Getting a straight answer about DoCA funding can be tougher than shelling an uncooked prawn, as lawyer Scott Guthrie can attest.
When the Thomson Geer partner appeared at the second meeting of creditors of stalled aquaculture play Project Sea Dragon Pty Ltd (PSDPL) Guthrie had one overriding concern – if the company was returned to the control of the directors via the proposed deed of company arrangement (DoCA), what guarantees were being put forward in respect of funding the company’s ambitious project to completion?
“However, there seems to be nothing in the report and no assurance from the Directors as to how the Company, if it transitions from Administration to a DOCA, will actually be able to trade. This makes us question what the point of the DOCA is, other than for the immediate benefit to creditors. On what basis will the company continue to trade and meet its liabilities?” Thomson Geer’s Scott Guthrie.
A reasonable question one might have thought, even if Guthrie was asking it on behalf of Canstruct Pty Ltd, PSDPL’s largest single creditor and the creditor with whom PSDPL’s directors are in bitter dispute.
But at the March 21, 2023 meeting, administrator and chair Shaun McKinnon wasn’t inclined to give Guthrie the response he sought.
After opening for questions Guthrie, referring to the 439A Report authored by McKinnon and joint & several appointee Andrew Fielding, asked what assurance could creditors have that funding would be available and by whom would it be provided?
McKinnon responded by saying that the administrators had reviewed the publicly available information in respect of PSDPL’s parent company and DoCA proponent Seafarms Group Pty Ltd (SFG) and were satisfied them that SFG had the ability to make the contributions.
Director Rod Dyer then confirmed that SFG as parent has the ability to make the contribution to satisfy the DOCA.
Shares in ASX-listed SFG are currently trading at around 4 cents but the company reassured the market today that its plans for PSDPL are on track and that an application brought by Canstruct to have the DoCA terminated is an “unwanted distraction for the Company and while no outcome is guaranteed in circumstances involving litigation and the Courts, Seafarms’ legal position gives it confidence.”
Saying that the deed proponent could satisfy the DoCA of course isn’t the same as guaranteeing that the liabilities and obligations will be met, which was what Guthrie was asking.
His client after all has a $14.5 million claim for unpaid work on PSDPL’s land-based prawn aquaculture venture located at Exmouth in West Australia, which is intended to produce black tiger prawns for domestic and export markets.
Under the terms of the DoCA SFG will tip in $3.5 million to cover the administrators trading liabilities – estimated at $1.6 million – and all priority and small claims creditors, which McKinnon and Fielding estimate would be paid in full.
Canstruct however can expect about 10 cents in the dollar and reckons there’s a potential insolvent trading claim against the directors if PSDPL goes into liquidation. So Guthrie tried again.
“The point of the DoCA is that the Company will continue trading, it is not clear from the (439A) Report how the company moving forward will meet its liabilities. The Report is silent,” Guthrie said.
“What I have mentioned previously is the appropriate response to your question,” McKinnon began helpfully.
“The point you are trying to make is subject to a number of variables which are outside of my control and ability to answer,” McKinnon said.
Guthrie then pointed out that it was well within the director’s capacities to answer.
“We have given the Directors the opportunity to respond, and they have decided not to,” McKinnon said. But Guthrie persisted.
“The whole premise of the DOCA is that it allows the Company to be returned to the control of the Directors,” he said.
“However, there seems to be nothing in the report and no assurance from the Directors as to how the Company, if it transitions from Administration to a DOCA, will actually be able to trade. This makes us question what the point of the DOCA is, other than for the immediate benefit to creditors. On what basis will the company continue to trade and meet its liabilities?
“It is a reasonable question to ask in the context of the recommendation to allow the company to be returned to the Directors so that it can continue to trade,” Guthrie said.
But is it correct to assert such a premise? McKinnon didn’t think so.
“I disagree with your point,” he said. “The key issue is whether or not the creditors will have a better return. If the Company were to go into liquidation, the Administrators’ reports clearly stated that all creditors would get a lower return.
“Once the Deed fund and liabilities are paid, the directors will have to manage the liabilities but they are in the position to be able to do that themselves after the DOCA is complete.
“At this stage, the creditors will have all been put in a better position which is the primary purpose of a Voluntary Administration,” McKinnon concluded, thereby bringing Guthrie’s line of inquiry to an end.
When the resolution was put to creditors the DoCA proposal got up and while that brought the meeting to an end it merely marked the start of litigation between Canstruct, PSDPL and SFG.
Two judgments have already been delivered in the Federal Court, McKinnon and Fielding have been injuncted from making a distribution from the deed fund, SFG has lost an application for discovery and a hearing on Canstruct’s application to have the DoCA terminated and PSDPL wound up is set down for August.
Irony aside, Guthrie of course will have another chance to get straight answers when the parties meet in August.
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