Deed of Company Arrangement validity challenge
In the case, the Court provides an in-depth examination of both procedural and substantive legal principles of the Deed of Company Arrangement (DOCA) under the Companies Act 1993 (the Act) in relation to insolvency and administration.
The key contention in the legitimacy of the voting process was whether shares had been issued to the investors, which would make them shareholders rather than creditors. The Court considered where no shares were registered in the names of the investor in question, those investors were not legally shareholders at the time of the DOCA vote.
Where the investors lodged claims as creditors, this effectively cancelled their share purchase agreements and should be treated as creditors for the purpose of the DOCA vote. However, where shareholders had explicitly or implicitly agreed to the issuance terms, these were deemed valid under the Act.
The Court then weighed the outcomes proposed by the DOCA against placing the company into liquidation and concluded that the DOCA promised certain immediate financial benefits including a purchase of assets by a new entity formed by some creditors, which could potentially provide higher returns than liquidation.
In upholding the DOCA, the Court considered further factors including the administrator’s conduct and independence, legal and procedural compliance of the DOCA, and fairness and equity to all creditors. The decision highlights the importance of a meticulous review of creditor claims, the procedural integrity of creditor meetings, and the practical benefits of a DOCA in insolvency scenarios.
Jones v Williams [2024] NZHC 891
