Australia: DOCAs, material omissions and the spectre of bias by administrators

NSW Supreme Court provides guidance for administrators as to the law regarding material omission or misstatement in administrators' section 439A reports.


Mr Ryan was the sole shareholder and director of Recycling Holdings Pty Ltd (the Company). Liquidators were appointed to the Company and the liquidator appointed voluntary administrators pursuant to s436B of the Corporations Act 2001.

At the time of the liquidation, the Company was pursuing a claim against three of its creditors (Salmat, Mediaforce and Fuji) for breaches of exclusivity clauses in service contracts. In that proceeding, Salmat, Mediaforce and Fuji had brought a cross claim against the Company (amongst others) in respect of unpaid monies.

In October 2014, at the second creditors meeting, a resolution was carried that the Company execute a DOCA. The effect of the DOCA was to:

  • return control of the company to Mr Ryan; and
  • establish a fund for distribution pro rata to creditors that would comprise both the proceeds of the litigation and the sale of the Company's plant and equipment.

If everything went to plan, the creditors were to receive a dividend of 100 cents in the dollar. If the anticipated proceeds of the litigation materially changed and the creditors were to receive less than 100 cents in the dollar, the creditors could terminate the DOCA.

Just under two months later, Salmat, Mediaforce and Fuji commenced proceedings for orders to:

  1. have the DOCA terminated or declared void on the basis of certain misstatements and omissions;
  2. have the DOCA terminated on the basis of non disclosure of voidable transactions; or
  3. have the administrators removed on the basis of actual or perceived bias.

The orders were sought on the basis that there were material omissions from, or misstatements in the information provided to creditors in the administrators' s439A(4) report and at the second creditors' meeting.


Misstatements and omissions regarding the litigation

The creditors contended that that the administrators' report omitted a number of vital pieces of information about the litigation including information about the merits and the existence of a conflict of interest which created an incentive to settle the claim.

The Court found that the failure to properly inform the creditors about facts known to or reasonably discoverable by the administrators about the litigation was a material omission.

Voidable transactions

The creditors also contended, and the Court agreed, that the administrators had failed to investigate or disclose in their report a potential unfair preference or uncommercial transaction recoverable from Mr Ryan of up to $500,000 and that this was a material omission.


Brereton J suggested that where there has been a material omission, it does not follow that the court is predisposed in favour of termination. Relevant considerations include:

  1. the importance of the information;
  2. whether the creditors were actually misled; and
  3. the present attitude of the creditors once disclosure is made.

Given the relatively unusual circumstances of this case, Brereton J refused to exercise his discretion on the basis that the DOCA would likely have been approved by the creditors whether or not the omitted information had been disclosed and it was not oppressive or unfairly prejudicial to or unfairly discriminatory against one or more creditors, or contrary to the interests of creditors as a whole.

On his view, under the DOCA, the creditors would either receive 100 cents in the dollar as a result of the litigation, or, have the option of terminating the DOCA and pursuing the voidable transactions.


Salmat, Mediaforce and Fuji argued that the administrators should be removed because of a perceived bias based on:

  1. certain pre-appointment discussions between the administrators, the liquidator and Mr Ryan concerning the terms of the DOCA; and
  2. other ambiguous circumstances such as the fact that certain potential voidable transactions were overlooked by the administrators, and, that the administrators furthered the interests of Mr Ryan – at least indirectly - in the pursuit of the litigation.

Ultimately the Court held that the matters discussed and the actions of the administrators did not lead to a reasonable apprehension of bias.

Brereton J confirmed that pre-appointment discussions will not be unreasonable if they involve a discussion of the potential terms of a DOCA with the proponent. In his Honour's view, it is to be expected that administrators will form some preliminary views in respect of a DOCA and that predisposition towards a DOCA – particularly in the context of an appointment by a liquidator does not indicate disqualifying bias in favour of one interest or against another.


This decision is a reminder that while material omissions in a DOCA should be avoided, they will not always be fatal. Further, a reasonable perception of bias will not necessarily arise in circumstances where an administrator has conveyed their preliminary views on a DOCA to the DOCA's proponent prior to the administrator's appointment.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Most awarded firm and Australian deal of the year
Australasian Legal Business Awards
Employer of Choice for Women
Equal Opportunity for Women
in the Workplace (EOWA)

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions