Speculation about insolvent trading not enough to terminate a Deed of Company Arrangement (DOCA)

In brief - NSW Court of Appeal refuses to terminate Deed of Company Arrangement

The NSW Court of Appeal has recently determined the standard required to overturn the decision of the majority of creditors to enter into a Deed of Company Arrangement (DOCA). In Vero Insurance Ltd v Kassem, the Court held that mere speculation as to possible insolvent transactions is not enough to terminate a DOCA and appoint a liquidator.

Vero Insurance seeks to set aside DOCA

Vero Insurance Limited brought proceedings in the Supreme Court to try to set aside a Deed of Company Arrangement (DOCA) entered into by the administrators and creditors of Ungul Properties Pty Limited.

Barrett J found against Vero. That decision was appealed.

Dispute over liability for construction defects in block of units

In June 1999, Ungul entered into a contract with Lusted Pty Limited (a building company) to construct a block of units in Blue Bay NSW. Under the Home Building Act 1989 they were required to obtain insurance for those units, which they did from Vero.

After construction was completed and five of the seven units had been sold, a number of substantial defects were revealed. A subsequent dispute arose as to who was liable.

Ultimately, Vero paid the owners corporation $808,621.70 in settlement of the claim in June 2007. Vero then proceeded to bring an action against Ungul in the name of the owners corporation to recover that amount.

Before those proceedings could be heard, voluntary administrators were appointed to Ungul. Vero lodged a proof of debt with the administrators for $794,012.80, being the amount paid to the owners corporation less $100,113.80 received from Lusted Pty Limited (which had now entered liquidation), plus $85,504.90 in legal costs.

DOCA proposed at meeting of creditors

At the meeting of creditors on 11 June 2009 a DOCA was proposed. Vero, through their representative Ms Vivienne...