Mohammad Najjar.
Sometimes attempts to terminate a DoCA appear as an exercise in futility, if not outright madness. Other times not so much.
“The effect of the DOCA is oppressive, prejudicial and contrary to creditor interests within s 445D(1)(f). If the DOCA were permitted to continue to completion, the various avenues of exploration for recovery from the former directors of the Company would remain unexplored.” Justice Stephen Burley.
As reasoning provided last week by Federal Court judge Stephen Burley demonstrates, when the passage of the deed is assisted by a slew of related parties against the recommendation of the administrator, when claims pursuable by a liquidator are evident, and when the parties against whom those claims could be pursued possess assets, then such a DoCA is like a yacht without a keel.
In Horton Asset Pty Ltd v HMSY Group Pty Ltd, in the matter of HMSY Group Pty Ltd [2025] FCA 1051 the judge found that whilst the related parties were classified in the deed’s terms as “non-participating” creditors and therefore unable to receive a dividend, this seeming disadvantage had to be viewed in circumstances where the participating creditors would lose all capacity to pursue claims through a liquidator in exchange for a predictably pitiful return.
” …… the DOCA identifies, in effect, two classes of creditor, the judge said.
“The discrimination is apparently because the Non-Participating Creditors are related entities to the Company. On its face, that might be a good reason why those creditors are not to benefit from any payment from the Deed Fund.
“However, upon closer examination, the segregation would appear to have the effect of insulating some or all of those entities from the closer scrutiny of a liquidator and depriving the Participating Creditors of an opportunity to benefit from that scrutiny by any subsequent recovery.
“On the basis of the materials before me, I am satisfied that there is a not unrealistic prospect that those investigations would yield an improved return to the creditors.”
This was a good deed for incumbent administrator Mohammad Najjar of Vanguard Insolvency Australia to reject.
The recently appointed director appeared to have no clue about the business and there was no plan in place for the company to continue to trade post-effectuation.
Further, by recommending that the DoCA be rejected and the company be wound up he’s avoided getting too far offside with petitioning creditor Horton Asset Pty Ltd.
Despite voting against Najjir’s retrospective and prospective remuneration resolutions at the February 5, 2025 second meeting Horton Asset didn’t propose an alternative liquidator and Najjir is now in the position to pursue the claims identified as being available to a liquidator, assuming he has funds.
iNO asked. Najjar didn’t tell.
Without more information as to whether the non-participating creditors were barred from recovery it is unclear whether after the execution of the DOCA the company was solvent – that rasies the overriding concept set out in s 435A and whethger the company ought to be able to continue to trade, in any event.