Your selected location:
2 Jun 2015
In the recent WA Court of Appeal decision of Australian Gypsum Industries Pty Ltd v Dalesun Holdings Pty Ltd [2015] WASCA 95, the WA Court of Appeal considered whether a Deed of Company Arrangement (“DOCA”) could prevent a secured creditor who did not vote in favour of it from cashing in its security to cover debts arising after the DOCA was made.
 
 
Background
 
The appellants were members of the BGC group of companies (“BGC Group”). The BCG Group supplied goods on credit to Newglen Nominees Pty Ltd (the “Debtor”). Dalesun Holdings Pty Ltd (“Dalesun”) guaranteed the Debtor’s payment for those goods. The guarantee was supported by a charge over Dalesun’s land.
 
 
Dalesun went into administration in 2010.   It then entered into a DOCA relevantly purported to release Dalesun from liability for all claims against it (except those claims otherwise expressed in the DOCA), including contingent claims (that is, claims which its creditors had no present, accrued entitlement to make against it).  Dalesun recovered financially in 2011.  This meant the DOCA had served its purpose and so it was terminated.
 
 
Thereafter, the BGC Group supplied further goods on credit to the Debtor until the Debtor went into administration in 2012. Even after executing its own DOCA, the Debtor was unable to fully satisfy the amount owing to the BGC Group. The BGC Group then sought to recover those unpaid sums from Dalesun under the guarantee. At trial, the Primary Judge found, in effect, that the BGC Group’s claims were precluded by the DOCA executed by Dalesun.
 
 
The Issue
 
The main issue on appeal was whether s444D(2) of the Corporations Act 2001 preserves the rights granted to the BGC Group under the guarantee. If it did, the BGC Group would be entitled to enforce the debts which became due and payable after Dalesun’s entry into the DOCA by seizing and selling Dalesun’s land, which had the relevant charges over it.
 
 
The BGC Group argued that the guarantee covered debts incurred after the DOCA took effect. Dalesun argued that by virtue of s444D of the Corporations Act, the DOCA covered the field of a creditor’s rights of recovery against the insolvent company.  This included rights arising independently, such as, in this case, recourse under a guarantee.
 
 
The Court’s Decision
 
In their joint judgment, Newnes and Murphy JJA, constituting the majority, found that:
 
• While s444D preserves the BGC Group’s rights at the time of the DOCA to realise or otherwise deal with its security (i.e. the charge over Dalesun’s land), it provides nothing about reinstating provable claims that have been released by the statutory effect relating to the DOCA. That is, the future or contingent claims arising under the guarantee were not protected under s444D(2) from being extinguished by the DOCA; and
 
• Weight must be given to the statutory purpose of s444D, which is, among other things, to give the insolvent company a ‘fresh start’. In this case, rather than providing Dalesun a ‘fresh start for the future’, the BGC Group’s interpretation of s444D(2) would give Dalesun a ‘legacy of debt’ after termination of the DOCA.
 
 
Lessons Learnt
 
This case highlights the risks involved in working with a company facing insolvency, even when that company or a third party enters into a guarantee. It is likely that a DOCA will be final and binding on all creditors, including those who voted against it, and entirely dispose of creditors’ rights and interests in connection with a liquidated company’s debts, including as against third party sureties. When obtaining guarantees as security for commercial arrangements, it is important ensure adequate securities are created and subsequently registered, and a thorough due diligence is completed as to the solvency of the other parties to any guarantee.
 
 
HHG Legal Group is well versed in this area of law. Speak to our commercial litigation team about mitigating your risk in commercial arrangements, or how best to deal with debts or contingent or future claims.
 
 
This is general information only, and does not constitute specific legal advice. If you would like further information in relation to this matter or other legal matters please contact our office on Freecall 1800 609 945 or email us now.
 

*This is general information only, and does not constitute specific legal advice. Please consult one of our experienced Legal Team for specific advice relevant to your situation.

Supporting Western Australian's for more than 100 years

"Always fast and thorough service. Thank you"

Sitka Pil

My circumstances at the time I made contact with HHG were dire following my argument being rejected by two no win no fee firms. Following my initial meeting with HHG's employment law team I was left feeling extremely positive by the response and concern shown by HHG in regards to their support of my argument along with their preparedness to pursue an outcome on my behalf.

I accept the fact that nobody really wins in these cases (mental health/ workplace) however the end result was what would be considered most favourable and far in excess of what would have been achieved had I not sought the advice from HHG.

I have no hesitation in recommending HHG to anyone caught up in the messy circumstances I found myself in at the time.

Great advice and five-star commitment to their client!!"

Nathan Lynch

"Thank you for such great assistance with the transaction of Flying Domestics on behalf of Lorna Good. It has been such a pleasure to work with the HHG Legal Group and I look forward to working with you in the future."

Jim Goodwin

"Simon Creek and his team were at all times empathic, professional and confident.  My matter needed to be addressed within a pressing time frame, and their availability at short notice and contact after hours was much appreciated.  It caused me considerable stress, but having such a thoroughly reliable and competent team to call on helped me to feel in control. Although I hope not to need their services again in future, I would be confident in doing so!"

Dr Lana Bell

"A good outcome is what we can expect.  A great outcome is a sign of a company which does the very best for their clients. A very big thank you to Daniel Morris for showing empathy towards my small and much needed legal action.

To HHG Legal Group, thank you for a great outcome.  I would recommend your company to anyone seeking legal services."

Jan Atkinson

"Your support this morning was amazingly kind, not to mention your totally reassuring competence, knowledge and wisdom that you used on my behalf.  It was extremely reassuring to have your knowledgeable support, and I particularly appreciated your real and obvious kindness to me. It means so much at a very difficult time. I'm so grateful to you."

Family Law Client

"Janene was very professional and we established a good rapport quickly. The subject of death and wills can be quite confronting to deal with, however, Janene's approach was soft and accommodating."

Lynette Livesey

"A big thank you to HHG for their professional service, continued support, and wide range of legal knowledge. Our clients have given us nothing but kind words regarding HHG Legal Group and so we have no hesitation in referring and recommending Simon Creek and HHG Legal Group for their outstanding services and legal expertise."

Nigel Plowman, Director at McKinley Plowman & Associates

"Simon is a friendly and practical legal advisor. I have received great feedback from the clients I have referred to him and his team at HHG Legal Group."

Richard Beal, Director at BDO

"Over the last few years, I have been impressed by Simon’s legal ability, management skills, entrepreneurial spirit, personal integrity and people skills. He appears to be that rare breed of lawyer – both knowledgeable and commercial."

Michael Malone, Founder of iiNet

"Our family has been a client of HHG Legal Group over many years.  Business has included drawing up of wills for three generations and preparing of probate for my father in law. I would have no hesitation in recommending HHG Legal Group to anyone requiring such services."

Bernice Climie

"You should be congratulated for the manner in which your staff address clients and we found our dealings with your company, once again a very pleasant experience and we would like to truly thank you for your efforts."

Steve Harvey and Jane Powell

"HHG Legal were absolutely fantastic. Extremely responsive and brought calm to our chaotic family situation through their knowledge and caring attitude. Extremely professional from our very first contact with them and they expertly guided our family though the required legal process over almost a 12 month period."

Amanda Williamson

"Fantastic team! They really care about their client. Tim Colcutt is a 'go that extra mile' guy who gives his client his all. I can't recommend HHG and Tim enough."

Kerry Samson

"I had a fantastic lawyer in Anne Hurley. She helped me out a great deal with good, sound advice in a friendly, professional manner. First class, thanks Anne"

Graeme Hammond

"Marine Plant Systems has been working with HHG Legal Group for a few years now and they continually provide first-class service. Their professional advice has been invaluable to our company."

Carolin Grimm - Marine Plant Systems

"We were kept up to date at all times. Pricing was always updated over the time period so we remained "in budget". Personal access to someone whenever I had questions. All in all a great experience without too much fuss."

Rosslyn Tasker - COO AltusQ Pty Ltd

"Good service you can count on."

Miles Lee

"HHG Legal Group has provided outstanding support as I have taken the journey of buying a business, their professionalism is beyond reproach. Their assistance throughout the Due Diligence process has been invaluable, I would fully recommend them."

Mark Armitage

"Very friendly and efficient service - what a pleasure working with Anne."

Jacques Taylor

"I highly recommend Daniel from HHG Legal Mandurah. When dealing with a complicated legal property matter recently I was extremely impressed by Daniel's honesty and integrity and the legal advice I received. I am very happy with the service from HHG Legal."

Tony Walker

Select your location:

Please select your nearest office location so we can show you the most relevant information.