The amendment to the DOCA meant that insurance proceeds
were excluded from the proof and pro rata divisibility provisions,
so the beneficiary of the insurance policy could receive the
insurance proceeds directly.
In a recent decision, In the matter of Nahas Construction and
Development Pty Limited (Subject to Deed of Company Arrangement)
(ACN 083 581 257)  NSWSC 628, Justice Brereton in the NSW
Supreme Court made orders to amend a deed of company arrangement
(DOCA) to the effect that insured claims against
the company subject to the DOCA would attract the operation of
This meant that insurance proceeds were excluded from the proof
and pro rata divisibility provisions of the DOCA, ensuring the
person, against whom the company incurred the liability, would
receive the insurance proceeds directly.
The DOCA and the plaintiff in negligence
Three companies, including Nahas Construction (NSW) Pty Limited
(ACN 124 452 786), were subject to a DOCA. The DOCA incorporated
Part 5.6 and section 562 of the Corporations Act 2001 (Cth)
requiring insurance proceeds to be given directly to a person to
whom a company has incurred an insured liability.
Ms Gisele McTear commenced proceedings against Nahas for damages
for personal injuries said to have been occasioned when temporary
fencing fell on her. When it became apparent that Nahas was subject
to a DOCA, McTear applied to substitute its insurer, HIA Insurance
Services Pty Limited, as defendant under section 6(4) of the Law
Reform Miscellaneous Provisions Act 1946 (NSW).
Section 562 and insurance payments
Where a company is insured against a liability to third parties,
and that liability is incurred either before or after the
commencement of the winding up, section 562 provides that any
amount paid by the insurer to the liquidator or company in respect
of that liability is to be paid to the relevant third party in
priority to all debts mentioned in section 556.
The deed administrators were concerned that the DOCA would limit
McTear's claim to proving pro rata with the unsecured
creditors. If so, she would only receive a portion of her purported
claim. Therefore, the deed administrators sought to amend the DOCA
to make clear that insured claims that would attract the operation
of section 562 are excluded from the proof and pro rata
divisibility provisions of the DOCA. This would mean that McTear
would receive the entire sum of damages from the insurer if her
claim was successful.
How a DOCA can be varied – and why this one was
The Court considered various provisions in the Corporations Act
which can be used to vary a deed:
section 445A, which provides for variation approved by a
meeting of creditors (which had not happened in this case);
section 445G, under which a court can terminate a DOCA
provision where there is doubt that it complies with the
Corporations Act (which was not the case here); and
section 447A, which empowers the court to make such orders as
it thinks appropriate about how Part 5.3A is to operate in relation
to a particular company (which this Court used).
The Court highlighted the breadth of the operation of section
447A of the Corporations Act and held that the DOCA should be
varied as requested because:
the deed administrators had asked for the variation;
no creditors had appeared to oppose it; and
there would be no prejudice to the other creditors, as
excluding the claims of insured creditors from the deed fund would
preserve the value of the deed fund for the other creditors,
leaving the insured creditors to claim against the insurance funds
A sensible decision
The case demonstrates the flexibility of section 447A of the
Corporations Act, and the path taken by the deed administrators and
the use of section 447A by the Court seems to be a sensible one in
the circumstances. Absent the orders, McTear may have had to stand
in line with creditors before receiving only a pro rata portion of
compensation for her injury and loss.
Clayton Utz communications are intended to provide
commentary and general information. They should not be relied upon
as legal advice. Formal legal advice should be sought in particular
transactions or on matters of interest arising from this bulletin.
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The failure of a party to call a witness does not necessarily give rise to an adverse inference being drawn in accordance with Jones v Dunkel (1959) 101 CLR 298. An unfavourable inference is drawn only if evidence otherwise provides a basis on which that unfavourable inference can be drawn.
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