourly rates.
• While extrapolating the 1 July 1999 Sydney Partner hourly rate of $377 per hour, allowing for inflation, would today equate to approximately $764 per hour at December 2024 (Sydney Partner rate).  The hourly rates between IP’s vary, based on experience, credentials and overheads, ranging up to $1,200 per hour.  

When considering the costs of a section 444GA application through a voluntary administration process, the hourly rates charged by the IP will materially impact on the overall estimated costs.  

In our recent example, the Wexted Advisors Partner hourly rates were $750 per hour.  Legal fees, counsel fees and expert fees, including all disbursements for court filing fees for the 444GA application, was less than $450,000, plus GST.

Complexity and dispute will have a real impact  

In a recent case, the WA Court of Appeal dismissed a shareholder’s challenge to a Section 444GA share transfer, confirming the threshold for proving unfair prejudice to shareholders is very high.

Here is the link to the case: Fitzroy River Limited Liability Company v Richard Scott Tucker as joint and several administrator of Yeeda Pastoral Company Pty Ltd (Subject to Deed of Company Arrangement) [2025] WASCA 118 - BarNet Jade - BarNet Jade

Case Summary

• The companies administrators recommended a series of DOCAs, under which the proponent would fund the ongoing business and acquire 100% the shares for no consideration
• A 20% shareholder opposed the transfer, contending that the administrators had not proved the value of the principal assets (in this case an abattoir)
• The Court granted the transfer, finding the shares worthless.
• The key issue was whether the administrators had provided admissible valuation evidence to justify the conclusion the shares had no residual value so that their transfer would not ‘unfairly prejudice’ the members
• The Court found that the sale prices for comparable sales on which the valuation was based, were not proved. This rendered the valuation method inadmissible and of no probative value; however
• The conclusion of the valuation, the Court found that the administrators had otherwise demonstrated that the Companies’ liabilities far exceeded assets. There was no reasonable prospect of the shares having value.

This decision is a reminder that for administrators, valuation evidence must be diligently prepared and supported by admissible proof of comparable transactions, otherwise the opinion risks exclusion or being given no weight, and a competitive sale process which fails to generate any offers sufficient to provide a return to shareholders, can of itself be compelling evidence that the shares have no value.