Background
FT Sydney Pty Ltd accumulated 74 strata titles at a Sydney CBD site (Pitt Street and Hunter Street) between 2018 and 2022, intending to develop a 55-storey timber hybrid commercial tower known as the Halo Project. Many of the original lot holders (the Deferred Vendors) sold their properties with deferred payment components — typically 10–20% of the purchase price — secured by second-ranking mortgages. When FT Sydney could not settle those amounts in full in December 2022, the Deferred Vendors entered “Irrevocable Undertakings” contractually subordinating their debts to the senior secured lenders, the Merricks SPVs, who had provided a senior facility of approximately $392 million.
After the Halo Project became financially stressed — due to rising interest rates and construction costs — FT Sydney in September 2025 contracted to sell Cbus Property a 50% interest in the site, conditional (among other things) on effectuation of a deed of company arrangement (DOCA) and release of the mezzanine security. On 1 April 2026 Mr Milligan, as sole director, resolved to appoint voluntary administrators. On 12 May 2026 a second creditors’ meeting passed — by the chairperson’s casting vote, with only three creditors in favour and twenty against — a resolution that the FT Companies execute the DOCA proposed by Mr Milligan. The DOCA was executed on 25 May 2026; under it, the 22 plaintiff Deferred Vendors would receive approximately 0.72 cents in the dollar on their claims.
The Plaintiffs commenced proceedings on 29 May 2026 seeking, among other things, a declaration that the voluntary administration was invalid, termination or variation of the DOCA on grounds of improper purpose and unfair prejudice, and a declaration that they hold equitable liens as secured creditors not bound by the DOCA under s 444D(2) of the Corporations Act 2001 (Cth). Before the substantive hearing — listed to begin 29 June 2026 — two interlocutory matters came before Shariff J on an expedited basis: (1) an application by the Merricks SPVs to stay the proceedings on the basis of the Irrevocable Undertakings; and (2) the Plaintiffs’ application for injunctions to restrain effectuation of the DOCA pending the final hearing.
The Court’s Holding
Shariff J dismissed the Merricks SPVs’ application for a stay. The Merricks SPVs argued that by bringing proceedings to terminate or vary the DOCA the Plaintiffs had breached contractual undertakings not to take steps toward recovering their debts until the senior secured debt was repaid in full, and that the proceedings should therefore be stayed. The Court rejected that argument, declining to treat litigation seeking to challenge the validity of a DOCA as a step “in relation to the recovery of debts” that the Irrevocable Undertakings prohibited. Costs of the stay application were awarded against the Merricks SPVs.
The Court also dismissed prayers 5 and 6 of the Plaintiffs’ interlocutory process, which sought injunctions restraining the defendants from giving effect to the DOCA (or alternatively an interim variation of the DOCA to forestall its effectuation). Applying the principles in Australian Broadcasting Corporation v O’Neill [2006] HCA 46 and Beecham Group Ltd v Bristol Laboratories Pty Ltd [1968] HCA 1, the Court accepted that the Plaintiffs had established a prima facie case, but assessed its prospects as less than moderate. On balance of convenience, the substantial prejudice to the Plaintiffs from being deprived of the opportunity to seek termination or variation of the DOCA had to be weighed against the prejudice to the other parties — including the Merricks SPVs and Cbus Property — from halting the DOCA and the Cbus Property Transaction, which required DOCA effectuation as a condition. A decisive factor was the Plaintiffs’ refusal to offer any undertaking as to damages; without that undertaking, the Court was not prepared to grant interlocutory relief. Costs of the interlocutory relief application were reserved.
Key Takeaways
- Contractual subordination clauses in “irrevocable undertakings” do not, without more, prevent subordinated creditors from commencing court proceedings to challenge the validity or terms of a DOCA — such litigation is not necessarily a step “in relation to the recovery of debts” within the meaning of those instruments.
- Creditors challenging a DOCA under ss 445D and 447A of the Corporations Act 2001 (Cth) must be prepared to offer an undertaking as to damages if they seek interlocutory injunctive relief; failure to do so is likely fatal to such an application where the balance of convenience is not overwhelmingly in the applicants’ favour.
- A DOCA passed by a chairperson’s casting vote over the opposition of twenty creditors, proposing to extinguish creditors’ claims for approximately 0.72 cents in the dollar, can nonetheless survive an interlocutory injunction application if the merits are assessed as less than moderate and no damages undertaking is offered — leaving the substantive challenge for the final hearing.
- Deferred Vendor plaintiffs preserved their final-hearing claims, including the novel argument that they are secured creditors by reason of an equitable (purchaser’s) lien under s 444D(2), meaning the DOCA may not bind them with respect to that security.
Why It Matters
This decision is significant for insolvency practitioners and creditors involved in complex DOCAs where subordinated creditors have signed extensive standstill or subordination instruments. It signals that Australian courts will carefully scrutinise the scope of such instruments and will not readily read them as stripping subordinated creditors of the right to invoke the Court’s jurisdiction under Part 5.3A of the Corporations Act. The case also reinforces that the interlocutory injunction threshold in DOCA challenges is a high one: even creditors with a prima facie case face dismissal if they decline to provide a damages undertaking and the commercial consequences of a freeze are substantial.
The substantive issues — whether a voluntary administration can be invalidated for lack of genuine insolvency belief, whether a DOCA can be set aside as an abuse of Part 5.3A when designed primarily to extinguish unwanted creditor claims, and whether deferred-payment vendors hold equitable liens that survive a DOCA — remain live and will be determined at the final hearing before SC Derrington J commencing 29 June 2026. The outcome may have wide implications for vendor-finance and deferred-settlement arrangements in large property transactions that subsequently enter administration.