Voluntary administration, professional innovation and dissenting creditors — Mighty River International in the High Court of Australia

The enactment of pt 5.3A of the Corporations Act 2001 (Cth) introduced a
flexible non-judicial mechanism for the administration of companies in
distress in Australia. In the place of the courts, the management of a
voluntary administration is largely placed in the hands of one or more
registered company administrators and the company’s creditors. Part 5.3A
created tight timelines for the holding of creditors’ meetings and the
preparation of a deed of company arrangement (‘DOCA’), a binding
agreement between the company and its creditors governing how the future
affairs of the company will be managed. Extensions of these narrow
legislative time limits are available only from the court upon application by the
administrator. Recent practices in the conduct of large and complex
administrations have seen insolvency practitioners utilise the DOCA process
to develop an alternative mechanism for obtaining more time. This
mechanism, known as the ‘holding DOCA’, allows the deed administrators to
maintain the status quo while completing investigations into the company’s
affairs and/or exploring options for restructuring, which may be realised
through a future variation to the deed. However, the language of pt 5.3A does
not specifically provide for a holding DOCA, although its development is
arguably consistent with the broader framework of the Corporations Act. In a
narrow 3:2 majority decision arising out of the voluntary administration of
Mesa Minerals Ltd, the High Court of Australia in 2018 approved the use of
the ‘holding’ procedure to allow for extensions of time to finalise
investigations by the administrators. It is argued that legislative changes to
impose minimum standards for the use of a holding DOCA would be prudent,
as this procedure will not always be available. Whilst the High Court decision
will be reassuring to insolvency practitioners in the short term, in the longer
term, legislative clarification is necessary to remove residual uncertainty in
this area.