Australian restructuring gets a boost as High Court supports the holding DOCA concept

Some 25 years after Harmer promised a faster, more efficient and commercial approach for dealing with failed and failing companies, Australia's highest court has this morning confirmed that creditors can contractually bind a company and all stakeholders to a moratorium extension via a properly formed holding DOCA (Mighty River International Limited v Hughes [2018] HCA 38; Clayton Utz acted for the successful Deed Administrators of Mesa Minerals Limited).

The holding DOCA concept, developed early in the timeline of voluntary administrations, has been tacitly accepted by the market, regulator and judiciary as providing a legitimate device capable of giving time for Deed Administrators to investigate rescue financing, restructuring options and trade on opportunities beyond the strict confines of statutory administration moratoriums.

The Court rejected a technical objection that because the holding DOCA self-evidently does not distribute property while restructuring options are being explored, it somehow loses its character of being a deed of company arrangement. 

This is a very welcome outcome because doubt had been cast on the validity of holding DOCAs as a result of this litigation. Deed Administrators and creditors will now continue to have flexibility to keep exploring options, rather than being forced to recommend liquidation, which increases the chance of there being (as with Mesa Minerals) successful restructuring, full payment of non-related party creditors including employees, and the assets maintained in operating capable condition – a classic win/win for the company's creditors and local community.