The Supreme Court has affirmed the Court of Appeal’s finding in August of this year that a voluntary administrator may only use a casting vote at a watershed meeting where the number of creditors voting for and against a proposed deed of company arrangement (DOCA) is equal.
The requirement that the 50% of creditors in number also represent at least 75% in value cannot be the subject of the casting vote. Nor can the casting vote be used to choose between the number and the value.
The Supreme Court declined to allow the administrators of Jones Publishing Limited to bring a further appeal on the termination of the company’s DOCA.
In June 2010, the High Court had terminated the DOCA because the administrator had improperly used the casting vote to decide a deadlock between:
- ten creditors, which were owed 70% of the total debt (voting in favour of the DOCA), and
- the IRD, which was owed over 30% of the debt (voting against the DOCA).
The Supreme Court has now reaffirmed that the casting vote cannot be used for that purpose in New Zealand. Each of the High Court, the Court of Appeal and the Supreme Court have found that New Zealand’s casting vote provision is narrower than its Australian counterpart, and does not permit the administrator to break a deadlock between the number and value. Instead, the casting vote may only be used in the rare situation where over 75% of the value votes in favour of the DOCA, but there is a deadlock in number.
Whether the DOCA was oppressive and prejudicial
The High Court had also terminated the DOCA because the payout proposed in the DOCA failed to reflect the preferential status of the IRD’s debt. The DOCA was therefore oppressive and unfairly prejudicial to the IRD.
While the Supreme Court accepted that it may be arguable that the DOCA was not oppressive and prejudicial, we do not read the Supreme Court’s comments as saying anything different to the High Court and the Court of Appeal’s decisions. The position appears to be that a DOCA may override the preferential status of certain debtors if it enables or assists an administrator to resuscitate a company.
Where to from here?
The administrators’ appeal rights in this case are now exhausted. However, the administrators have indicated that they will petition the incoming Finance Minister to change the legislation, so that a casting vote may be used to decide between the majority in number and the majority in value.1
Ultimately, the Finance Minister will need to determine whether New Zealand’s VA regime was intended to replicate the Australian regime. If so, it may be appropriate to consider adopting more detailed regulations to give the chair’s casting vote greater power and meaning.
Our articles on the two earlier decisions in this case can be found here:
High Court decision
Court of Appeal decision
For further information, please contact the lawyers featured.