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The Supreme Court has
affirmed the Court of Appeal's finding in August of this
year that a voluntary administrator may only use a casting vote at
a watershed meeting where the number of creditors voting for and
against a proposed deed of company arrangement (DOCA) is
equal.
The requirement that the 50% of creditors in number also
represent at least 75% in value cannot be the subject of the
casting vote. Nor can the casting vote be used to choose
between the number and the value.
The Supreme Court declined to allow the administrators of Jones
Publishing Limited to bring a further appeal on the termination of
the company's DOCA.
Casting vote
In June 2010, the High Court had terminated the DOCA because the
administrator had improperly used the casting vote to decide a
deadlock between:
ten creditors, which were owed 70% of the total debt (voting in
favour of the DOCA), and
the IRD, which was owed over 30% of the debt (voting against
the DOCA).
The Supreme Court has now reaffirmed that the casting vote
cannot be used for that purpose in New Zealand. Each of the
High Court, the Court of Appeal and the Supreme Court have found
that New Zealand's casting vote provision is narrower than its
Australian counterpart, and does not permit the administrator to
break a deadlock between the number and value. Instead, the
casting vote may only be used in the rare situation where over 75%
of the value votes in favour of the DOCA, but there is a deadlock
in number.
Whether the DOCA was oppressive and prejudicial
The High Court had also terminated the DOCA because the payout
proposed in the DOCA failed to reflect the preferential status of
the IRD's debt. The DOCA was therefore oppressive and
unfairly prejudicial to the IRD.
While the Supreme Court accepted that it may be arguable that
the DOCA was not oppressive and prejudicial, we do not read the
Supreme Court's comments as saying anything different to the
High Court and the Court of Appeal's decisions. The
position appears to be that a DOCA may override the preferential
status of certain debtors if it enables or assists an administrator
to resuscitate a company.
Where to from here?
The administrators' appeal rights in this case are now
exhausted. However, the administrators have indicated that
they will petition the incoming Finance Minister to change the
legislation, so that a casting vote may be used to decide between
the majority in number and the majority in value.1
Ultimately, the Finance Minister will need to determine whether
New Zealand's VA regime was intended to replicate the
Australian regime. If so, it may be appropriate to consider
adopting more detailed regulations to give the chair's casting
vote greater power and meaning.
Our articles on the two earlier decisions in this case can be
found here:
The information in this article is for informative purposes
only and should not be relied on as legal advice. Please contact
Chapman Tripp for advice tailored to your situation.
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The Damilock decision highlights the need for liquidators to review current practices when paying priority creditors.
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