Ashurst Restructuring Roundup

DoCA's: What Claims can be Released?

PK Riddell Investments Pty Ltd v Upwards Up And Gone Pty Ltd [2024] VSC 159 ("Riddell Investments")

Section 444A(4)(d), Corporations Act ("CA") provides that a DoCA must specify the extent to which the company is to be released from its debts. That is to say, absent an express provision in the DoCA which releases a company from the claims of its creditors, those creditors may continue to pursue their claims notwithstanding the execution by the company of a DoCA.

In Riddell Investments, the DoCA included two clauses which purportedly had the effect of releasing the claims of its creditors:

• 12.3.1 "…release and forever discharged the Company from all actions, claims, suits, causes of action, demands, proceedings and costs of whatsoever kind whether present, future, foreseeable or unforeseeable they have or may against the Company"; and
• 12.3.2 "...all of those creditors' debts or claims, present or future, actual or contingent, due or which may become due by the Company as a result of anything done or omitted by or on behalf of the Company before the day when the administration began and each claim against the Company as a result of anything done or omitted by or on behalf of the Company before the day when the administration began are extinguished."

Prior to the commencement of the company's voluntary administration, a creditor had applied to the Victorian Civil and Administrative Tribunal ("VCAT") under the Water Act 1989 (Vic) for damages and injunctive relief by reason of a flow of water from the company's property onto the creditor's property.

VCAT referred the following question of law to the Supreme Court of Victoria for determination: 

"Does the Deed of Company Arrangement entered into by the [company] ... release or otherwise bar the [creditor's] claims in VCAT proceedings ... or any part thereof?"

As to clause 12.3.1, it was held to be void because there was no temporal limitation, not only on claims which were released but also in respect of the "actions ... suits, causes of action, demands, proceedings and costs of whatsoever kind" which were the subject of clause 12.3.1. In this regard, the Court held (at [78]): 

"These authorities confirm that claims that may be compromised by a deed of company arrangement are those that have a basis, founded on an existing legal right, for asserting a right to participate in the division of the company's assets. The reference to 'a right to participate in the division of the company's assets' indicates that the claims that may be compromised by a deed of company arrangement are in the nature of monetary claims or at least something that may be valued and taken into account in a winding up or other administration that is underway."

The Court referred approvingly to previous judgments that held that a DoCA is a statutory mechanism such that the deed is given such force as the statute provides and no more.

So far as concerned clause 12.3.2, it only operated in respect of claims "against the Company as a result of anything done or omitted by or on behalf of the Company before the day when the administration began". It was therefore effective to release the creditor's claim for damages under the Water Act.

In that regard, the claim for damages in the VCAT proceedings was limited to the damages suffered by the creditor before the commencement of those proceedings, which was prior to the beginning of the company's voluntary administration. Moreover, by reason of the release of the claim for damages as pleaded before the VCAT as well as the circumstance that the jurisdiction to grant injunctive relief was ancillary to the jurisdiction to award damages under the Water Act, the claim for injunctive relief was also released.

It should be noted, though, that the Court in Riddell Investments held (at [112]):

"If [the VCAT claim] were amended to include a claim for loss and damage by reason of something done or omitted by the [company] after the date on which the administration commenced, then the DOCA would not operate to extinguish such a claim."

Depending on the facts of the claim, the creditor could not only pursue a claim for damages under the Water Act which arose after the commencement of the company's administration, but could also seek injunctive relief.

Given that claims which may be bound by a DoCA must be "in the nature of monetary claims or at least something that may be valued" and that specific performance is available in respect of those contracts where damages are assessed to be an inadequate remedy, query whether some such claims may not be released by a DoCA.

Author: Richard Fisher AM and Emanuel Poulos.