Minority creditor terminates director friendly voluntary administration

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After pursuing a long and hard fought Supreme Court claim, our client obtained judgment for an amount of $1.64 million.  Shortly thereafter, the defendant company was placed into voluntary administration by its director.

Following the first meeting of creditors, it became apparent that related parties had sufficient voting power in both number and value to successfully put up a deed of company arrangement, committing unsecured creditors to accept a dividend of approximately 6¢ in the dollar.

The deed was being proposed in circumstances where the company’s entitlement to pursue related party debts of approximately $13 million would be forfeited under the proposed deed.  Additionally, there would be no opportunity to investigate the divesting of company assets prior to administration, including the transfer of over 100 registered trademarks.

Results Legal successfully applied to the Supreme Court of New South Wales to terminate the administration on the basis that the administration was an abuse of the Corporations Act and was not in the best interests of unrelated creditors.  The judgment itself is a landmark decision in Australia for the general proposition that the views of unrelated creditors, in these circumstances, will prevail over those of related creditors.

The court appointed an independent liquidator empowered to properly investigate the affairs of the company and pursue significant claims against related parties.

This course of action successfully allowed our client to ensure that the related parties’ actions were properly scrutinized and subject to the pursuit of legal action so as to ultimately increase the return to unrelated creditors, including our client.