Owners Corp seeks to terminate “cram down” DoCA

Is it a cram down or is it not? That’s the question a judge will have decide if proceedings currently afoot in the NSW Supreme Court are not soon resolved. And if the dispute goes to hearing the outcome could see two incumbent deed administrators (DAs) punted, a DoCA terminated and a mid-tier builder wound up.

The matter came to iNO’s attention last week when the court was told that a plaintiff Owners Corporation would seek to terminate a deed of company arrangement (DoCA) that was executed – with the help of a chairman’s casting vote – late last year by select creditors of Academy Construction & Development Pty Limited (Academy).

“At this stage we have no reason to doubt the account provided by the Director.” Jirsch Sutherland partners Andrew Spring and Peter Moore.

The select creditors are described in the September 27, 2023 Report of Academy’s then voluntary administrators (VAs) Andrew Spring and Peter Moore as “Class A”.

The Owners Corporation on the other hand occupies a Class B category, all on its own for that matter and while under the DoCA terms Class A creditors receive 100 cents in the dollar the Class B creditor gets 2.4 cents.

Given it is also overwhelmingly the largest creditor of the company with a disputed claim for nearly $8 million, the DoCA terms unsurprisingly did not suit the Owners Corporation, as is disclosed in the Minutes of the second meeting of Academy creditors held on October 6, 2023.

Lawyer and Owners Corporation proxy Michael O’Neill indicated that his client was opposed to the DoCA proposal, saying that the DoCA appeared to borrow from the “Cram Down” provisions of the United States Bankruptcy Code which allowed for the isolation of different creditor groups.

O’Neill further added that he believed the DoCA proposal was “prejudicial and unfairly discriminates against the Owners”.

He warned that Section 445D (F) of the Corporations Act allowed for the potential termination of a DoCA, and that his client regarded the proposal as “unfair, unjust and against the public interest”.

This prompted Spring, who chaired the meeting, to remind O’Neill that the reason he and Moore were appointed VAs in August 2023 was because of the impending costs of defending proceedings first brought against the company by the Owners Corporation for alleged building defects in 2021.

Spring also reminded the meeting that the defects claim was disputed by Academy’s director and noted that the building in question was occupied and the Owners Corporation had not raised any issues in respect of defects until seven years after construction was completed.

When the vote on the DoCA was deadlocked between the majority by number in favour and the lone voice opposed that was overwhelmingly the greater in value, Spring used his casting vote to get the resolution over the line.

Conceding that their investigations were not as in depth as those that could be conducted by a liquidator Spring told the meeting that the VAs had been given an explanation of why the company had to be placed in VA and “At this stage we have no reason to doubt the …. account provided by the Director.”

Whether such acceptance will lead the Jirsch pair to ruin is yet to be seen, as is what a judge will make of any claims of a “cram down” that make it to a final hearing, assuming there is one.