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Secured creditors should be active in negotiating a DOCA

Insolvency Law News | February 2016

Deeds of Company Arrangement [DOCA] after a company has been placed into administration may cause some confusion for secured creditors. A recent case has ventilated some issues raised by secured creditors in this situation.

The case

In the recent decision in Bluenergy Group Ltd (Subject to a Deed of Company Arrangement) (Administrator Appointed) [2015] NSWSC 977, the Supreme Court held that the construction of the terms of a Deed of Company Arrangement [“DOCA”] acted to extinguish a secured creditor’s debt. However, the secured creditor’s right to realise and deal with its security was preserved as a proprietary right irrespective of the debt under s444D of the Corporations Act 2001.

This decision highlights a departure from the previous approach that a secured creditor, who abstained from voting on a proposed DOCA, stood outside of the DOCA process and was able to enforce its security to recover its outstanding debt. It is a significant decision as while the secured creditor’s right to deal with the secured property to which its charge attached immediately prior to any DOCA being entered into remains, they will no longer be able to recover any after-acquired property.


In April 2014, Bluenergy’s directors resolved to place the company into voluntary administration. As a result, the company entered into a DOCA.

A secured creditor, Keybridge abstained from voting on the creditors’ decision for the Bluenergy to enter into a DOCA and purported to appoint a secondary administrator under its security.

The administrators were appointed as the deed administrators for the DOCA and sought a declaration from the Court that the secondary administration should be terminated.

The key issue for the Court to consider in this case was whether or not a secured creditor, having abstained from voting on a proposed DOCA, was entitled to rely upon its security and appoint a secondary administrator to a company which was subject to a DOCA.

The deed administrators’ primary argument was that the secured creditor’s debt was extinguished by the execution of the DOCA and given that the secured creditor had no debt it was therefore unable to enforce its security against the whole of Bluenergy Group. This meant that the secured creditor was unable to appoint the secondary administrator.

Keybridge argued that its secured debt could not be separated or excluded from the relevant security and that the security could not be realised without making and proving a claim for the debt. This meant that a debt must be preserved if the security is preserved by s444D(2) of the Corporations Act 2001.


The Court held that the second administration should be terminated and also held that:

  1. The terms of the DOCA extinguished the secured creditor’s debt, even though they had abstained from voting on the DOCA proposal in July 2014.
  2. Notwithstanding the extinguishment of the debt, s444D(2) of the Corporations Act 2001 preserved the Keybridge’s right to ‘realise’ or ‘otherwise deal’ with the secured property to which its charge attached immediately prior to the release of claims effected by the DOCA. However, Keybridge would not have any right to realise or deal with any after-acquired property.
  3. However, s444D(2) preserved Keybridge’s entitlement to appoint an administrator under s436C of the Corporations Act 2001, as preservation of Keybridge’s right to realise or otherwise deal with the secured property extended to the whole or substantially the whole of the company’s property.

The Court’s decision in this case shows that in circumstances whereby a secured creditor’s debt far exceeds the current value of the realisable secured property held at the time that a DOCA is considered, then the secured creditor may wish to consider taking an active role in the DOCA negotiations to ensure that the full amount of their debt is recoverable.

Forum Law can advise on all matters regarding corporate insolvency. Please ring Annette at Forum Law Solicitors on +61 2 9560 3388 to discuss.

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