Casting vote defiance attracts State Revenue ire

Wexted Advisors founder Joe Hayes may be facing an almighty stoush with the Queensland State Revenue Commissioner (Commissioner) over an unpopular DoCA, but that doesn’t mean he and colleague Andrew McCabe should be prohibited from utilising the deed funds for their defence.

” … the allegations made in the Queensland Proceeding in respect of the Deed Administrators’ conduct are in relation to serious matters that, if established, have the capacity to impact the Deed Administrators’ professional standing”. Justice Elizabeth Cheeseman.

That is the view of Federal Court judge Elizabeth Cheeseman who on Monday ruled that on a proper construction of the controversial DoCA, Hayes and McCabe are justified in accessing the $2.3 million in the deed fund to pay their costs as deed administrators, which include the costs of defending an application to terminate the DoCA that is scheduled to be heard in April.

The termination application is being brought by the Commissioner and names multiple defendants, including Hayes and McCabe in their personal capacities, though the focus is on Hayes given he chaired the meeting at which the DOCA was approved after he used his casting vote to override the Commissioner’s objection.

As Justice Cheeseman revealed on Monday in McCabe, in the matter of McCabe his capacity as deed administrator of Comlek Group Pty Ltd [2023] FCA 1415 “… it suffices to observe that the attack made on the DOCA raises issues of public interest and commercial morality in relation to the circumstances in which Mr McCabe exercised the decisive vote and the terms in which the DOCA is framed.

” … the allegations made in the Queensland Proceeding in respect of the Deed Administrators’ conduct are in relation to serious matters that, if established, have the capacity to impact the Deed Administrators’ professional standing”, the judge said.

The Minutes of the second meeting of Comlek Group creditors however clearly show the level of consideration Hayes gave in weighing up whether to use his casting vote.

“On the one hand, the largest creditor in the administrations, being [The Commissioner] with a debt of $9.4M, has voted against the Directors’ DOCA Proposal on grounds of (a) fairness with the differential treatment of the DOCA Proposal, and (b) the alleged use of part 5.3A of the Act by the directors for improper purpose;

• Further, the [Commissioner] has put the Administrators on notice that if the Directors’ DOCA is approved and executed, the Commissioner of State Revenue may apply to the Court to review the exercise of my casting vote in favour of the Directors’ DOCA, and further or alternatively to have the Directors’ DOCA set aside under section 445D of the Act;
• While on the other hand, the majority of creditors, including a number of employees seeking to retain employment, have voted in favour of the Directors’ DOCA;
• On balance of the special proxies received prior to the meeting and in consideration of the [Commissioner’s] views on public interest and the potential court application, careful consideration has been given to exercising the casting vote on the resolution;
• While we acknowledge that the [Commissioner] is the largest creditor, the underlying benefits to creditors (and employees) of the DOCA Proposal also needs to be considered; and
• As detailed in our Report, the benefits of the DOCA Proposal include:
• The continued employment of ~140 employees, preserving employee entitlements, mitigating potential payments by the Department of Employment and Workplace Relations, through the FEG Scheme, to pay up to $1.8M;
• Providing for the progress and completion of current contracts, with the retention of knowledge and intellectual property of the Comlek Management Team and staff to complete contracts, mitigating the potential for liquidated damages claims and set-off claims against the debtors ledger;
• Intercompany loans will not be participating creditors, reducing creditor claims in the DOCA;
• Providing creditors with a financially better return than the mid-point range of the estimated liquidation scenario; and
• Providing a more certain and timelier outcome compared to a liquidation scenario.

“After careful consideration in the interest of creditors, which may be different to matters of public interest, the Chairperson, in his capacity as Voluntary Administrator and Chairperson of today’s meeting, provided his opinion that it would in furtherance of the objectives of Part 5.3A of the Corporations Act 2001 (Cth) to exercise his casting vote to accept the Directors’ DOCA Proposal because it maintains the employment of the Companies’ employees, maximises the chances of the Companies continuing in existence and results in a better return for the Companies’ creditors than an immediate winding up of the Companies.”

The hearing of the termination proceedings next year will highlight the tension that exists between public interest when it clashes with what can be shown to be in the best interests of creditors.

Further, the court will be asked to rule on what most justly aligns with the objectives of Part 5.3A of the Act when contrasted with a significant public interest issue and Hayes and McCabe will need funds to ensure they have their best chance of defending themselves against a State Revenue Commissioner seemingly intent on impugning their integrity.

To access those funds Hayes and McCabe first had to eliminate what they saw as an “absurdity” in the wording of the Comlek DOCA and this is what compelled them to apply for judicial guidance.

The “absurdity” related to DoCA provisions that saw contributions to the deed fund from both the Comlek Group and from the deed proponents, who are directors of the Comlek entities.

Hayes and McCabe were concerned that the wording in the DOCA was such that it wasn’t clear if they could access funds from both sources, or just one and so sought judicial imprimatur.

Justice Cheeseman agreed that they were right to seek the court’s guidance and found that a proper construction of the relevant clause “does not limit the recoupment of the Deed Administrators’ Costs to only that part of the Deed Fund comprised of the Comlek Companies’ Funds”.