On 23 December 2013 Justice Robb of the Supreme Court of New
South Wales set-aside the resolution of creditors of Retail
Adventures Pty Limited (Administrators Appointed)
(RAPL) to execute a Deed of Company Arrangement.
The Administrators (Messrs Strawbridge, Grieg and Lombe of
Deloitte) were subsequently appointed as liquidators.
The liquidators have now flagged their intention to commence
proceedings to pursue a voidable security claim against a related
party creditor which claims to hold valid security for a debt of
$77.49 million. The Liquidators believe that the security may be
voidable as to $49.77 million of that amount, which would leave
only $27.72 million secured.
If successful the action could result in a substantial claim
against the purchaser of the RAPL business, another related party
creditor, DSG Holdings Pty Limited (DSG).
DSG purchased the business on terms that the purchase price
would be set-off against the $77.49 million secured debt. However,
under the business sale agreement, if at any stage the security for
the $77.49 million was in part declared void, DSG would be required
to pay to RAPL an amount equal to the extent that the remaining
secured amount was less than the purchase price.
A successful action by the liquidators could leave the new owner
of the RAPL business with a substantial liability.
The news is worse for the directors. The Administrators have
previously stated that if RAPL enters liquidation it may have a
claim against its directors, Jan Cameron, Penny Moss and Bruce
Irvine, of $48.284 million.
What went wrong?
How did the Retail Adventures plan, which looked to be a new
benchmark in pre-administration planning, end up a shambles?
The problem was the size of the proposed Deed Fund.
The Contributing Related Creditors offered only $5.5 million as
a deed fund for unsecured creditors. The resulting distribution to
the unsecured creditors was estimated by the Administrators to be
6.46 cents in the dollar. The Administrators estimated that in
liquidation the distribution to unsecured creditors would be
between 20.71 and 45.12 cents in the dollar.
The judge concluded that the size of the Deed fund was too low
by a significant margin. Using the powers provided by section
600A(1)(c)(ii) of the Corporations Act he set aside the resolution
on grounds that it prejudiced the creditors that opposed the
The judge was also clearly unimpressed by the decision of the
related party creditors to acquire $35 million of creditor debts
(from creditors they considered to be important to the ongoing
business) so that the defendants would have the votes to pass the
resolution while offering only $5.5 million to the remaining
A key strategy of the Retail Adventures plan was to tie the
survival of the business to the company entering into a DOCA. In
Court the related creditors argued that the liquidation of RAPL
would be a catalyst for the winding up of the new business owner,
DSG which in turn would jeopardize the continuation of the
business. While Justice Robb considered that issue to be of
significance there was insufficient evidence of the likelihood of
For all its sophisticated planning, the Retail Adventures plan
ultimately failed for the simplest of reasons – the
contributing creditors did not place an appropriate value on the
power of the opposing creditors.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
Kemp Strang has received acknowledgements for the quality of
our work in the most recent editions of Chambers & Partners,
Best Lawyers and IFLR1000.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
This Update highlights two recent cases that considered circumstances where liens could take priority over a registered security interest.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).