FEDERAL COURT OF AUSTRALIA

Longley (deed administrator), in the matter of Dixon Advisory & Superannuation Services Pty Ltd (subject to deed of company arrangement) [2024] FCA 70

ORDERS

THE COURT ORDERS THAT:

1.    The plaintiffs have leave to file an amended interlocutory process in the form submitted to the chambers of Beach J on 6 February 2024.

2.    Pursuant to s 447A(1) of the Corporations Act 2001 (Cth), Part 5.3A of the Act is to operate in relation to the second plaintiff (DASS) in such a way as to empower the Court to vary the deed of company arrangement dated 16 December 2022 (DOCA) between the first plaintiffs (the Deed Administrators), DASS, E&P Financial Group Limited (ACN 609 913 457) and E&P Operations Pty Ltd (ACN 080 207 076).

3.    Pursuant to s 447A(1) of the Act, the DOCA is varied as follows:

(a)    the definition of ‘Settlement of the Representative Proceedings’ in clause 1.1 is amended in the following terms:

comprehensive settlement and final resolution or the permanent stay or dismissal of the Representative Proceedings, which includes any necessary court approval (including the expiration of the 49-day period provided for an appeal from those orders) and resolution of any and all appeals, and, if a settlement, a release of all claims against all respondents (other than the Deed Company) to the Representative Proceedings.

(b)    sub-clause 8.2(a)(2) is deleted.

4.    Pursuant to ss 37AF and 37AG of the Federal Court of Australia Act 1976 (Cth), pages 1 to 43 of the annexure marked “RG-3” to the affidavit of Rebecca Louise Gill affirmed on 29 January 2024 are to be marked “confidential” and not made available for inspection until further order, on the ground that they contain confidential information the disclosure of which may prejudice the proper administration of justice.

5.    The plaintiffs are to provide a copy of these orders to the creditors of DASS within 5 business days as follows:

(a)    where the Deed Administrators have an email address for a creditor, by notifying that creditor via email;

(b)    where the Deed Administrators do not have an email address for a creditor but have a postal address, by notifying that creditor via post; and

(c)    by publishing them on the website maintained by the Deed Administrators at https://insolvency.pwc.com.au/singleEntityCases/dixon-advisory-superannuation-services-pty-ltd/casePage.

6.    Any person on demonstrating sufficient interest has liberty to apply on 5 business days’ notice to the plaintiffs in relation to these orders, specifying the relief sought.

7.    The Deed Administrators’ costs and expenses incidental to this application be costs in the deed administration of DASS.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

BEACH J:

1    The first plaintiffs to this proceeding, Mr Craig Crosbie, Mr Stephen Longley and Ms Rebecca Gill, were appointed as joint and several deed administrators of the second plaintiff (DASS) pursuant to a deed of company arrangement executed on 16 December 2022.

2    By this application, the deed administrators apply to modify the operation of s 445A by an order under s 447A of the Corporations Act 2001 (Cth) so as to further vary the DOCA in terms that would facilitate the settlement of a proceeding against DASS to the benefit of its creditors.

3    Previously, on 26 May 2023 the deed administrators sought orders varying the DOCA to rectify a drafting error in relation to clause 18.1(b) so that the parties had the power to extend the “Sunset Date”. On 5 June 2023, McElwaine J made orders varying the DOCA in accordance with the orders sought.

4    Further amendments are now sought to be made to the DOCA by order of the Court rather than by a creditors’ resolution. I will elaborate on the amendments in a moment.

Factual background

5    DASS was a financial services provider within the EP1 group of companies. From about 2011, it gave advice to its clients to invest in a US-based property investment and development fund called the US Masters Residential Property Fund (URF). But at the same time that it gave that advice, other companies within the EP1 group were being paid fees for managing URF’s assets and renovating its properties. This gave rise to an apparent conflict of interest for DASS.

6    The URF did not perform well. Its share price declined from $2.33 per share in September 2015 to $0.185 per share in March 2020. That performance, combined with concerns about the potential conflict of interest issues, resulted in the commencement of a proceeding by ASIC against DASS alleging various contraventions of the Corporations Act relating to the provision of financial services, including a failure to act in the best interests of its clients. Two class actions were also brought against DASS, one being the Watson class action.

7    The class actions have been brought against DASS by its former clients concerning the poor performance of an investment fund which resulted in financial losses to the clients of DASS and alleged conflicts of interest between the authorised representatives of DASS advising their clients to invest in that fund on the one hand, and receiving commissions and fees for doing so on the other hand.

8    Now the DOCA was executed whilst the two representative proceedings were on foot. It was drafted in terms that anticipated a settlement of those proceedings, with settlement funds together with insurance proceeds from policies held by DASS intended to flow into the deed administration to satisfy the claims made by the former clients of DASS. Its terms operate so that once the settlement and insurance payments are made, the former clients may make claims against the deed fund.

9    Relevantly, the DOCA provides that:

(a)    Completion means the performance or fulfillment of clauses 8.1, 8.3 and 8.4 of the DOCA, and the distribution of the “Deed Fund” in accordance with clause 9.2;

(b)    Completion end date means 31 January 2025;

(c)    Deposit means $1,000,000;

(d)    Representative proceedings means the Kosen-Rufu class action and the Watson class action;

(e)    Settlement of the representative proceedings means “comprehensive settlement and final resolution of the representative proceedings, which includes any necessary court approval and resolution of any and all appeals, and, if a settlement, a release of all claims against all respondents to the representative proceedings”;

(f)    Sunset date means 30 June 2023;

(g)    Termination date is the date upon which the DOCA is terminated;

(h)    Tranche A payment means $17,662,489 less the settlement adjustments;

(i)    Tranche B payment means the total of:

(i)    $4,000,000, part of which can be comprised of any portion of the deposit which has not been used, during the deed period, by the deed administrators under clauses 4(a) and (b) of the DOCA;

(ii)    plus the balance of any insurance proceeds recovered by the deed proponent from the insurer under the insurance policies, as part of the settlement of the representative proceedings;

(j)    the DOCA continues until it is terminated in accordance with its clause 17;

(k)    DASS must pay the deposit and Tranche A payment to the deed administrators, in cleared funds, within 5 business days after being notified that the creditors voted in favour of the DOCA and its execution by each person named as a party to it;

(l)    the following are conditions to the completion of the DOCA:

(i)    settlement of the representative proceedings; and

(ii)    the number of group members in each of the representative proceedings that exercise a right to opt-out of the representative proceedings under s 33J of the Federal Court of Australia Act 1976 (Cth) being less than 1%;

(m)    the deed proponent must pay the Tranche B payment to the deed administrators in cleared funds within 5 business days of satisfaction of the completion pre-conditions;

(n)    the deed administrators will adjudicate on the former client claims for former clients in accordance with the methodology outlined in Annexure B to the DOCA;

(o)    the DOCA automatically terminates in respect of DASS inter alia:

(i)    upon the sunset date, if the settlement of the representative proceedings has not occurred; or

(ii)    upon the completion end date, if completion has not occurred;

(p)    upon such automatic termination of the DOCA, DASS will be taken to have passed special resolutions under s 491 of the Act that DASS be voluntarily wound up and that the deed administrators be DASS’s liquidators; and

(q)    subject to the provisions of the Corporations Act, the sunset date and the completion date may be varied in writing signed by all parties to the DOCA.

10    As I have indicated, the DOCA anticipates two payments into the deed fund. First, there is the “Tranche A” payment of about $17m less some adjustments, which has already been paid. Second, there is the “Tranche B” payment, which comprises:

(a)    a $4m payment by EP1 and E&PO, $1m of which has already been paid and $3m of which will be paid within 5 days of the “Settlement of the Representative Proceedings” under the DOCA (settlement payment); and

(b)    proceeds of an insurance policy held by DASS, which are expected to be approximately $12m, less the costs of the Watson class action (insurance payment).

11    Now the Watson class action has now settled. On 14 November 2023, the deed administrators entered into a deed of settlement in relation to that class action with the following parties: Watson & Co Superannuation Pty Ltd atf Watson & Co Superannuation Fund (the applicant); Shine Lawyers Pty Ltd (lawyers for the applicant); DASS (first respondent); E&P Financial Group Limited (second respondent); Alan Cochrane Dixon (third respondent); Christopher Matthew Brown (fourth respondent); and Berkshire Hathaway Specialty Insurance Company Inc and XL Insurance Company SE (Australia Branch) (together, the insurers).

12    An application for the Court’s approval of the settlement has been made and it is listed for hearing on 3 April 2024.

13    Now assuming that it is approved by the Court, the settlement of the Watson class action will enable the second part of the Tranche B payment, being the $3m remaining to be paid by EP1 and E&PO plus the insurance proceeds, to be paid into the deed fund, as part of the settlement of the representative proceedings.

14    But a preliminary step is necessary. The DOCA was drafted before the settlement was finalised and before the terms of the deed of settlement were agreed. Given its final terms, there are some amendments that need to be made to the DOCA to harmonise the operation of the two documents, and to avoid an outcome where: (a) completion of the DOCA does not occur and termination may occur; and (b) where the DOCA operates to prejudice the creditors by extinguishing their rights completely.

Necessary further amendments to the DOCA

15    Broadly speaking, the necessary amendments are the following.

16    First, it is necessary to amend the definition of “Settlement of the Representative Proceedings” so that it captures the permanent stay or dismissal of those proceeding as well as their settlement.

17    Second, it is necessary to remove a current condition to completion of the DOCA, being that less than 1% of group members opt out of the representative proceedings.

18    The proposed amendments benefit the creditors of DASS as they would give effect to the deed of settlement and facilitate the payment of the settlement payment and insurance payment, whilst preserving the rights of creditors to seek compensation through the Compensation Scheme of Last Resort (CSLR) funded by the federal government.

19    Now clause 7 of the deed of settlement sets out the steps the deed administrators are obliged to take to give effect to the settlement between the parties to the Watson class action.

20    Clause 7(b) requires that, subject to clause 7(f), the deed administrators must apply for the “DOCA Amendment Order” within 42 days of the “First Orders” being made.

21    The “First Orders” were made on 12 and 15 December 2023.

22    The “DOCA Amendment Order” is defined to mean:

[A]n order pursuant to section 447A of the Corporations Act (or any other basis) that the DOCA be varied as contemplated at clause 7(e) of this Deed.

23    Clause 7(e) is in the following specific terms:

(e)    The Deed Administrators, DASS and EP1 agree to (and EP1 must use its reasonable endeavours to procure that E&P Operations agrees to) the following amendments to the DOCA (in the form or substantially in the form in which they are set out in this sub- clause):

(1)    insertion of the definition of ‘Prohibited Person’ in clause 1.1 of the DOCA as follows:

any individual person, group, regime, entity or thing listed or otherwise recognised as a specially designated, prohibited, sanctioned or debarred person, group, regime, entity or thing, or subject to any limitations or prohibitions (including but not limited to the blocking of property or rejection of transactions), under any requirement of law relating to terrorism or money laundering applicable to the any insurer under the Insurance Policies.

(2)    amendment of the definition of ‘Settlement of the Representative Proceedings’ in clause 1.1 of the DOCA as follows:

comprehensive settlement and final resolution or the permanent stay or dismissal of the Representative Proceedings, which includes any necessary court approval (including the expiration of the 49-day period provided for an appeal from those orders) and resolution of any and all appeals, and, if a settlement, a release of all claims against all respondents (other than the Deed Company) to the Representative Proceedings.

(3)    deletion of sub-clause 8.2(a)(2) of the DOCA;

(4)    amendment of the chapeau to sub-clause 9.2(b) of the DOCA as follows:

Subject to clauses 9.2(c) and 9.2(h), the Deed Fund must be distributed by the Deed Administrators as follows:

(5)    insertion of sub-clause 9.2(h) of the DOCA as follows:

(h)    The Deed Administrators will not distribute any portion of the Insurance Proceeds to a Creditor if:

(1)    the insurer under the Insurance Policies provides evidence to the Deed Administrators that the Creditor is a Prohibited Person, including the source of the legal obligation designating the Creditor as a Prohibited Person; and

(2)    the Deed Administrators are satisfied (acting reasonably) that the Creditor is a Prohibited Person.

24    In summary, the amendments contemplated by clause 7(e) have three dimensions.

25    First, they are designed to exclude the payment of sums to any person subject to any limitations or prohibitions under any law relating to terrorism or money laundering (the prohibited person amendments).

26    Second, they are to amend the definition of “Settlement of the Representative Proceedings” so that it captures the permanent stay or dismissal of those proceedings as well as their settlement (the settlement definition amendment).

27    Third, they are to remove a current condition to completion of the DOCA, being that less than 1% of group members opt out of the representative proceedings (the opting out amendment).

28    Now in form clause 7(e) contemplates five separate amendments to the DOCA. But the deed administrators only request me to make the settlement definition amendment being contained in the proposed amendment to sub-clause 7(e)(2), and the opting out amendment being contained in the proposed amendment to sub-clause 7(e)(3).

29    It has not been necessary to make the prohibited person amendments.

30    Now clause 7(f), which qualifies the deed administrators’ obligation to apply for the DOCA amendment order, is in the following terms:

(f)    The Deed Administrators are not required to apply to the Court for the DOCA Amendment Order in relation to the amendment to the DOCA set out at sub-clauses 7(e)(1), 7(e)(4) and 7(e)(5) unless:

(1)    the Deed Administrators disclose to the Insurers the Identification Details in accordance with the First Orders;

(2)    within 21 days of such disclosure of the Identification Details by the Deed Administrators, the Insurers provide evidence to the Deed Administrators that one or more Group Members is a Prohibited Person, including the source of the legal obligation designating the Group Member as a Prohibited Person; and

(3)    the Deed Administrators are satisfied (acting reasonably) that at least one such Group Member is a Prohibited Person.

31    The amendments to the DOCA contemplated by clauses 7(e)(1), 7(e)(4) and 7(e)(5) were proposed to address the following concern of the parties.

32    Under the proposed settlement in the deed of settlement, the insurers are to contribute a sum of not less than $12 million, which is ultimately to be paid into the deed fund to be distributed in accordance with the DOCA.

33    And the insurers have informed the deed administrators that they have legal obligations (including under laws of foreign and international jurisdictions) not to facilitate payments to “Prohibited Persons”, which is defined in the deed of settlement to mean: [not reproduced]

34    Accordingly, the deed of settlement includes a mechanism whereby:

(a)    the deed administrators are to disclose to the insurers a list of all group members in the Watson class action in order for the insurers to consider whether any of them is a prohibited person;

(b)    if the insurers inform the deed administrators that one or more group members are prohibited persons, then they must apply for the amendments to the DOCA contemplated by clauses 7(e)(1), 7(e)(4) and 7(e)(5), which prevent any portion of the insurance proceeds from being paid to a prohibited person.

35    However, if none of the group members are prohibited persons, then the amendments to the DOCA contemplated by clauses 7(e)(1), 7(e)(4) and 7(e)(5) are not necessary.

36    Now on 18 December 2023, the deed administrators’ solicitors sent an email to the solicitors for the insurers attaching the list of all group members in the Watson class action, a copy of the orders made in the Watson class action on 15 December 2023, and a copy of the deed of settlement.

37    The insurers have not notified the deed administrators that any group member is a prohibited person. Accordingly, the deed administrators do not ask me to make the prohibited person amendments.

The settlement definition amendment

38    The amendment to the DOCA contemplated by clause 7(e)(2), being the amendment of the definition of “Settlement of the Representative Proceedings” in clause 1.1 of the DOCA, is required to address the following circumstances. A condition to completion of the DOCA is that the “Settlement of the Representative Proceedings” occurs before the “Sunset Date”, failing which the DOCA automatically terminates. The “Representative Proceedings” include the Watson class action (as well as another class action in proceeding number VID640 of 2021). And the deed of settlement provides that the Watson class action is permanently stayed against DASS.

39    The deed administrators are concerned that there is a risk that a permanent stay of the proceeding would not satisfy the current definition of “Settlement of the Representative Proceedings” in the DOCA, which requires the “comprehensive settlement and final resolution” of the representative proceedings. If it would not, then, at the sunset date, the DOCA would automatically terminate. The proposed amendment would ensure that the permanent stay does meet the definition of “Settlement of the Representative Proceedings”, and, in turn, that the DOCA does not terminate.

40    The reason the representative proceedings are being permanently stayed against DASS rather than dismissed is to ensure that the group members and creditors of DASS more broadly can potentially participate in the CSLR, a new compensatory scheme to be funded by the federal government which is referred to in the DOCA itself.

41    This is because the proposed settlement sum will only result in the group members receiving a small amount of compensation relative to their total claim against DASS. Further, if the group members’ claims are fully settled against DASS under the deed of settlement, this may impair their ability to make a claim against the CSLR for compensation. And this would be unfair in circumstances where the group members may otherwise be able to participate in the CSLR and receive compensation for their losses in relation to the claims that are made against DASS in the representative proceedings.

42    The DOCA expressly contemplates at clause 10.4(c) that creditors’ claims against DASS are not released, and are preserved to allow the creditors to make claims against the CSLR to the extent of the shortfall between the amount of their distribution under the DOCA and the value of their adjudicated claim. This would be defeated if the group members’ claims in the representative proceedings were fully settled against DASS by operation of the DOCA.

43    The proposed amendment is in the interests of the creditors of DASS because it will avoid the termination of the DOCA and preserve the creditors’ ability to participate in the CSLR and potentially receive compensation for their losses to the extent of the above-mentioned shortfall.

44    The deed administrators seek to amend the definition of “Settlement of the Representative Proceedings” in clause 1.1 in the following terms:

… comprehensive settlement and final resolution or the permanent stay or dismissal of the Representative Proceedings, which includes any necessary court approval (including the expiration of the 49-day period provided for an appeal from those orders) and resolution of any and all appeals, and, if a settlement, a release of all claims against all respondents (other than the Deed Company) to the Representative Proceedings.

The opting out amendment

45    The opting out amendment, which would see sub-clause 8.2(a)(2) of the DOCA deleted, is required to address the following issue. Clause 8.2(a)(2) of the DOCA provides that it is a condition to completion of the DOCA that less than 1% of group members opt out of the representative proceedings. And if completion does not occur, then the DOCA automatically terminates.

46    The deed administrators are concerned that the figure of 1% is too uncertain, and the automatic termination may be too rigid a mechanism, because opting out of the representative proceedings does not, in this case, disqualify a group member from participating in the settlement sum, because the settlement sum forms part of the DOCA deed fund, which all creditors can participate in, including a group member who has opted out. And it is possible that a large number of group members will opt out, as there are no real consequences for doing so. Instead, they obtain an advantage because they would be able to bring their own claim against the respondents.

47    If 1% of the group members opt out of the representative proceedings, and the DOCA automatically terminates, DASS will go into liquidation and none of the creditors will receive the benefits they would otherwise receive under the terms of the DOCA. It is in the creditors’ best interests to avoid the rigid operation of clause 8.2(a)(2).

48    Clause 8.2(a)(2) of the DOCA is also now redundant because the deed of settlement includes a similar (but more certain and more flexible) mechanism. Clause 4(b)(3) of the deed of settlement allows a respondent to terminate the deed of settlement if the number of group members who opt out of the Watson class action is more than 80 (being 1% of the estimated total former clients of DASS who may plausibly lodge a proof of debt in the DOCA).

Relevant legal principles

49    Section 447A gives the Court power to alter the operation of Part 5.3A as it operates in relation to a particular company. Relevantly, the Court has power to vary a deed of company arrangement by an order made under s 447A as an alternative to a deed administrator seeking a variation of the deed of company arrangement by a creditors’ resolution under s 445A. Section 445A provides:

A deed of company arrangement may be varied by a resolution passed at a meeting of the company’s creditors, but only if the variation is not materially different from a proposed variation set out in the notice of the meeting.

50    Section 447A confers wide discretionary power on the Court, and that power is not subject to the limitations found in other sections within Part 5.3A. The Court has power under s 447A to alter the operation of s 445A empowering the Court itself to vary a deed of company arrangement.

51    Now whilst the Court should be reluctant to exercise its power under s 447A to vary a deed of company arrangement and thereby deprive the creditors of their role under s 445A, it may be justified in doing so where no prejudice to creditors is involved. In that context the Court needs to consider the effect on creditors and also the practical commercial consequences of what would happen if the variation of the DOCA was not made.

52    In Ansett Australia Ground Staff Superannuation Plan Pty Ltd (as trustee) v Ansett Australia Ltd (subject to a deed of company arrangement) (2004) 49 ACSR 1, Goldberg J said at [55] to [60]:

The court also has the power to make orders and give directions varying a deed of company arrangement. The court has a general power under s 447A of the Act to make orders concerning the way Pt 5.3A of the Act is to operate in relation to a particular company. This is an intentionally broad power enabling the court to fashion the operation of Pt 5.3A to meet new issues in administration and respond to the requirements of justice in a particular case.

This broad objective is limited by the overriding requirement that any orders made and directions given must be designed to achieve the objects of Pt 5.3A as expressed in s 435A of the Act. However, it is clear that this power extends to orders varying deeds of company arrangement.

It was therefore open to the court, pursuant to the general power residing in s 447A, to order that [s 445A, in the present case] of the Act operate in relation to Ansett in a way which enabled appropriate orders to be made and directions to be given regarding the variation of the deed of company arrangement.

While the court has the power to make the orders and give the directions sought, there remained the question of whether it was appropriate for the court to give its sanction to the settlement. While I was conscious of the fact that the terms of settlement disturbed the priority regime set out in the deed of company arrangement, a deed which had been the subject of widespread consultation and which had been approved by the vast majority of Ansett’s creditors, I decided that it was appropriate to make the orders and give the directions sought.

The effect of an order under s 447A of the Act to vary a deed of company arrangement would deny creditors the opportunity to vote on the variation of the deed. It follows that the effect of such an order on creditors had to be carefully considered before deciding whether it should be made. The practical commercial consequences of what would happen if the variation of the deed was not approved also had to be considered. These considerations had to be weighed up and balanced and the competing interests evaluated.

In relation to the effect on creditors, I was satisfied that the general body of unsecured creditors would not be disadvantaged by the terms of settlement being approved and carried into effect, because their position would not be altered. Irrespective of whether the deed of company arrangement was varied there would be insufficient funds to pay unsecured creditors.

[citations omitted]

53    There are authorities where s 447A has been employed to alter a deed of company arrangement in order to prevent debts being released.

54    In Winterton Constructions Pty Ltd v M A Coleman Joinery Co Pty Ltd (1996) 20 ACSR 671 this was done so that the set-off provisions that should have applied (s 553C) would operate. The company and administrator were aware that the plaintiff may have been a creditor, but the plaintiff was not notified of the meetings of creditors and was not given the opportunity to vote on the deed of company arrangement. Had the plaintiff’s claim been considered, the mutual set-off provisions would have applied to it. As it was, the deed arguably had the effect that the company was entitled to bring its claim against the plaintiff, but the plaintiff was not permitted to raise its own claim against the company as a set-off. It was held to be appropriate to make an order to neutralise the unconscionable position that had arisen. The Court ordered a variation of the deed. Young J also said that the options available to the Court to ameliorate the effects of the deed included terminating the deed under s 445D on the basis that effect could not be given to it without injustice, declaring the deed void in whole or part under section 445G, or making an order under s 447A that the effect of the deed would be otherwise than it would if no order were made.

55    In Brandrill Ltd v Newmont Yandal Operations Pty Ltd [2006] NSWSC 74 changes were made to a DOCA so that a creditor could have access to insurance proceeds. Brandrill was a claimant in proceedings against the relevant companies who were the subject of a DOCA and also against their insurers. Provisions in the DOCA had the effect of extinguishing Brandrill’s claim and, despite the (ineffective) attempt to incorporate the provisions of ss 562 and 562A of the Act into the DOCA, the parties were concerned that the extinction of Brandrill’s claim meant that no claim could be made against the insurers. Austin J considered an application to amend the DOCA to reflect what the parties were led to expect would be the position obtaining under the DOCA when the issue was raised at the second creditors’ meetings.

56    Austin J considered that it was appropriate for the court to exercise its power with a view to giving effect to the intention that the relevant parties had when the proposed DOCA was considered by creditors and that they continued to have thereafter, but that it was appropriate for the court to rectify the DOCA rather than the administrators seeking its variation under s 445A, because the DOCA could be read as if it had always been in the rectified form, and because complex technical issues had arisen that were better dealt with by the court than in a general meeting of creditors.

57    So, the Court can vary a DOCA to avoid prejudice to creditors. In that context and for that purpose, it is not uncommon to vary the termination date of a DOCA. In Silvia, in the matter of FEA Plantations Ltd (Administrators Appointed) [2013] FCA 469, the deed administrators were close to finalising a settlement in relation to a dispute with two banks who were secured creditors of the companies in deed administration, and they sought an extension of the termination dates of the DOCAs in order to enable that settlement to be completed. Kenny J took into account a number of factors that were relevant to whether the termination dates in the two DOCAs should be extended by way of an order under s 447A, rather than returning the issue to creditors for a further resolution under s 445A. Those factors included that it would be difficult to convene a meeting of creditors prior to the existing termination dates in the deeds, it would be costly to convene a creditors’ meeting prior to the existing termination date in the deeds, it would be a simple variation, and a number of creditors’ meetings within a short space of time may be confusing to the creditors, and may also inconvenience them by requiring the creditors to travel to Tasmania twice within 22 days if they chose to attend the meetings. Further, she considered that the variation would not adversely affect the interests of the creditors and would instead be in their interests because it would allow time for negotiations between the deed administrators and the relevant banks to be finalised and, moreover, that the variation was supported by a number of the creditors. Her Honour found that each of those factors favoured the exercise of the Court’s discretion under s 447A(1) to vary the termination date of the DOCAs.

Reasons for the Court varying the DOCA rather than the creditors

58    As Mr Hamish Austin KC for the deed administrators rightly submitted, when regard is had to the terms of the DOCA and the materials that were before the creditors when they decided to approve it, it is well apparent that the intention of the parties was to enable the settlement proceeds from the representative proceedings to flow through to the creditors, whilst preserving their entitlement to claim against the CSLR.

59    It would defeat that intention and result in a lower return for creditors if the DOCA were to be terminated automatically, simply because its original terms did not perfectly align with the terms of the settlement that was ultimately reached. Equally, the variation of the DOCA so as to not extinguish the claims of creditors who may be entitled to claim through the CSLR enhances the possibility of a greater ultimate return to those creditors.

60    Further, the deed administrators have made this application to seek orders varying the DOCA rather than convening a meeting of creditors because convening a meeting would be a more expensive and ineffective course.

61    The cost of convening a meeting of creditors to pass a resolution making the settlement definition amendment and the opting out amendment would be between $189,493.50 and $314,144.50. This estimate is based on the actual cost of convening the second meeting of creditors during the voluntary administration being approximately $600,000, the size and composition of the creditor pool, and the large number of enquiries, related and unrelated, that are likely to be raised by the creditors if a meeting is required to be convened.

62    Now on the evidence, the creditors are largely elderly and unsophisticated investors. Once they receive notification of the meeting to be convened, many creditors will call the deed administrators’ office to ask questions related to the notification and other issues. The deed administrators estimate that, in relation to the meeting they convened last year, they received more than 2,200 enquiries of a varied nature. Many of the phone calls they received during that period took at least fifteen minutes to resolve, sometimes longer. And many of the creditors made multiple phone calls and sent follow up emails, seeking further assurances regarding their concerns and questions. Most enquiring creditors wanted to speak to someone to “sense check” the information provided, voice their concerns regarding events that led to the appointment of the voluntary administrators, and express frustration at the estimated value of their return.

63    Further, it would be difficult and expensive to convene a full meeting of creditors prior to the hearing of the settlement approval application. Further, the parties to the DOCA either consent to or do not oppose the proposed amendments. E&PO Operations Pty Ltd has expressly consented and EP1 has not sought to oppose the application, consistently with its having agreed to the amendments in the deed of settlement.

64    Further, the deed administrators have fully tabled and discussed the proposed amendments with the committee of inspection, and those representing the creditors supported a resolution that the amendments be made.

Conclusion

65    I will make orders, first, varying under s 447A the operation of s 445A as it applies to DASS and, second, then varying the DOCA under the modified form of s 445A. Such orders are in the best interests of creditors and consistent with the object set out in s 435(b).

Associate:

Dated:    9 February 2024