Federal Court of Australia

Blundell, in the matter of Dyldam Developments Pty Ltd [2025] FCA 766

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to section 90-15 of the Insolvency Practice Schedule (Corporations), Schedule 2 of the Corporations Act 2001 (Cth) (Act), the Deed Administrators are justified and would be acting reasonably in entering into a settlement agreement to settle Federal Court of Australia proceeding NSD369/2025 substantially in accordance with the Draft Deed of Settlement and Release contained at pages 5-15 of Confidential Exhibit EB-1 (Draft Deed).

2.    Pursuant to section 447A of the Act, the Deed of Company Arrangement regarding Dyldam Developments Pty Ltd (subject to Deed of Company Arrangement) dated 20 May 2022 (DOCA) is varied such that clause 6.1(a)(i) of the DOCA is amended such that the DOCA includes the following underlined words:

6    Deed Fund

6.1    Composition of the Deed Fund

The Deed Fund is to be made up of the following:

(a)    the Deed Contribution less $XXXX [the amount of the Settlement Sum as that term is defined in the Draft Deed] to be paid by the Deed Administrators to the plaintiff in proceedings number NSD369/2025 to compromise those proceedings; …

3.    Pursuant to section 37AF of the Federal Court of Australia Act 1976 (Cth), on the basis of the grounds set out in sub-section 37AG(1)(a), the publication or disclosure of the Confidential Affidavit of Emily Barrett sworn on 8 July 2025 and Confidential Exhibit EB-1 in support of this Originating Process is prohibited for a period of twelve months from the date of this Order.

4.    The requirements of rule 2.8 of the Federal Court (Corporations) Rules 2000 (Cth) be dispensed with.

5.    Costs of this application be costs under the DOCA.

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

REASONS FOR JUDGMENT

OWENS J:

1    On 7 July 2025 the trial of Special Gold Pty Ltd (In Liquidation) v Dyldam Developments Pty Ltd (Subject to a Deed of Company Arrangement) commenced before Jackman J, with an estimate of ten days (although it would seem that the trial is progressing more rapidly than the parties had anticipated). In those proceedings, the plaintiff, Special Gold Pty Ltd, sues nine defendants; but for present purposes it is the first, Dyldam Developments Pty Ltd, that is relevant.

2    Late on 8 July 2025, an in-principle settlement of the proceedings between Special Gold and Dyldam Developments was agreed. That agreement was, however, subject to two conditions precedent. First, Dyldam Developments being a company subject to a deed of company arrangement, the deed administrators would not enter into any binding agreement unless they obtained a direction from the Court pursuant to s 90-15 of the Insolvency Practice Schedule (Corporations) contained in Sch 2 of the Corporations Act 2001 (Cth) that they were justified in doing so. Secondly, because the proposed settlement, in order to be effective, required an amendment to be made to the DOCA, a Court order to that effect was to be obtained.

3    The trial before Jackman J was listed to resume on 9 July 2025 at 12:00pm, with various witnesses, including the deed administrator of Dyldam Developments, scheduled to be cross-examined. It was in those circumstances that the present application came before me, as the Commercial and Corporations Duty Judge, at 9:30am that morning. If the settlement agreement was not concluded before the trial resumed, then there was the obvious potential for the forensic balance, or perceptions of it, to alter, and the deal to fall over. In those circumstances, resolution of the application assumed a degree of urgency.

4    While the application was made ex parte, the largest creditor of Dyldam Developments by quite some margin, Persephone Company Pty Ltd (Receivers and Managers Appointed) as trustee for the Persephone Trust, appeared as an interested person. As will become clear, I was considerably assisted by Persephone’s participation.

background

5    Dyldam Developments was a company that was engaged in the business of developing high-density residential apartments in Sydney. At relevant times, its directors were Mr Sam Fayad and Ms Maria Fayad.

6    Special Gold was a special purpose entity associated with that business. It was the registered proprietor of a property at 27-31 Argyle Street in Parramatta, for which it paid $2,600,000 in 1998, and that it sold for $73,970,000 in 2020. At relevant times, Mr Fayad was a director of Special Gold.

7    The central concern of the proceedings brought by Special Gold is the recovery of various payments made by that company, out of the proceeds of the sale of the Argyle Street property, that the liquidators of Special Gold contend were made in breach of the duties owed to the company by its directors.

8    Insofar as Dyldam Developments is concerned, the relevant payments are two payments, each of $2,000,000, made to the deed administrators of a DOCA entered into between them, Dyldam Developments, and Mr and Mrs Fayad.

9    The deed administrators were appointed as voluntary administrators of Dyldam Developments on 18 January 2022. On 29 April 2022, the creditors of Dyldam Developments resolved to accept a proposal to enter into a DOCA, with a deed contribution payment of $8,000,000. The DOCA was entered into on 20 May 2022.

10    Under the DOCA, the obligation to make the deed contribution payment fell on Mr and Mrs Fayad, by way of four equal instalments. As security for those payments, Mr and Mrs Fayad were obliged to grant mortgages over seven properties, which would be released by the deed administrators when the final instalment of the deed contribution was paid.

11    In due course, the four payments were made, and the deed administrators released the mortgages they held as security. Special Gold contends, however, that funds used to pay the third and fourth payments were sourced from the proceeds of the sale of the Argyle Street property. It contends that, in so doing, Mr Fayad breached the fiduciary duty he owed as a director of Special Gold. In essence, that is said to be because Special Gold received no benefit as a result of the payments, and Mr Fayad simply used the company’s money to meet his own obligations under the DOCA.

12    On 27 August 2024, the liquidators of Special Gold wrote to the deed administrators to inform them that the third and fourth payments may have used funds of Special Gold, and that Special Gold claimed to be entitled to those funds. On 4 October 2024, the deed administrators were provided with a draft statement of claim, and material in support of it.

13    Special Gold claims a variety of different forms of relief against Dyldam Developments in the proceedings, but for present purposes the only claims of significance are those that assert a proprietary right against the deed fund under the DOCA. That is because the deed administrators have estimated that proofs of debt of up to over $270,000,000 could ultimately be admitted under the DOCA ($223,757,282 has already been admitted). It follows that, with a deed fund of $8,000,000, returns to creditors will be, on any view, small. A proprietary remedy in relation to the deed fund itself would thus confer a significant advantage on Special Gold.

14    While on the topic of Dyldam Developments’ creditors, I have already mentioned that Persephone is, by some margin, the largest creditor of Dyldam Developments. It has an admitted debt under the DOCA of $132,833,189 (equal to more than 59% of the debts already admitted, and 49% of the maximum amount of debts the deed administrators expect could be admitted). The next largest creditor is the Australian Taxation Office, with a claim for $6,859,892. It follows that on any vote of creditors, at least insofar as value of debts is concerned, the position of Persephone is likely to govern the result. Insofar as the issues relevant to this application are concerned, the deed administrators indicated that they would not exercise their casting vote so as to settle the Special Gold proceedings against the wishes of Persephone.

15    The deed administrators have prepared estimates of the impact on the return to creditors if Special Gold succeeds or fails in obtaining a proprietary remedy over the sum of $4,000,000 in the deed fund (along with the impact of receiving or having to pay costs). It is not necessary to examine the precise details of the calculations, save to observe that if Special Gold were successful creditors might expect to receive between 0.13 and 0.38 cents on the dollar, and if it failed, the return to creditors would improve to between 2.05 and 2.23 cents on the dollar.

16    If Dyldam Developments were to be placed into liquidation at this point in time, the deed administrators estimate that there would be no dividend to creditors. It might be observed that that view differs from the view they held in 2022, when they recommended that creditors do not vote to accept the DOCA. Experience since then has, alas, been unfavourable.

17    The terms of the proposed settlement, unsurprisingly, will produce a compromise outcome. Under it, the deed administrators will make a payment out of the deed fund, but in an amount less than that claimed by Special Gold. In exchange for that payment, the parties will release each other from all claims. The result for creditors will, as a result, not be as good as they would have obtained if Dyldam Developments had prevailed against Special Gold, but it will be materially better than if Dyldam Developments either failed in that litigation, or was placed into liquidation. An additional practical benefit of the proposed settlement is that the deed administrators can proceed directly to distribute the deed fund, rather than await the outcome of the litigation (while a judgment in the trial might be expected in the not too distant future, the deed administrators pointed out the prospect of appeals as creating the potential for further delay).

The Application for judicial advice

18    In Lottah Mining Pty Ltd (in liq) v Campbell-Wilson (Liquidator), in the matter of Forward Mining Limited (in liq) [2025] FCA 378 at [19] to [26] I surveyed the authorities concerning the circumstances in which the Court will, under s 90-15 of the Insolvency Practice Schedule, give judicial advice and direction in the context of a proposed settlement of litigation. Having regard to the principles stated in those cases, I am satisfied that it is appropriate to do so in the present case.

19    The decision whether to enter into the proposed settlement agreement is not a pure business or commercial decision in respect of which no particular legal issue is raised. It is a decision that involves the evaluation of questions of law and the reasonableness of the terms of the compromise in light of those legal issues. In other words, it involves both the exercise of commercial judgment and the exercise of legal judgment in an assessment of the merits of the settlement against the prospects of success in the proceeding.

20    Furthermore, while the evidence did not disclose any existing manifestation of the potential for controversy in respect of the compromise, in large measure that may be because, with the exception of Persephone, no creditors of Dyldam Developments yet know about it. In circumstances where the settlement will result in a difference in the dividend payable to creditors under the DOCA compared to the outcome if Dyldam Developments had prevailed in the litigation against Special Gold, I do not think the possibility that a creditor might complain can be excluded.

21    For those reasons, therefore, this is an appropriate case in which to exercise the power to give judicial advice and direction to the deed administrators concerning the decision whether to enter into the proposed settlement.

22    The real question, then, is what the content of that advice and direction should be.

23    For the reasons I have already given, the critical issue is Special Gold’s prospects of obtaining a proprietary remedy in relation to the deed fund.

24    At the risk of over-simplifying his far more nuanced assessment, I think a fair summary of Senior Counsel’s submission is that while Dyldam Developments was confident that it has the stronger case, its position is not without risk. For the reasons that follow, while it would not be appropriate to express any concluded view as to the merits of any disputed issue in the proceedings, that did not seem to me to be an unreasonable assessment.

25    The more significant issues of controversy between Special Gold and Dyldam Developments were said to include:

(a)    Whether the payments that were made involved a breach of fiduciary duty. Dyldam Developments has not advanced a positive case in this regard, but has sought to put Special Gold to proof. The directors did not give evidence, so there is the potential that the absence of a proper purpose for the payments may not be able to be proved on the evidence that has been adduced.

(b)    Assuming there was a breach of fiduciary duty, whether Dyldam Developments had the requisite knowledge of that breach. Special Gold apparently puts its case in two ways:

(i)    First, it says that knowledge of the breach of fiduciary duty is attributed to Dyldam Developments through Mr Fayad, who was a director of both Special Gold and Dyldam Developments at the time the payments were made. In response to that argument, Dyldam Developments points out that at that time, it was in external administration, and thus its controlling mind was the deed administrators, and not its director. It thus says Mr Fayad’s knowledge would not be attributed to it. Special Gold replies that while a director’s powers are or may be affected by a DOCA, a director nonetheless still owes fiduciary and statutory duties to the company. While the content of the duty may be affected, so it is said, it would remain necessary for the director to disclose the circumstances that may give rise to a claim being made against the company. In those circumstances, so the argument goes, Mr Fayad’s knowledge would still be attributed to Dyldam Developments.

(ii)    Secondly, it says that the deed administrators had knowledge from the time (August 2024) when the liquidators of Special Gold put them on notice (which was after the payments had been made). While that premise is not controversial, the consequences that flow from it (and in particular whether it would provide a basis for a proprietary remedy) certainly are. That is the next issue.

(c)    Whether a proprietary remedy is available for knowing receipt of money (that is not trust money) paid in breach of fiduciary duty:

(i)    Dyldam Developments emphasises that the cases that speak of the imposition of a constructive trust in this context do not suggest that the remedy is proprietary, and distinguish between remedial and institutional constructive trusts: see, e.g., Paragon Finance v Thakerar & Co (a firm) [1999] 1 All ER 400 at 409; Lawrence (in their capacity as liquidators of Ozifin Tech Pty Ltd (in liq) v AGM Markets Pty Ltd (in liq) [2022] FCA 1478 at [172].

(ii)    Dyldam Developments accepts that, since Belmont Finance v Williams Furniture (No 2) [1980] 1 All ER 393 at 405, approved in Australia in Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6 at [275], for the purposes of the rule in Barnes v Addy (1874) LR 9 Ch App 244, company property subject to a fiduciary obligation is treated as trust property. But, Dyldam Developments emphasises that it is treated as trust property, not that it is trust property.

(iii)    Dyldam Developments submits that the essential characteristic of Barnes v Addy liabilities is that they expose the persons to whom they apply to in personam liabilities: Grimaldi at [253]. Where proprietary remedies are granted, they are founded on the beneficiary’s title to trust property. There is no basis, it is submitted, to impose a proprietary remedy in circumstances where non-trust moneys are received without notice of equitable fraud, but only given later notice. It is not a case, in other words, like Agip (Africa) Ltd v Jackson [1990] 1 Ch 265 at 291. See also, e.g., Pittmore Pty Ltd v Chan (2020) 104 NSWLR 62; [2020] NSWCA 344 at [156].

(iv)    To the extent that Grimaldi contemplates a proprietary remedy arising under Barnes v Addy in respect of property that was not strictly trust property, it is said that a necessary precondition is recission of the transaction in question (see at [254], [342]), which has not been sought by Special Gold (and which would be impossible in circumstances where Dyldam Developments’ position could not be restored, including, for example, because it had released the mortgages it held as security for the deed contribution payments).

(v)    So Dyldam Developments’ case is that when a person who has received property in breach of fiduciary duty (but which is not trust property) later learns of the breach while still holding the property, the imposition of a constructive trust is a personal, and not a proprietary remedy. It says, however, that there is no case squarely on point which says as much, and so it is relying on general principles only. For that reason, it says that there is necessarily some uncertainty in relation to the outcome of the claim against it.

(d)    Whether a proprietary remedy, if it is available, would be ordered in the Court’s discretion. Dyldam Developments contends that there are a range of discretionary reasons why a proprietary remedy would not be ordered, including the change in position by reason of the release of the mortgages, the loss of the opportunity to place the company into liquidation sooner, and so forth.

(e)    Various other issues have been raised in a preliminary way by Special Gold, including tracing. Until closing submissions, however, the precise range of arguments that Dyldam Developments will have to confront remains uncertain.

26    Ultimately, Dyldam Developments submitted that it is a complex area of law, with no case directly dispositive of the issue, potentially involving the exercise of discretions, and the result is thus necessarily uncertain.

27    Although no written advice of Dyldam Developments’ lawyers was tendered on the application, the confidential affidavit of its solicitor disclosed the assessment of its Senior Counsel of the merits of the settlement having regard to the risks in the proceedings.

28    It is plain that Dyldam Developments’ defence of the proceedings brought by Special Gold has been thoughtful and careful. It has done everything it can to put itself in the best position possible to defeat the claim. The deed administrators quite properly recognise the uncertainty of litigation, even in relation to what may appear to be a strong case. They emphasise the benefits of a settlement that secures certainty, minimises downside, and allows for creditors to receive a distribution in the near future.

29    Overall, I am satisfied that the deed administrators would be justified in compromising the proceedings on the terms set out in the draft settlement deed that was in evidence. They have given careful consideration to all relevant considerations, both for and against, the settlement, and have had the benefit of capable legal advice. It follows that, subject to the outcome of the application to amend the DOCA, I am persuaded that a direction should be given in the terms sought.

The Application To Amend the DOCA

30    The decision whether to enter into the proposed settlement is not only a question of whether the terms are reasonable having regard to Dyldam Developments’ prospects of success in the proceeding and other relevant practical and commercial issues. There is a more fundamental issue:

(a)    The DOCA, in its present form, would not authorise any payment out of the deed fund for the purpose of settling Special Gold’s claim. That is the effect of cl. 7, which provides for the distribution of the deed fund to particular persons or classes of person, and the priorities in accordance with which that distribution must take place. It does not contemplate the possibility of any payment to Special Gold, other than to the extent that Special Gold might seek to prove a debt under the deed.

(b)    If a payment were made to Special Gold in order to settle the proceedings, the result would be that the entirety of the deed fund would not have been distributed in accordance with the DOCA, and the DOCA could not be effectuated. That is the effect of cl. 13.3, which specifies the conditions required to be satisfied in order for the deed to be effectuated, which include the distribution of the fund (which is defined in cl. 6.1 to include the full $8,000,000 contribution by Mr and Mrs Fayad).

(c)    If the deed was not effectuated, then cl. 13.4 provides that the deed administrators must, within 28 days’ notice by Mr and Mrs Fayad, repay all amounts paid by them (i.e., the $8,000,000) less the remuneration and expenses of the deed administrators.

(d)    Liquidation of the company would presumably be likely to follow, with the result that creditors would receive nothing.

31    Implementation of the proposed settlement would thus, to the extent it was even possible, bring about a seriously unsatisfactory state of affairs.

32    The DOCA is, of course, capable of being amended to avoid these issues. If the definition of the “Deed Fund” in cl. 6.1, insofar as it presently refers to “the Deed Contribution” (which is the $8,000,000 paid by Mr and Mrs Fayad), is amended to add the words “less [an amount] to be paid by the Deed Administrators to the plaintiff in proceedings number NSD369/2025 to compromise those proceedings”, then the settlement amount can be paid and the operation of the DOCA will continue otherwise unaffected.

33    Ordinarily, any variation of a DOCA should be by resolution of creditors under s 445A of the Corporations Act. The deed administrators have not sought to convene a meeting of creditors for that purpose, however, for the following reasons:

(a)    The situation is attended by some urgency. Unless and until a settlement agreement is reached, the trial before Jackman J (which includes claims against several other defendants, and which thus could not be adjourned without affecting those other parties) is continuing. Witnesses, including one of the deed administrators, will be cross-examined. It is inevitable that the forensic balance, or perceptions of it, may change as the trial unfolds, with the result that the proposed settlement is no longer acceptable to one or both parties. If the settlement was to be entered into, there was a powerful practical imperative to do so by 12:00pm on 9 July 2025, when the hearing before Jackman J would resume.

(b)    Many creditors are companies that are themselves in external administration. It is the experience of the deed administrators that, in those circumstances, the ability of creditors to make a rapid decision is diminished.

(c)    The decision of creditors as to whether the DOCA should be amended is, in substance, a decision as to the wisdom of the proposed settlement. The litigation, and the issues raised in it, are complex. The deed administrators said, and I accept, that they would be concerned to reveal the legal advice upon which they have determined that it is in the best interests of creditors to accept the proposal to a large body of creditors, because they consider it unlikely that the advice would be kept confidential. Furthermore, it would be difficult for all creditors to comprehend the issues (even if provided with the advice), in a very short period of time.

34    I accept that they are all good reasons why the deed administrators do not consider it practical to convene a meeting of creditors for the purpose of resolving to amend the DOCA. The fact remains, however, that the proposed amendment to the DOCA represents a significant change to the proposal that was supported by creditors when they voted to accept the DOCA. The creditors made a choice between liquidation and the DOCA on the basis that the latter option would see the sum of $8,000,000 made available for distribution. By the proposed settlement, that amount will be reduced, and creditors would be entitled to take the view that they would not have voted for the DOCA had they known that at the time. The deed administrators’ view, at the time, was that a liquidation in 2022 would have achieved better returns to creditors than the DOCA. It is possible, therefore, that had they voted against the DOCA in 2022, creditors would have been better off. Different creditors may reasonably hold different views about the merits of the settlement. It follows that there are powerful reasons favouring the view that all creditors should be entitled to weigh the relevant considerations, and determine for themselves whether or not to vary the DOCA.

35    It is clear that courts have the power, under s 447A of the Corporations Act, “to vary a deed of company arrangement or, more accurately, to cause Pt 5.3A to operate in relation to the subject company as if some provision of the deed were varied”: Re Derwent Howard Media Pty Ltd [2011] NSWSC 1164 at [11]; see also Longley (deed administrator), in the matter of Dixon Advisory & Superannuation Services Pty Ltd (subject to a deed of company arrangement) [2024] FCA 70 at [49]. But, for reasons including the kinds of issues I have identified in the previous paragraph, “the court should be reluctant to exercise this power (and thereby to deprive creditors of their role under s 445A) except in circumstances that are uncontentious, in the sense that no prejudice to creditors is involved”: Derwent Howard Media at [12]; see also Dixon Advisory at [51]; Re Paradox Digital Ltd; ex parte Vincent Smith in his capacity as Deed Administrator [2001] WASC 182 at [16]-[18].

36    For the reasons I have given, I do not think that as a general proposition it could be said that the present circumstances are uncontentious, or that prejudice to creditors may not be involved. Without more, it thus follows that a very powerful reason would be required to overcome the reluctance that the Court should properly display in depriving creditors of the right to vote.

37    I have, however, determined that it is appropriate for the Court to exercise its discretion to vary the DOCA.

38    A powerful, if not decisive, factor in my decision is the fact that Persephone supports both the settlement and the DOCA variation. Persephone made very plain, I should say, that that support is expressed through gritted teeth. It regards Special Gold’s case against Dyldam Developments as weak, and considers that the settlement agreement does not reflect the strength of Dyldam Developments’ defence. Nonetheless, having considered the settlement agreement in light of the practical and commercial benefits of certainty, along with the consequential ability to receive a distribution sooner rather than later, it is supportive.

39    Persephone’s views are entitled, in my view, to be given significant weight. I have already explained that its debt represents 59% of the debts presently admitted under the DOCA. The next largest debtor, by contrast, represents 3%. It is highly likely that Persephone would be in a position to control the outcome of any meeting of creditors. Furthermore, given its position as the most substantial creditor, it is well-placed to understand and represent the commercial considerations relevant to the assessment of the proposal from the perspective of a creditor. Perhaps more significantly, Persephone has a deep familiarity with the issues in the litigation brought by Special Gold. It has appeared in those proceedings as an interested person, including by making submissions. It is uniquely placed amongst creditors to assess the merits of the proposed settlement.

40    For those reasons, I am confident that any substantial objection to the proposal would have been articulated by Persephone. It has plainly considered the merits of the proposed settlement in terms of the legal, practical and commercial advantages and disadvantages. The fact that it is unhappy about the settlement does not distinguish the case from most negotiated settlements. The critical fact is that it supports it.

41    In those circumstances, I think it is arguably correct to say that creditors will not be prejudiced by being deprived of the opportunity to cast a vote. That conclusion may be drawn from the combined facts that I have concluded the settlement is one the deed administrators would be justified in entering into (as an appropriate reflection of the risks of litigation and the commercial advantages to be obtained), that Persephone’s decision shows that acceptance of the settlement is in the best interests of creditors, and that the outcome of the meeting is likely to be dictated by Persephone’s decision in any event.

42    Even if that conclusion is not justified, however, I am satisfied that those circumstances, coupled with the practical reasons why it is not possible to call a meeting of creditors and hold a vote before the opportunity to accept the current proposal is lost, constitute sufficiently exceptional reasons to overcome the Court’s usual reluctance to deprive creditors of a vote. I am thus persuaded that it is appropriate for the Court to authorise the variation to the DOCA.

Ancillary Matters

43    Rule 2.8 of the Federal Court (Corporations) Rules 2000 (Cth) required ASIC to be given reasonable notice of this application. No such notice was given, and so the deed administrators sought an order pursuant to r 2.8(3) dispensing with the need for compliance. In circumstances where the application was attended by considerable urgency, where Persephone, as the entity whose interests were affected to the most substantial extent by the orders sought was notified and did participate, and where the prospect of ASIC raising an issue that was not raised by the deed administrators (who very properly acknowledged that the application should be conducted as an ex parte application) or Persephone seemed to me to be low, I was persuaded that it was appropriate to dispense with that requirement.

44    The deed administrators also sought a confidentiality order in respect of the affidavit of their solicitor, which set out the without prejudice communications through which the settlement proposal was reached, as well as an account of the legal advice given to the deed administrators in relation to the proposed settlement. There could be no doubt that such evidence was either subject to legal professional privilege, or without prejudice privilege. Once the settlement agreement is executed, there remains a proper interest in maintaining its confidentiality, given the ongoing litigation with other parties before Jackman J. For those reasons, I was satisfied that it was appropriate to make the confidentiality order sought, for a period of twelve months.

Associate:

Dated: 10 July 2025