This article was written by Nancy Wang Pricipal Solicitor at W & G Lawyers.
A company owes you money. Before you can recover it, the directors appoint voluntary administrators, and a few weeks later you are sent a long report and a notice of a creditors’ meeting. The report recommends a deal under which you may receive a few cents in the dollar and the rest of your claim is wiped out. You vote against it. The directors, their related companies and a handful of small creditors vote in favour, and the deal goes through.
Many creditors in that position ask whether a court can undo the deal. The short answer is that it can, in limited circumstances. A decision of the Federal Court of Australia handed down in September 2026 shows how hard that may be in practice. Two creditors with multi-million dollar claims asked the Court to set the deal aside on three separate grounds. All three failed, and the Court indicated that the creditors would probably be ordered to pay the administrators’ legal costs. If you are owed money by a company in administration, or you are a director thinking about proposing a deal to your creditors, the decision is worth understanding.
What a deed of company arrangement is
When a company is insolvent or close to it, the directors may appoint an independent voluntary administrator. The administrator takes control of the company, investigates its affairs and reports to creditors within a short period, usually about five or six weeks. The creditors then meet and vote on the company’s future. They may return the company to its directors, put it into liquidation, or accept a deed of company arrangement.
A deed of company arrangement is a binding deal between the company and its creditors. Typically a sum of money is paid into a fund, the fund is shared among creditors, and in exchange their remaining claims against the company are released. The company then carries on in business. The law is designed to give the company or its business the best chance of surviving or, if that is not possible, to give creditors a better return than an immediate liquidation would.
The feature that surprises many creditors is that the deed generally binds every unsecured creditor, including those who voted against it. The vote is decided by a majority in number and in value of the creditors voting, and directors and related parties who are owed money are generally entitled to vote.
What happened in the recent case
The company was an Australian technology business developing an online mapping and aerial imagery platform. It had raised several million dollars from investors, was earning little revenue and had made a loss every year. It was also locked in an arbitration in the United States with two overseas companies arising out of a consulting agreement. One claimed the return of an investment of about US$500,000. The other claimed about US$8.9 million. The company denied both claims and made its own claim of about US$3.1 million against them. The directors said the cost of that dispute was one of the main reasons the company would shortly run out of money, and they appointed administrators in April 2026.
The directors proposed a deed. A wholly owned subsidiary would pay $500,000 into a fund, to be used first for the costs of the administration, then for employee entitlements, then for the ordinary creditors. The directors, their associates, the subsidiary, a lender owed $400,000 and the continuing employees would receive nothing from the fund, although their debts would remain owing by the company afterwards. Every other claim, including the two arbitration claims, would be released. An expected research and development tax refund of $250,000 to $300,000 was left out of the fund.
The administrators’ report estimated that ordinary creditors might receive between 2.08 cents and 100 cents in the dollar under the deed, compared with between nil and 100 cents in a liquidation. The report did not put a value on the company’s intellectual property, which was arguably its main asset. A valuation had been commissioned and had not yet arrived, and the report said the figure was still to be confirmed.
The two overseas creditors asked for the meeting to be adjourned until the valuation was available. Their claims were disputed and tied to the outcome of the arbitration, so for voting purposes the US$8.9 million claim was admitted for just $1 and the other for about $712,000. They were outvoted on the adjournment and on the deed itself by the related parties and eleven unrelated creditors. The deed was signed and the two creditors started court proceedings the next day.
Why the challenge failed
The first argument was that the deed was being used for an improper purpose, namely to get rid of the arbitration claims while leaving the company free to pursue its own. Courts have set deeds aside on that basis before, for example where a deed was designed to extinguish one unwanted creditor’s claim while everyone else was paid in full. In this case the directors and administrators gave detailed evidence of their actual reasons. The company was running out of money, staff might leave, the business had been advertised for sale without a single response, and the deed offered a quicker and more certain return than a liquidation. That evidence was not seriously challenged in cross-examination and the judge accepted it. The Court would not infer a bad purpose from the effect of the deed alone when there was direct and credible evidence of a proper one.
The second argument was that creditors had been given inadequate or misleading information, mainly because the valuation was missing. The Court found that the administrators had acted reasonably. They had approached five valuers without success before engaging a sixth, and the valuation did not arrive until after the meeting. An administrator works to a tight timetable with limited resources, and generally cannot be said to have left out information that was not known and could not reasonably have been obtained in time. The report had also said plainly that the value was still to be confirmed, so no reasonable reader would have been misled. The refusal to adjourn was justified as well. A delay of two to three weeks would have cost roughly $122,000 to $183,000, and the creditors asking for the delay had not offered to pay for it or put forward a proposal of their own. The administrators were also not required to set out every theoretical liquidation scenario in their report.
The third argument was that the deed was unfair to the two creditors. The Court’s answer was that being worse off is not enough. Almost every deed leaves some creditors better off and some worse off, and the question is whether the prejudice or discrimination is unfair. Here the $500,000 was available immediately instead of depending on the sale of a volatile cryptocurrency holding. The related parties gave up their share of the fund, which meant more for the ordinary creditors, and leaving out the tax refund was treated as part of the commercial give and take. The Court also placed weight on the eleven unrelated creditors who had voted in favour. There was no reason to think they had done anything other than weigh up the deed against a liquidation in good faith.
The takeaways if you are a creditor
A court challenge may be a last resort and not a first response. The law assumes that creditors as a group are the best judges of their own interests, and a court will not lightly overturn what the majority decided. Before you commit to proceedings, it may help to ask what you would realistically receive in a liquidation, because that comparison is usually where the question of unfairness is tested.
Your influence is greatest before and at the meeting. Read the report as soon as it arrives, put your questions to the administrator in writing and attend the meeting, in person or by proxy.
Take care with your proof of debt. The value of your vote depends on the amount the administrator admits. If your claim is disputed, depends on the outcome of other proceedings or is hard to put a figure on, it may be admitted for a nominal amount only. Clear documents showing how the debt arose and how it is calculated could make a real difference to your voting power.
If you want more time or more information, be ready to back the request. An offer to meet the cost of an adjournment, or an alternative proposal for creditors to consider, may be far more persuasive than a letter of complaint.
Incomplete information will not necessarily undo a deed. If the administrator has made reasonable efforts and has been upfront about what is not yet known, a gap in the report may not be enough.
Count the cost. If a challenge fails you may be ordered to pay the other side’s legal costs as well as your own. Time matters too, because a deed can be carried into effect quickly once it is signed, so advice should be taken straight away.
The takeaways if you are a director
A deed proposal is more likely to withstand challenge where it has a genuine commercial purpose and you can prove it. Record why administration was necessary, how the contribution figure was worked out and why the proposal may be better for creditors than a liquidation. In the recent case, it was that kind of evidence from the directors and administrators that answered the allegation of improper purpose.
Be careful about how the deed treats different creditors. A deed that singles out one troublesome creditor while everyone else is paid in full could be set aside as an abuse of the process. Related parties standing aside from the fund, real money paid up front and support from independent creditors may all help to show that the arrangement is a fair compromise.
Give the administrator full and prompt information. Gaps that could have been filled with reasonable effort may put the deed at risk later.
How W & G Lawyers can help
Our commercial and litigation teams advise creditors and directors on voluntary administrations, proofs of debt, creditors’ meetings and disputes over deeds of company arrangement. If a company that owes you money has gone into administration, or your own company is under financial pressure, we would be pleased to discuss your position.
Visit or Contact Us
📍 68 Bryants Road, Shailer Park QLD 4128
📞 (07) 2810 5666
🌐 www.wglawyers.com.au
✉ info@wglawyers.com.au
Reference
- Stelamar LLC v Soar.Earth Limited (Subject to Deed of Company Arrangement) (No 2) [2026] FCA 1318 (Jackman J)
- Project Sea Dragon Pty Ltd (Subject to Deed of Company Arrangement) v Canstruct Pty Ltd [2024] FCAFC 141; (2024) 305 FCR 465
- Corporations Act 2001 (Cth), Part 5.3A, including ss 435A, 445D and 447A
Disclaimer
This article is general information only and does not constitute legal advice under Australian law. For advice specific to your situation, please contact W & G Lawyers. For further details, please click here to view our disclaimer.