Judicial common sense prevails re DOCA’s and related parties

Mighty River have again applied to court, this time seeking orders that the proposed Deed of Company Arrangement (DOCA) is void because it is an unlawful related party transaction.

Link to the case here.

Mighty River have argued that such a transaction falls foul of ASX Listing Rule 10.1 and Chapter 2E of the Corporations Act.

Such an interpretation would mean that any public companies looking to utilise a DOCA in a Voluntary Administration (“A) process would be significantly hampered by fewer options.

Assume your company can’t pay all of its creditors right now and you are worried about trading whilst insolvent. You have a good business and want to keep it trading. A VA and DOCA is a good option for your business, but taking this interpretation, any DOCA proposals you make cannot include a release of funds from you, your family or other related party.

Fortunately, the WA Supreme Court late last week ruled against Mighty River saying in effect that the related party transaction rules do not apply in a DOCA scenario.

Let me know your thoughts in the comments.

SVVoidables

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