In the recent decision, In the matter of Mirabela
Nickel Ltd (subject to deed of company arrangement) 
NSWSC 836, the NSW Supreme Court has granted leave to the deed
administrators under section 444GA of the Corporations Act
2001 (Cth) (Act) to transfer 98.2% of the existing shares of
Mirabela Nickel Ltd (Mirabela) to unsecured creditors without the
consent of its shareholders.
Mirabela is listed on the Australian Stock Exchange.
Mirabela's main asset is a nickel mine in Brazil. The Mirabela
group had been in financial difficulty since mid-2013 as a result
of declining nickel prices and loss of one of its major customers.
The group had several debt facilities, including US$395 million
senior unsecured notes.
On 25 February 2014, the directors placed Mirabela into
voluntary administration. The majority of creditors resolved at the
second creditors' meetings that Mirabela execute a deed of
company arrangement (DOCA) to implement a
recapitalisation plan proposed by a group of the noteholders.
The terms of the DOCA included:
leave of the Court be obtained for transfer of the shares;
98.2% of the shares in Mirabela be transferred to noteholders
in proportion to their claims (or sold on behalf of noteholders)
and shareholders be left with 1.8% shares in Mirabela; and
all claims of the unsecured noteholders and all claims of
shareholders be extinguished.
Section 444GA of the Act allows a deed administrator to transfer
the shares of a company where he/she has obtained the written
consent of shareholders or leave of the Court. A shareholder,
creditor, interested person or ASIC may oppose this application for
leave. The Court will only give leave if it is satisfied that the
transfer would not unfairly prejudice the interests of the
shareholders of the company.
In determining this unfair prejudice, the position of
the shareholders if leave was granted is compared to their position
if it was not and Mirabela was wound up. The evidence submitted for
this comparison included:
The administrators' section 439A report: it was estimated
that unsecured creditors and shareholders would receive no return
if Mirabela was placed into liquidation.
Independent expert's report: negative cashflows were in
excess of US$100m for the 2013 financial year and Mirabela had
negative net assets of US$375.8m. Net interest bearing liabilities
of US$526.8 million exceeded the enterprise value of Mirabela's
assets. The shares had no value and would yield no return in a
Justice Black adopted Chief Justice Martin's approach in
Weaver v Noble Resources Ltd  WASC 182. In
particular, that "unfairness only arises if prejudice is
established". Where the company has no residual value to
members and they are unlikely to receive anything in a liquidation,
which is the only alternative, "then it is difficult to
see how members could in those circumstances suffer any prejudice,
let alone prejudice that could be described as
A comparison is undertaken of the shareholders' position if
leave was granted to their position if leave was not granted. Here,
if leave was not granted, the plan would not proceed leading to the
liquidation of Mirabela. The evidence shows that Mirabela's
liabilities exceed its assets and in a liquidation unsecured
creditors and shareholders would receive no return. The plan
contemplates that shareholders would retain minimal equity with
potential economic value (albeit marginal), which is more
favourable than nothing in a winding up.
Justice Black held that there was no unfair prejudice to
shareholders and granted leave for the transfer of shares.
This is the first time that leave has been granted to deed
administrators of a listed company to use this power. This decision
provides helpful guidance for deed administrators in proposing a
DOCA leaving shareholders with little value in the company without
their approval in the situation where shareholders have no economic
The relevant analysis for the deed administrators is a
comparison of the returns to various stakeholders in a liquidation
scenario to the scenario contemplated by the DOCA and plan, rather
than a going concern basis.
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.
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