NEWS & INSIGHTS

CASTING VOTE IN COMLEK WAS FOR A PROPER PURPOSE

The recent decision in Commission of State Revenue and Andrew McCabe and Ors is a timely reminder of the objectives of Part 5.7 of the Corporations Act 2001 and the termination of DOCA’s on the grounds of public interest.

There has been some interesting debate about the Comlek Deed of Company Arrangement litigation, and the impact that judgement might have on decisions Administrators might make, balancing creditor rights against the public interest. 

Wexted Partners Andrew McCabe and Joe Hayes were the Comlek Administrators and Deed Administrators.  McCabe (as Chairman) in consideration of the objectives of Part 5.3A, the employment of over 175 jobs in regional Queensland and the trading on of various businesses (amongst other reasons), exercised a casting vote in favour of a Deed of Company Arrangement to allow the business to continue to trade and offer all employees ongoing employment. 

A major creditor, The Commissioner of State Revenue (Queensland), filed an application in the Federal Court seeking to set aside the DOCA and wind up the Comlek Group, as it was detrimental to the interests of the public generally and on grounds of commercial morality. The Commissioner also alleged that the Deed Administrators’ Report contained false or misleading information and/or omissions and that the DOCA was unfairly discriminatory. Ultimately, more than a year after approval of the DOCA, the Court determined that the DOCA should not be set aside. 

The judgement establishes that there was insufficient evidence that any creditor would be worse off under the DOCA than in liquidation, nor was there sufficient evidence that the decision of the Chairman in exercising the casting vote in favour of the DOCA was not for a proper purpose.

The Court concluded that it would not exercise its discretion to terminate the DOCA and declined to set aside the casting vote exercised at the second meeting of creditors, as there was no suggestion that McCabe had acted dishonestly or in a way that had not been in line with the best interests of the creditors as a whole. 

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Andrew McCabe, Deed Administrator, and Adam Simpson, Senior Manager

What does the judgement mean?

While the Company continues to trade “subject to deed of company arrangement” under the control of the DOCA Proponent, the Director, with the handing down of the Court Orders, Wexted are now making arrangements to effectuate the Deed.  

The case suggests that a party looking to challenge the exercise of a casting vote at a second creditors meeting would need to establish that the chairperson’s decision-making process in exercising the casting was dishonest or not in line with what they believed was in the best interests of the creditors.

Wexted were assisted by Pinsent Masons in defending the DOCA – their assessment of the case follows: Ruling highlights Australian courts’ approach to deed of company arrangement termination applications. 

Wexted Advisors will provide some further reflections on the case, and in particular on the balance and judgement exercised by Administrators in making decisions where public interest might be a concern, in a later article.
 

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Published 4th November 2024

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By Andrew McCabe

Partner

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