On 12 September 2018 the High Court handed down its reasons for confirming the validity of holding DOCAs, resolving an argument that began in the Western Australian Supreme Court at the beginning of last year. Insolvency practitioners across the country can breathe a sigh of relief. Had the decision gone the other way – and it nearly did – it would have had serious ramifications for the reconstruction of insolvent companies.
In our article in March 2017, Insolvency Practitioners Have A Win On Fees And Holding DOCAs, For Now, we reported on the decision of Master Sanderson in the case of Mighty River International Ltd v Hughes & Bredenkamp  WASC 69.
Regular readers will no doubt recall that Mighty River International Limited was a creditor of a company, Mesa Minerals Limited, that went into voluntary administration in July 2016. In October 2016 the company's creditors approved a holding DOCA, i.e. a deed of company arrangement that brought the voluntary administration to an end, but did not put up a final proposal to restructure the company and avoid liquidation.
Mighty River wanted Mesa Minerals to be wound up instead. It argued unsuccessfully before Master Sanderson in the WA Supreme Court that this should occur because Mesa Mineral's holding DOCA, and holding DOCAs generally, were not consistent with the Corporations Act, notwithstanding that they have been widely used for 25 years by insolvency practitioners.
In August 2017 the Western Australian Court of Appeal rejected an appeal against Master Sanderson's decision, which we reported on in our article A Mighty Relief for Insolvency Practitioners; Holding DOCAs Upheld by WA Court of Appeal.
However, as we foreshadowed at the end of that article, we had not heard the last of Mighty River, whose appeal to the High Court from the decision of the Court of Appeal was heard in June of this year. After hearing a day of argument, the Court indicated immediately that the appeal would be dismissed. Its detailed reasons for doing so were published on 12 September.
A notable feature of the decision was how close it was. Two of the five Judges on the Court (Nettle and Gordon JJ) would have rejected the appeal and held holding DOCAs to be invalid. This is reminiscent of Master Sanderson's lukewarm endorsement of the concept in the decision at first instance (see earlier article).
The majority judgments found that holding DOCAs do not contravene the objects of Part 5.3A of the Corporations Act, which deals with voluntary administration and DOCAs. In particular, the majority rejected the argument that holding DOCAs are invalid because they avoid the statutory requirement to get a court's approval to extend the strict reporting times imposed on voluntary administrators in Part 5.3A.
The majority held that a DOCA can incidentally extend these times, to allow for later variations to it. Interestingly the majority was prepared to find that this is what had happened here, notwithstanding that the voluntary administrators had described the proposed deed as "essentially an extension of the Administration Period". Such wording is probably best avoided.
Another of Mighty River's main arguments was that this holding DOCA was invalid because, by its nature, the document itself and the way it was formed didn't comply with Part 5.3A. Keifel CJ and Edelman J found that these requirements, properly understood, had been met. Gageler J agreed, and added that as a matter of principle, Part 5.3A aimed to allow creditors themselves to decide what happens when a company is in voluntary administration, including the deferral of prescribed time limits.
So although the appeal was a close run thing, holding DOCAs as a concept (although not as a term) have been finally and authoritatively approved, eliminating much uncertainty and many lamentable puns.
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