Federal Court of Australia

Clubb (deed administrator), in the matter of Toys “R” Us ANZ Limited (subject to deed of company arrangement) [2025] FCA 1135

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 444GA(1)(b) of the Corporations Act (2001) (Cth), the first plaintiffs be granted leave to transfer all of the existing shares in the capital of the second plaintiff (the Shares) from the members to A.C.N. 687 771 679 Pty Ltd (A.C.N.) or its nominee in accordance with clause 8.3(c) of the deed of company arrangement dated 31 July 2025, entered into by the plaintiffs and A.C.N. (the DOCA).

2.    Pursuant to s 447A(1) of the Corporations Act and s 90-15(1) of the Insolvency Practice Schedule (Corporations) (IPS) the first plaintiffs may, jointly or severally, in their capacity as deed administrators of the second plaintiff:

(a)    execute share transfer forms and any other documents ancillary or incidental to effecting the transfer of the Shares; and

(b)    enter or procure the entry of the name of A.C.N. or its nominee into the securities register of the second plaintiff in respect of the Shares transferred to A.C.N. or its nominee in accordance with order 1 above.

3.    Pursuant to s 447A(1) of the Corporations Act:

(a)    Part 5.3A of the Corporations Act is to operate in relation to the second plaintiff as if the reference to the word “shares” in s 444GA(1) includes all vested or unvested share options, warrants or other instruments convertible into securities in the second plaintiff (the Options) and as if the reference to the phrase “members of the company” in s 444GA(3) includes the holders of the Options; and

(b)    the first plaintiffs be granted leave to transfer the Options to A.C.N. or its nominee in accordance with clause 8.3(d) of the DOCA.

4.    Pursuant to s 447A(1) of the Corporations Act and s 90-15(1) of the IPS the first plaintiffs may, jointly or severally, in their capacity as deed administrators of the second plaintiff:

(a)    execute any other documents ancillary or incidental to effecting the transfer of the Options; and

(b)    enter or procure the entry of the name of A.C.N. or its nominee into the securities register of the second plaintiff in respect of the Options transferred to A.C.N. or its nominee in accordance with order 3 above.

5.    The first plaintiffs’ costs of and incidental to this application be costs and expenses in the deed administration of the second plaintiff.

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

REASONS FOR JUDGMENT

BEACH J:

1    This is yet another application under s 444GA of the Corporations Act 2001 (Cth) dealing with the transfer of shares in a company the subject of a deed of company arrangement.

2    Now normally I would not have reserved my decision on such a plain vanilla corporations law application, but an interesting question was raised that warranted further reflection.

3    Put to one side the transfer of shares for a moment. Can s 444GA be extended or modified by s 447A to deal with share options, warrants or other instruments convertible into shares upon a contingency, where such instruments have previously been issued by the company before either Part 5.3A voluntary administration or subsequent deed administration?

4    Now embedded within this question is a problem that has, in my view, at least four solutions, the problem being how in effect to cancel the rights of holders of such instruments or possibly transfer the rights to the same entity as the transferee of the shares.

5    The first way is to effect the cancellation by treating the holders of such instruments as creditors under the DOCA with claims against the deed company in terms of their contractual rights under such instruments. One would value such claims (likely to be valued at nil), extinguish them as against the deed company and convert them into a right as a participating creditor to claim against any creditors’ trust fund that may have been set up for participating creditors. And if the share options or other analogous instruments still survived this process, they would be empty shells.

6    The second way to effect the cancellation if the terms of the DOCA did not do so as per the first mechanism, would be to vary the DOCA by a creditors’ resolution or by an order under s 447A to achieve the same result; I will return to this latter possibility later.

7    The third way to effect the cancellation or transfer is by utilising s 447A to modify the operation of s 444GA to deal with such instruments by way of transfer and then either the exercise or non-exercise of the relevant option or conversion rights by the transferee, who would also presumably be the transferee of any shares under a standard and separate application of s 444GA.

8    The fourth way, albeit unrealistically, is to try and effect the transfer of all such instruments to the transferee of any shares by provisions in the DOCA. But this does not really work as the latter limb requires a s 444GA order which is a mechanism in addition to the DOCA in any event. And the first limb may require other entities to be parties to the DOCA who are neither the deed company nor just creditors properly so called since it would involve a transfer and not just a cancellation of rights.

9    Now in the context before me, the third way is being pursued which I will explain in more detail later. So, the magic pudding of s 447A is once again being sought to be exploited, and in the present case in a context concerning share options and analogous instruments which to the best of my researches no other judge has explored in written reasons. But what is also interesting is that the first way seems also to have been pursued in the present case. I will return to these matters later. Let me introduce the present application in more detail.

10    Mr Luke Andrews and Mr Duncan Clubb of BDO Australia are the joint and several deed administrators of Toys “R” Us ANZ Limited (subject to deed of company arrangement) (the Company).

11    They are also the joint and several deed administrators of the following wholly-owned subsidiaries of the Company being Toys R Us Licensee Pty Ltd (subject to deed of company arrangement), Hobby Warehouse Pty Ltd (subject to deed of company arrangement) and Mittoni Pty Ltd (subject to deed of company arrangement). I will refer to both the Company and these subsidiaries as the deed companies.

12    The deed administrators and the Company have sought the following relief.

13    First, they have sought an order pursuant to a s 444GA(1)(b) that leave be granted to the deed administrators to transfer all of the existing shares in the Company (the shares) to A.C.N 687 771 679 Pty Ltd (the transferee) or its nominee.

14    Second, they have sought, to the extent necessary, an order pursuant to s 447A(1) that Part 5.3A is to operate in relation to the Company as if the reference to the word “shares” in s 444GA(1) includes all vested or unvested share options, warrants or other instruments convertible into securities in the Company ( the options) and as if the reference to the phrase “members of the company” in s 444GA(3) includes holders of the options. This latter modification was not sought in the originating process. But as I explained to counsel, it was a necessary corollary for two reasons. First, it had to match the modification to s 444GA(1). Second, if s 444GA(3) was not modified, it would usually and trivially be satisfied if one was dealing with share options. The true members would usually be advantaged by a cancellation of share options held by others; they would not usually be prejudiced by the cancellation of such options.

15    Now the present application has been made to give effect to the transfer of the shares and options in the Company to the transferee or its nominee as contemplated by clause 8 of the deed of company arrangement dated 31 July 2025 and entered into by the deed companies, the deed administrators and the transferee (the present DOCA).

16    Clause 8.2 of the present DOCA required that the deed administrators take all reasonable steps to commence a proceeding seeking relief that reflects the relief sought before me, which is referred to in the present DOCA as the s 444GA orders.

17    Clause 8.3 provides that within two business days of the making of the s 444GA orders and ASIC granting the s 606 relief, various steps are to occur including that “the Deed Administrators will transfer all of the Shares in Toys ANZ to the Proponent or its nominee” (clause 8.3(c)).

18    I should set out clause 8.3 which provides:

8.3    Steps following s 444GA Orders and s 606 Relief

Within two Business Days of the Court making the s 444GA Orders and ASIC granting the s 606 Relief (whichever is the latter) (or such longer period as the Deed Administrators and Proponent may agree):

(a)    the Deed Administrators, the Deed Companies, and the Proponent must execute the Creditors’ Trust Deed, pursuant to which the Deed Administrators shall act as trustee of the Creditors’ Trust on the terms of the Creditors’ Trust Deed;

(b)    the Deed Administrators will establish the Creditors’ Trust by opening the Trust Account and settling an initial amount of $10 into the Creditors’ Trust by payment into that account;

(c)    the Deed Administrators will transfer all of the Shares in Toys ANZ to the Proponent or its nominee;

(d)    unless the Court determines that the Options are compromised by this Deed, the Deed Administrators will in accordance with the terms of the s 444GA Orders transfer all of the Options in Toys ANZ to the Proponent or its nominee and, following this, the Deed Administrators and Proponent will take, and the Deed Administrators will cause Toys ANZ to take, any steps, including by executing any necessary documents, which are necessary to cancel all of the Options;

…

19    And for completeness I should also state that I have not so formally determined under clause 8.3(d), although on one view of the provisions of the present DOCA it was open to me to do so. I should also say that counsel for the deed administrators did not invite me to so determine.

20    Now the conditions precedent to effectuation under the present DOCA, as set out in clause 16.1, are required to be satisfied by 25 September 2025, being within 8 weeks of the effective date. Item 16.1(b) of the conditions precedent requires that the s 444GA orders are made, ASIC grants s 606 relief and the transfer is made. If the conditions precedent are not satisfied by 25 September 2025, then pursuant to clause 16.4, the present DOCA may terminate.

21    Now although the conditions precedent are required to be satisfied by 25 September 2025, the deed administrators have targeted an earlier date to complete the present DOCA. The deed administrators consider that it is in the interests of creditors to proceed as quickly as possible because this will lead to the earlier formation of the creditors’ trust and a more expeditious distribution to creditors of the deed companies from the trust fund.

22    Now a transfer of company shares, in the context of a deed of company arrangement, is contemplated by s 444GA(1), which provides that the administrator of a deed of company arrangement may transfer shares in the relevant company if the administrator has obtained the written consent of the owner of the shares or the leave of the Court. But to obtain individual consents is not practicable. So, in order to effectuate the present DOCA and as contemplated by its terms, the plaintiffs seek leave under s 444GA to transfer all of the shares in the Company to the transferee, along with an ancillary order that they may take the necessary steps to give effect to the share transfer.

Some relevant background

23    Let me delve into some background.

The operations of the deed companies

24    The Company is an Australian public company whose shares are listed on the ASX. As I have said, it is the parent company and 100% owner of the shares in the capital of Toys Licensee, Hobby Warehouse and Mittoni.

25    “Toys R Us” is a global toy and baby goods retailer, which has historically included operations in Australia. Until 2018, Toys R Us operated 44 retail stores and an e-commerce platform in Australia through Toys “R” Us (Australia) Pty Ltd.

26    In 2017, the US parent of Toys R Us Australia being Toys “R” Us Holdings Inc, filed for Chapter 11 protection and in May 2018, Toys R Us Australia was placed into voluntary administration and, in September 2018, liquidation. Following the bankruptcy of the US parent, the Toys R Us trademarks were acquired by TRU Kids Inc and in 2019, Toys Licensee entered into an exclusive license with TRU Kids to operate the Toys R Us brands in Australia and New Zealand.

27    During 2020, the Company, which was formerly known as Funtastic Ltd and which, at that time, operated a wholesale distribution business that supplied toys and other consumer products to major Australian retailers, announced its acquisition of Hobby Warehouse, Mittoni and Toys Licensee. Hobby Warehouse is a retailer of various consumer products including model kits, radio-controlled toys, collectables, electronics and crafts. Toys Licensee owns the rights to use the Toys“R”Us® and Babies“R”Us® trademarks pursuant to the exclusive licensing agreement with TRU Kids. Mittoni is a wholesale distributor of computer-related products.

28    During 2021, Funtastic Ltd rebranded as the Company. It retained the wholesale distribution functions of its business and expanded its functions to “direct to consumer” retailing.

29    Since that time, the deed companies have operated an online retail business trading in toys and consumer products.

Voluntary administration

30    On 4 June 2025, Mr Clubb and Mr Andrews were appointed as joint and several voluntary administrators of the deed companies pursuant to s 436A.

31    From the date of their appointment, the administrators assumed control of the deed companies’ businesses and assets. The administrators also undertook investigations into the affairs of the deed companies and attended to various tasks including convening and holding the first meeting of creditors of each of the companies on 17 June 2025, completing an urgent assessment of the deed companies’ financial position and operations, considering the deed companies’ viability and ability to continue trading, and negotiating with the senior secured lender to obtain funding to allow the deed companies to continue to trade whilst urgent expressions of interest for a sale of business or recapitalisation were sought.

32    The administrators also continued to trade the deed companies’ businesses while undertaking an expedited and urgent sale process.

33    In the period from the administrators’ appointment on 4 June 2025 to 2 July 2025, the deed companies incurred combined trading losses of $285,991. In light of the trading losses, the business and assets were advertised for sale by the administrators on an urgent basis.

34    On 11 June 2025, the administrators advertised the deed companies for sale. In total, the administrators received 25 expressions of interest. The administrators ultimately received two offers for the sale of the entire business and assets of the deed companies including a DOCA proposal from the transferee for the transfer of the shares in the Company.

35    One of the terms of the DOCA proposal was that all of the issued shares in the Company would be transferred to the transferee or its nominee, which is a special purpose acquisition vehicle and a related entity of Directed Electronics Australia Pty Ltd. Additional features of the DOCA proposal included the following matters.

36    First, a deed fund would be established and subject to certain conditions precedent being satisfied, including the Court making the orders sought in this proceeding and ASIC granting relief under s 606 to facilitate the transfer of shares in the Company to the transferee or its nominee, the transferee would pay the sum of $2 million (the DOCA contribution) into the deed fund.

37    Second, once the shares in the Company were transferred to the transferee or its nominee and certain other conditions precedent are satisfied, a creditors’ trust would be established and the DOCA contribution would be transferred from the deed fund into the creditors’ trust account for distribution to participating creditors of the deed companies in accordance with s 556 as varied by the creditors’ trust deed.

38    Third, 16 of the 17 employees would be offered continued employment with their relevant DOCA company employer, on terms substantially the same as their existing employment, and their claims would not be compromised by the DOCA but be paid in the ordinary course.

39    Fourth, management of the deed companies would remain with the deed administrators upon execution of the DOCA until the DOCA is effectuated or terminated.

40    Further, the senior secured lender, who was owed approximately $14,377,000, apparently had agreed to a debt-to-equity swap and would be an “excluded creditor” for the purposes of the DOCA.

41    Further, shareholders of the Company would receive no payment from the creditors’ trust and no other payment in return for the transfer of their shares in the Company to the transferee or its nominee.

The second meeting of creditors

42    On 3 July 2025, the administrators issued a report to the creditors of the deed companies pursuant to s 75-225 of the Insolvency Practice Rules (Corporations) 2016 and gave notice of the second meeting of creditors of the deed companies under that provision and s 439A.

43    The administrators expressed in the report their opinion that the deed companies were insolvent from at least the date that the senior secured lender ceased to provide further funding to the deed companies, and possibly experienced balance sheet insolvency from as early as October 2023.

44    The administrators also set out their opinion that they did not recommend that creditors vote for the cessation of the administration of the deed companies because the deed companies remain insolvent and are unable to pay their debts when due. Further, they did not recommend that the creditors vote to wind up the deed companies because the net proceeds of realisations and recoveries from voidable transactions claims would not result in any distribution to creditors of the deed companies.

45    Further, they recommended that creditors accept the DOCA proposal because under the DOCA proposal, the return to creditors would potentially improve from nil (in a liquidation scenario) to between 1 to 6.5 cents in the dollar.

46    On 10 July 2025, the second meeting was held in person and by videoconference. At the second meeting the creditors of the deed companies resolved that the present DOCA be entered into by the deed companies, which embodied the elements of the proposal that I have referred to.

The present DOCA

47    On 31 July 2025, the present DOCA was executed by each of the deed companies, the administrators and the transferee, and the administrators were appointed as deed administrators of the deed companies.

48    As I have indicated, and as the deed administrators confirm, the estimated return to ordinary unsecured creditors in a liquidation scenario is nil, as compared to the DOCA scenario, with both high and low DOCA scenarios considered. Under the high DOCA scenario, the estimate is 6.5 cents in the dollar. Under the low DOCA scenario, the estimate is 1 cent in the dollar.

49    In each of the above scenarios being liquidation and the present DOCA, the deed administrators consider that there will be no return to the shareholders of the Company, on the basis that those claims rank below those of the creditors of the deed companies and there are insufficient funds to meet the claims of all creditors in full.

Shareholders and option holders

50    The shares in the Company are held by 1,032 distinct shareholders.

51    Further, there are 19 parties who presently hold options in the Company. The option holders fall into one of three categories: employees, current and former executives and other significant holdings. Let me deal with each category in turn.

52    First, as to the employee option holders, a total of 5,000 options have been issued to three current employees of the Company. The deed administrators intend to negotiate the voluntary cancellation of these options.

53    Second, as to the executive option holders, there are six individuals who are all current or former executives of the Company. Further, there are five corporate vehicles related to various current and former executives of the Company who are also option holders concerning such analogous instruments.

54    Third, let me say something about the other significant option holders.

55    Directed Electronics Australia Pty Ltd is the holder of 14,285,715 options. Moreover, the transferee is a special purpose acquisition vehicle and related entity of Directed. Directed has agreed to voluntarily cancel its options upon the completion of a transfer of the options to the transferee.

56    Further, the Company and Mercer Street Global Opportunity Fund II LP are parties to a convertible securities agreement dated 15 March 2024. Under and subject to this umbrella agreement, Mercer is the holder of 5,593,804 options at an exercise price of $0.1162 and with an expiry date of 31 May 2027, 3,479,610 options at an exercise price of $0.1128 and with an expiry date of 27 August 2027, and 8,903,134 options at an exercise price of $0.08424 and with an expiry date of 14 October 2027. Each option entitles Mercer to subscribe for one fully paid ordinary share in the Company at the applicable exercise price. Further, Mercer holds 3,306,500 convertible securities, the precise details of which I do not need to descend into, save to say that they take the form of debt securities convertible into shares by an election or other event. Now Mercer has lodged a proof of debt in respect of its convertible securities, so those securities will be compromised by the present DOCA.

57    UBS Nominees Pty Ltd is the holder of 2,857,143 options at an exercise price of $0.12 and with an expiry date of 2 September 2027.

58    Netwealth Investments Limited is the holder of 23,023 options at an exercise price of $0.12 and with an expiry date of 2 September 2027.

Communications with shareholders and options holders

59    The deed administrators have issued circulars to the shareholders and option holders, notifying them of the following matters. They have been notified that the deed administrators have entered into the present DOCA, that the unsecured creditors will not be paid in full under the present DOCA, and so there will be no return to shareholders from the external administration. Further, they have been notified that the present DOCA contemplates the transfer of the shares to the transferee or its nominee, subject to the present application, for no consideration. Further, they have been notified that the present DOCA contemplates the transfer of the options, to the extent they are not already compromised by the present DOCA, to the transferee or its nominee subject to the present application, for no consideration, and thereafter the deed administrators and the transferee will cancel the options.

60    The deed administrators also caused to be prepared an explanatory statement, and also engaged an independent expert valuer to provide an opinion on the value of the shares and options on a non-going concern (liquidation) basis.

61    I note that ASIC Regulatory Guide 111 provides guidance regarding valuation assessments for proposed transfers in accordance with s 444GA, including that an expert should “generally value shareholders’ residual equity in a company under administration on a ‘winding up’ or ‘liquidation’ basis where that is the likely or necessary consequence of the transfer of shares not being approved”.

62    The expert’s opinion, which was prepared on this basis, has been annexed to the explanatory statement which has been sent to shareholders and option holders.

63    In my view the communications with shareholders, options holders and other interested persons have been more than adequate. Let me turn to the applicable principles.

Applicable principles

64    Section 444GA of the Corporations Act 2001 (Cth) provides as follows:

Transfer of shares

(1)    The administrator of a deed of company arrangement may transfer shares in the company if the administrator has obtained:

(a)    the written consent of the owner of the shares; or

(b)    the leave of the Court.

(2)    A person is not entitled to oppose an application for leave under subsection (1) unless the person is:

(a)    a member of the company; or

(b)    a creditor of the company; or

(c)    any other interested person; or

(d)    ASIC.

(3)    The Court may only give leave under subsection (1) if it is satisfied that the transfer would not unfairly prejudice the interests of members of the company.

65    As s 444GA(3) provides, a court may grant leave under s 444GA(1)(b) only if it is satisfied that the transfer would not unfairly prejudice the interests of members of the company.

66    In Coyne (deed administrator), in the matter of Obton Lotus Energy Rooftop Solar Pty Ltd [2023] FCA 1666, I said the following (at [33] to [43]):

A deed of company arrangement combined with a transfer of shares under section 444GA is a well-established vehicle for recapitalising an insolvent company. And the central consideration is whether a compulsory transfer of the shares would result in unfair prejudice to the members of the company as a whole in their capacity as members; see Weaver and Others in their capacity as Joint and Several Deed Administrators of Midwest Vanadium Pty Ltd v Noble Resources Ltd (2010) 41 WAR 301 at [73] to [74] per Martin CJ.

In Weaver, Martin CJ observed (at [79]) that:

… If the shares have no value, if the company has no residual value to the members and if the members would be unlikely to receive any distribution in the event of a liquidation, and if liquidation is the only alternative to the transfer proposed, then it is difficult to see how members could in those circumstances suffer any prejudice, let alone prejudice that could be described as unfair.

The deed administrator bears the onus of demonstrating that the discretion to allow the share transfer should be exercised in favour of transfer.

In Lewis, in the matter of Diverse Barrel Solutions Pty Ltd (Subject to a Deed of Company Arrangement) [2014] FCA 53, White J said (at [19]):

… Whether or not “unfair prejudice” will result from a transfer of the shares is to be determined having regard to all the circumstances of the case and to the policy of the legislation. Relevant matters would seem to include whether the shares have any residual value which may be lost to the existing shareholders if the leave is granted; whether there is a prospect of the shares obtaining some value within a reasonable time; the steps or measures necessary before the prospect of the shares attaining some value may be realised; and the attitude of the existing shareholders to providing the means by which the shares may obtain some value or by which the company may continue in existence. A relevant comparison will be between the position of the shareholders if the proposal does not proceed and their position if leave to transfer shares is granted.

The policy of the Act is embodied in s 435A and includes maximising the chances of the company, or so much as possible of its business, continuing in existence, and obtaining a better return for the company’s creditors and members than would result from an immediate winding up.

The existence of prejudice to members as a result of a compulsory transfer largely turns on the identification of some residual value residing in the shares in the company. In the present case the evidence establishes that the shares in OLERS are worthless. Clearly there will be no unfair prejudice if the shares have no value, and there would be no distribution to members in the event of a liquidation, which is the only realistic alternative to the proposed transfer.

The liabilities of OLERS far exceed the realisable value of its assets. The liabilities also well exceed any value that could be obtained by selling the business as a going concern.

Further, OLERS was dependent upon the continued financial support of Obton A/S to trade as a going concern. That support is no longer offered absent the proposed recapitalisation of OLERS.

Moreover, there is no evidence of any alternative course of action open to OLERS that might result in a return to its members. No alternative has been proposed. The only realistic alternative to the completion of the DOCA is liquidation. And on the evidence, there is no prospect of any return to members in a liquidation scenario.

Bluntly put, the shareholders are out of the money. Accordingly, they can suffer no prejudice by reason of the compulsory transfer of shares contemplated by the DOCA. And given that there is no identifiable prejudice, questions of unfairness do not arise. But if it needs to be said, I agree with Mr Mitchell Grady, counsel for the deed administrator, that there is nothing inherently unfair about Obton A/S, upon whose support OLERS relies, conditioning its continued support of OLERS on its recapitalisation.

Further, the proposed transfer is consistent with the purpose and policy of the Act. The counterfactual is stark. If the shares are not transferred and OLERS is placed into liquidation, unsecured creditors will receive little to nothing. Under the DOCA, unsecured creditors will be paid in full. So, the DOCA results in an overwhelmingly better return for creditors and allows OLERS and its business to continue in existence, which furthers and facilitates the legislative objectives of the voluntary administration regime.

67    See also Strawbridge (joint and several voluntary administrators), in the matter of Virgin Australia Holdings Ltd (admins apptd) (No 9) (2020) 148 ACSR 648 at [30] to [36] per Middleton J and Tucker (deed administrator), in the matter of Black Oak Minerals Ltd (subject to deed of company arrangement) (2019) 134 ACSR 472 at [32] to [35] per Banks-Smith J.

68    So, the fact that shares are to be transferred without compensation is not sufficient, in itself, to establish unfair prejudice.

69    Further, the question of whether shareholders hold any residual equity of value in a relevant sense, that is, for the purpose of assessing the existence and nature of any unfair prejudice, is determined by comparison with the position of the shareholders in a winding up, at least where that is the likely or necessary consequence of the transfer of shares not being approved. That makes it necessary to consider a valuation of the assets and liabilities of the company by reference to a liquidation scenario, rather than as a going concern.

70    Now in addition to any order under s 444GA, orders may be made under s 447A to provide the machinery by which a proposed transfer of shares in the subject company may be put into effect, including orders permitting administrators of a deed of company arrangement to execute and lodge share transfer documents and to ensure the entry of the acquirer’s name on the company’s register of members.

The transfer of the shares — analysis

71    The deed administrators’ assessment is that regardless of whether effectuation of the present DOCA occurs or, alternatively, the Company is wound up, the claims of all creditors will not be paid in full, with the consequence that there will be no return to the shareholders.

72    Reflecting that position, clearly the interests of members will not be unfairly prejudiced by the transfer of the Company’s shares. The estimated return to shareholders in all scenarios assessed by the deed administrators is nil.

73    Now as I have said, the deed administrators engaged an expert to provide an independent opinion on the value of the shares in the Company. The valuation was undertaken on a non-going concern (or liquidation) basis. The key conclusion reached by the valuer is that the Company has no residual value for its members. The valuer said in a letter to the deed administrators of 12 August 2025 (at [17]):

We have assessed the liquidation value of the issue shares in Toys R Us as at 4 June 2025 to be NIL. In our opinion, the recoverable amount from realising the assets of the Companies is insufficient to fund the full amount of the obligations of the Companies and hence there is no residual value for equity holders.

74    So, based on the evidence, the only available conclusion is that the shares in the Company have no economic value.

75    So, to adopt the language deployed by me in Obton Lotus, the shareholders and the option holders are out of the money and, accordingly, can suffer no prejudice by reason of the compulsory transfer of shares and options contemplated by the present DOCA.

76    Clearly the interests of the shareholders will not be unfairly prejudiced by the share transfer if leave is granted under s 444GA to effect the transfer in accordance with the terms of the present DOCA.

77    The estimated return to shareholders in all scenarios assessed by the deed administrators is nil.

78    Now there is one other matter that I should mention. The notice to interested parties has elicited a response from Mr Brandon Sarhad. Now whilst Mr Sarhad’s status as a member of the Company is attended by some doubt, in any event his criticisms of the valuer’s approach to valuing the shares in the Company, based on his contention that due account has not been afforded to “market-derived indicators of value”, is at odds with the authorities to the effect that the appropriate valuation is in a liquidation scenario rather than a “going concern” basis. Nothing further need be said concerning his position.

The transfer of the options — analysis

79    As I have said, the deed administrators have identified various parties that presently hold options to acquire shares in the Company. And as I have indicated, the holder of the largest number of options, Directed Electronics Pty Ltd, is a related entity of the transferee.

80    Now the present DOCA defines “Options” as “vested or unvested share options, warrants or other instruments convertible into securities in Toys ANZ”.

81    And in addition to providing for the transfer of the shares in the Company, clause 8.3(d) provides that the following step is to be taken in respect of the “Options”:

unless the Court determines that the Options are compromised by this Deed, the Deed Administrators will in accordance with the terms of the s 444GA Orders transfer all of the Options in Toys ANZ to the Proponent or its nominee and, following this, the Deed Administrators and Proponent will take, and the Deed Administrators will cause Toys ANZ to take, any steps, including by executing any necessary documents, which are necessary to cancel all of the Options

82    Now s 444GA contains no reference to options. It is limited to “shares”. Further, there is no useful definition of “shares” in s 9. Now there is a useful definition of “securities” (see ss 9 and 92), but s 444GA uses the concepts of “shares” and “members” rather than “securities” or “holders of securities” respectively. And query in any event what would be embraced by “securities” in terms of options or analogous instruments.

83    Now the originating process contemplates an order being made pursuant to s 447A that Part 5.3A is to operate in relation to the Company as if the reference to “shares” in s 444GA(1) includes the “Options” referred to in the present DOCA. But as I have already said, a required modification also needs to be made to s 444GA(3) concerning the phrase “interests of members of the company”.

84    Section 447A provides as follows:

General power to make orders

(1)    The Court may make such order as it thinks appropriate about how this Part is to operate in relation to a particular company.

(2)    For example, if the Court is satisfied that the administration of a company should end:

(a)    because the company is solvent; or

(b)    because provisions of this Part are being abused; or

(c)    for some other reason;

the Court may order under subsection (1) that the administration is to end.

(3)    An order may be made subject to conditions.

(4)    …

85    Section 447A gives the Court power to alter the operation of Part 5.3A as it operates in relation to a particular company. The section has broad application where to make an order would serve the objects of Part 5.3A and it confers wide discretionary power on the Court, which is not subject to the limitations found in other sections within Part 5.3A.

86    In Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270, the Court observed at [17] and [18]:

It is important to notice that the orders that may be made under s 447A(1) are described as orders about how Pt 5.3A is to operate “in relation to a particular company”. The power is not cast in terms of a power to make orders to cure defects or to remedy the consequences of some departure from the scheme set out in the other provisions of Pt 5.3A. Its operation is not confined to such cases. Nor is there anything on the face of s 447A(1) that suggests that it should be read down. In particular, the words of the provision are wide enough to confer power to make orders which will have effect in the future but which are occasioned by something that has been done (or not done) under the other provisions of Pt 5.3A before application is made under s 447A(1). …

Section 447A(1) speaks of orders about how “this Part” is to operate. The reference to “this Part” cannot be read as referring only to the Part as a whole. That is, it cannot be read as referring, in some global way, to the total operation or effect of the Part. In its context, the reference to “this Part” is to be understood as a reference to each of the provisions in it, for it is the provisions of the Part which give it the operation which an order under s 447A(1) may affect. And although the examples given in s 447A(2) cannot be taken as exhaustive of the scope, or as controlling the meaning, of s 447A(1) (s 109L), it is clear from those examples that they assume that orders under s 447A(1) may alter the operation of other provisions of the Part. That is, the orders contemplated in the examples go beyond a curial determination of what is the effect of existing provisions of the Part on a particular company in the circumstances that may be established in a proceeding; the orders contemplated are orders that alter how the Part is to operate in relation to a particular company, not how the Part does operate in relation to that company.

87    The Court then went on to address several perceived limitations including whether s 447A permits the making of orders affecting vested rights (at [20]). Now its discussion on this topic (at [29] to [32]) was tailored to the context being considered, but clearly there is no general bar to any exercise of power under s 447A which affects accrued rights. And in any event, if the accrued rights are worthless, what is in substance being affected?

88    I also discussed s 447A in Longley (deed administrator), in the matter of Dixon Advisory & Superannuation Services Pty Ltd (subject to deed of company arrangement) [2024] FCA 70 and said at [49] to [57]:

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.

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.

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.

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.

…

[citations omitted]

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

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.

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.

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.

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. … 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.

89    Now I am not dealing with a scenario where s 447A is being used in order to alter a DOCA to prevent debts being released. But s 447A could be used to modify a DOCA to ensure that further claims are being released, where because of the form of the DOCA previously approved by the creditors, that had not occurred, whether due to a drafting deficiency, some other over-sight or otherwise. Let me return to s 444GA.

90    Now as pointed out by counsel for the plaintiffs, the terms of s 444GA recognize that there will be circumstances in which it will be appropriate, to advance the objects of Part 5.3A, for shares in a company that is subject to a deed of company administration to be transferred without the written consent of the holders of those shares. And in the context of effectuating a deed of company arrangement in a manner that serves the interests of creditors, on occasions the same object will be furthered by the transfer of options to acquire shares in the deed company. Further, such options might be regarded as an asset of less certain value than issued shares in the deed company.

91    Now I accept that in the present context the transfer of options will serve the same purpose as the transfer of shares required by the present DOCA, namely, to meet the transferee’s commercial requirement for control of the Company by means of ownership of its issued share capital, and enable effectuation of the present DOCA.

92    Moreover, like members of the Company, option holders will not be unfairly prejudiced by the transfer of their options to the transferee. In particular, if the Company was to be wound up, being the only alternative to effectuation of the present DOCA, there will be no market for the options, the options would not be capable of exercise and/or the value of the options would be nil. Moreover, having regard to the nil value of the Company’s shares in a liquidation context, this is obvious.

93    Now let me say something more about the intersection between the DOCA and the s 444GA question concerning the options. There are two dimensions that it is worth elaborating on.

94    The first dimension can be addressed by posing a question: If the options could be in effect extinguished by a modification to the DOCA where that modification, in essence extinguishing the claims or choses in action that could be made or held by the option holders against the relevant deed companies, was made by operation of an order under s 447A rather than a variation resolved at a meeting of creditors, then why could not s 447A be used more directly by modifying the operation of s 444GA? In other words, if s 447A can be used to produce the indirect mechanism, as is clearly the case and is the second way that I identified at the outset of these reasons, then why not the direct mechanism? Both uses of s 447A would be equally consistent and consonant with the objectives set out in s 435A.

95    There is much to be said for this view. But it seems to me that the DOCA route is more preferable, particularly where there are employees of the deed companies who are creditors. Why not deal with their position completely under the DOCA, subject to statutory priority rights, if such employees/executives also hold options? And this leads me on to the second dimension.

96    In the present case, it would seem that the present DOCA does in fact treat with the option holders as creditors and extinguishes their claims, which is the first way that I identified at the outset of these reasons. A “Creditor” is defined in clause 1.1 to mean “a person or entity who has a Claim against a Deed Company”. And “Claim” is defined in the following terms:

Claim means, in respect of a Deed Company, all debts payable by and all claims against the Deed Company (arising at law, in equity or under any statute, present or future, certain or contingent, ascertained or sounding only in damages or arising pursuant to or in relation to any option or similar agreement) the circumstances giving rise to which occurred on or before the Relevant Date, including all actions, claims, suits, causes of action, arbitrations, debts, costs, demands, verdicts and judgments. (my emphasis)

97    Further, the option holders are bound by the present DOCA as “Creditors” (see clause 3(b)(i)).

98    Further, clause 13.2 provides:

13.2    Conversion of Claims

The Deed Administrators and the Creditors agree that upon Effectuation and all Claims (other than Excluded Claims) being released pursuant to clause 14.2, each Creditor who had a Claim (other than DEA or a Creditor with an Excluded Claim):

(a)    will, subject to their Claim being admitted by the Trustees, be entitled to make a claim against the Trust Fund in accordance [with] the Creditors’ Trust Deed, which is equal in amount to their released Claim; and

(b)    must accept such entitlements as they may have under the Creditors’ Trust Deed in substitution for any rights that they may have had against the relevant Deed Company and in all matters relating to those entitlements will be bound by the provisions of the Creditors’ Trust Deed.

99    Further, clause 14 provides:

14    Release of Creditors’ Claims

14.1    Operation of this clause

(a)    For the purposes of section 444A(4)(d) of the Act, this clause 14 sets out the extent to which each Deed Company is to be released from Claims against that Deed Company.

(b)    Clauses 14.2 and 14.3 of this Deed take effect on Effectuation of this Deed in accordance with clause 17.1(a).

14.2    Release of Creditor’s Claims

(a)    Creditors (other than Excluded Creditors) must accept their entitlements under this Deed in full satisfaction and complete discharge of all Claims which they have or claim to have against the relevant Deed Company.

(b)    Each Creditor (other than an Excluded Creditor) must, if called upon to do so by the Deed Administrators, execute and deliver to the relevant Deed Company such form of release of the Creditor’s Claims as the Deed Administrators may reasonably require.

14.3    Bar to Creditor’s Claims and discharge of debts

(a)    Subject to the terms of this Deed and section 444D of the Act, this Deed may be pleaded by a Deed Company against any Creditor (other than an Excluded Creditor) in bar to the Creditor’s Claims (irrespective of whether the Creditor has lodged a proof of debt or received a Dividend under the Creditors’ Trust Deed).

(b)    Each Creditor (other than an Excluded Creditor) must accept its entitlements under this Deed in full satisfaction and complete discharge of all Creditor’s Claims which the Creditor has, or claims to have, against a Deed Company (irrespective of whether the Creditor has lodged a proof of debt or received a Dividend under this Deed).

(c)    This Deed may be pleaded in set-off or in answer to any Claim (other than Excluded Claims) as fully and effectively as if the Creditor had executed a binding covenant under seal not to sue.

14.4    Application to Excluded Claims

(a)    For the avoidance of doubt, nothing in this clause 14 applies to the Excluded Claims or the Excluded Creditors or to convert, compromise, release, extinguish or otherwise discharge the Excluded Claims on Effectuation of this Deed.

(b)    The Proponent acknowledges and agrees that following the Effectuation of this Deed, unless otherwise agreed with the Excluded Creditors, the Excluded Claims will remain as liabilities of the relevant Deed Company.

100    Moreover, the option holders are not covered by the definition of “Excluded Claims” and they are not “Excluded Creditors” (see the definitions in clause 1.1).

101    So, the present DOCA arguably deals with the claims. And if it did not, s 447A could have been used to modify the DOCA to deal with them.

102    But if that latter possibility be the case, I see no good reason why s 477A could not be used to modify ss 444GA(1) and (3) in the terms indicated to deal with the options and analogous instruments, being the third way that I identified at the outset of these reasons. There is no good reason for s 447A not to operate to achieve directly what could be done indirectly in any event.

103    And there is little doubt that such an exercise of power is consonant with the objectives set out in s 435A as applied to the Company.

104    Further, in my view the interests of the option holders will not be unfairly prejudiced by the options transfer if orders are made to effect the transfer of the options to the transferee in accordance with the terms of the present DOCA.

105    The unlisted options have various exercise prices. But in a liquidation context, the current value of the shares is likely to be zero as total creditor claims are unable to be paid in full, resulting in the options being out of the money. Further, in a liquidation context, there is no market to sell any of the options.

106    Generally, in my view it is appropriate to utilise s 447A to modify s 444GA as I have indicated to deal with the options and analogous instruments. But much of this could have been addressed under the DOCA if that is not already the case.

107    Let me deal with one final topic.

ASIC relief

108    Clearly the Company is subject to the takeover prohibitions in s 606, and it is obvious that s 444GA does not operate to the exclusion of the takeover provisions set out in Chapter 6.

109    Now the share transfer will directly increase the transferee’s voting power and indirectly increase Directed’s voting power in the Company from approximately 20% to 100%. So, absent an exercise of power under s 655A, the share transfer is prohibited under s 606 given that none of the exceptions in s 611 apply.

110    So, in order to give effect to the share transfer, the deed administrators must obtain from ASIC relief pursuant to s 655A, that is, relief from the takeover provisions in Chapter 6 to facilitate the share transfer.

111    Now ASIC advised the Company by a letter dated 11 September 2025 as follows:

Based on ASIC’s consideration of the documents and information currently available to it, ASIC’s decision in principle is that it will grant the relief sought in the Application.

ASIC’s decision does not take effect until a formal instrument of relief is executed. We propose to execute the instrument of relief if, and only if, the Court grants leave to the Deed Administrators under paragraph 444GA(1)(b) of the Act to transfer all of the existing shares in the Company to A.C.N. or its nominees pursuant to the deed of company arrangement dated 31 July 2025. This ensures we do not grant relief that is never used.

112    And as said:

We note that ASIC’s decision is a different decision to that which is to be made by the Court in relation to section 444GA, although some of the factual material to be considered will overlap. Given the policy reasons for the prohibition on a person acquiring shares above the 20% threshold, which is set out in section 606, a key consideration for ASIC is whether the shares have any value. In this regard ASIC has had regard to the opinion of the Expert in the IER which was prepared in support of the Application.

113    Now as I have indicated, the value of the shares in a liquidation scenario is zero. And so the preparedness of ASIC to grant relief under s 655(1)(a) concerning s 606.

Conclusion

114    For the foregoing reasons I will make the orders sought but with some necessary modifications.

Associate:

Dated:    15 September 2025