Background
Project Sea Dragon Pty Ltd (PSD), a wholly owned Seafarms subsidiary, entered voluntary administration after failing to pay about $14 million owed to construction creditor Canstruct Pty Ltd. Seafarms first advanced $1.4 million under an interim funding agreement, then paid $3.5 million as a “Proponent Contribution” under a deed of company arrangement (DOCA).
The DOCA placed the contribution in a single Deed Fund with PSD cash and receivables, for distribution to repay interim funding, meet administration expenses and pay creditors. Canstruct successfully obtained Federal Court orders terminating the DOCA. PSD later entered liquidation. Seafarms sought the unused balance of its contribution, relying on a refund clause, an asserted accrued contractual right, and an alleged trust.
The Court’s Holding
The Court of Appeal dismissed Seafarms’ appeal. The refund provision did not create a right that had accrued before the DOCA ended. Its operation depended on termination, and the statutory termination of a DOCA meant the deed could not create new rights at or after that point. Section 445H of the Corporations Act 2001 (Cth), which preserves the deed’s previous operation, did not preserve this contingent post-termination refund right.
The Court held that the DOCA derived its operative force from statute and should not be treated as a contract between Seafarms, PSD and the deed administrators for this purpose. It also rejected the trust claim. The contribution was mixed into a single fund with company property; the administrators acted as PSD’s agents; and the terms did not clearly show an intention that the contribution remain separate from PSD’s assets or be held on a Quistclose-style trust for Seafarms if the DOCA failed.
Key Takeaways
- A DOCA termination does not preserve a right that arises only upon, or after, termination.
- DOCAs generally derive their force from the Corporations Act, rather than ordinary contractual obligations between signatories.
- A contribution to a DOCA fund will not be trust property without clear terms showing it is segregated and not intended to become company property.
Why It Matters
The decision underscores the risk for third-party proponents funding a DOCA. A refund clause alone may be ineffective if the deed is terminated by court order and the claimed entitlement has not accrued before termination.
Funders seeking protection should use clear arrangements that segregate funds and expressly establish any intended trust or other proprietary protection.