When a company enters voluntary administration, the aim is to keep the company, or as much of its business as possible, in existence. If that is not possible, the aim is to achieve a better result for creditors and members (shareholders) than an immediate winding up would deliver.
One restructuring option is for a proponent connected to the company, or a third party investor, to recapitalise the company in return for a transfer of the shares in it through a deed of company arrangement (DOCA). Keeping the company intact can sometimes be better than splitting it up or selling its business or assets. For example, the company may hold licences, government approvals, contracts, intellectual property or tax benefits that would be lost, or difficult to obtain again, if the business were moved to a new entity.
Transfer of shares through a DOCA
Section 444GA of the Corporations Act 2001 (Cth) allows the administrator of a DOCA to transfer shares in the company if the administrator has either:
- the written consent of the owner of the shares; or
- leave of the Court.
If the shareholders do not consent, the administrator can apply to the Court. Members, ASIC and other interested persons may oppose the application.
The Court may grant leave only if it is satisfied that the transfer would not unfairly prejudice the interests of members of the company. In practice, the key question is often whether the shares have any residual value. If the company would otherwise be liquidated and shareholders would receive nothing, it may be difficult to show that they are unfairly prejudiced by the transfer. That question is commonly addressed through independent expert valuation evidence. The Court may also consider other relevant factors, as it retains a broad discretion over the transfer, informed by the objects of voluntary administration.
The decision in Microbio
The recent decision in Microbio[1] is a practical example of a successful application for leave to transfer shares, even though some shareholders had threatened legal proceedings.
Background
Microbio is an unlisted public company that develops diagnostic technology for the early detection of sepsis. When the administrator was appointed, the company had about $2,100 in the bank.
The company entered a DOCA, which was later amended. Under the amended DOCA, the proponents would fund the company. In return, the proponents and another investor would receive all of the company’s shares, except those already held by parties to the DOCA. Court approval of the share transfer was a condition precedent to completing the amended DOCA, meaning it had to be satisfied before the deal could proceed.
As Microbio had more than 50 members, the takeover rules in the Corporations Act also applied. In broad terms, these rules restrict a person from acquiring shares that take their voting power above 20%, unless an exception applies or ASIC grants an exemption. The administrator obtained an independent expert report, which found that the shares would be worth nothing in a liquidation. The administrator provided that report to ASIC, which granted in‑principle relief, conditional on the Court approving the share transfer.
Threatened shareholder claim
Before the hearing, lawyers for a group of preference shareholders sent a draft Supreme Court of Victoria class action claim to the lawyers for the company’s directors and officers insurer. The draft claim alleged misleading or deceptive conduct and unconscionable conduct by current and former directors and officers, and also named the company. The shareholders’ lawyers then wrote to say their clients opposed the application but would not take part in the hearing.
The expert reviewed the draft claim and the associated letters and said they did not change his opinion that the shares were worth nothing in a liquidation. ASIC also maintained its position. The shareholders put forward no alternative proposal, no one offered evidence that they would fund a liquidation, and no shareholder appeared at the hearing to oppose the application.
The outcome
The Court granted leave for the share transfer.
At the hearing, the administrator relied on the independent expert valuer’s report, evidence from a non‑executive director and the administrator’s own evidence. The expert’s opinion was that the ordinary and preference shares would have no value in a liquidation, and the threatened claim did not change that opinion. The administrator agreed and did not expect unsecured creditors to receive anything in a liquidation. The director’s evidence was that, without the transfer, the company was unlikely to have enough money to keep operating and would be wound up.
Justice Downes also took into account that creditors would be materially better off under the DOCA, as employee and admitted unsecured creditor claims would be paid in full and the business would continue. That better return would not extend to any claim arising from the threatened Victorian proceeding. No shareholder appeared to oppose the application. Although the objecting shareholders had raised the possibility of funding the company in a liquidation, none gave evidence that they were ready, willing and able to do so.
Justice Downes did not consider that the threatened claim made the transfer unfairly prejudicial. The shareholders’ alleged loss was premised on the Court granting leave to transfer the shares for nil consideration. The DOCA also did not release any claims shareholders might have against individual directors and officers under any insurance policy, as the release covered only claims against the company. Any suggestion of prejudice was therefore speculative.
Justice Downes was accordingly satisfied that the transfer would not unfairly prejudice the interests of members.
The Court also granted other insolvency related relief, which is not discussed in this article.
Comments
The decision illustrates how section 444GA can be used to recapitalise a company through a DOCA, even where every shareholder does not consent. Where shareholders do not agree, the transfer can still proceed with the Court’s leave, provided the Court is satisfied that it would not unfairly prejudice members.
The judgment highlights the importance of the evidence on the application in meeting that test. In Microbio, the Court accepted the expert’s opinion and the administrator’s view that the shares would have no value in a liquidation, together with a director’s evidence that the company was likely to be wound up without the transfer.
Equally, the case suggests that shareholders who believe their shares have value may need to substantiate that position and be prepared to oppose the application. That is likely to require their own expert valuation and other evidence. Objections raised only in correspondence may carry limited weight, and careful preparation is likely to be needed.
The terms of the DOCA and the timing of the process may also be relevant. In Microbio, the Court considered that the threatened shareholder claim did not make the transfer unfairly prejudicial for two reasons. First, the loss claimed depended on the shares being transferred for nil consideration. Second, the release in the DOCA covered only claims against the company. Where the takeover rules apply, both ASIC relief and the Court’s leave may be required, and for a company with limited funds these steps may need to be completed within a short timeframe.
For companies needing to restructure, a well-drafted DOCA and careful planning can help preserve a business and its value, even where not all members have consented to the transfer of their shares.
Cooper Grace Ward has represented clients in all aspects of voluntary administrations and DOCAs. If you would like to discuss any of the matters in this article, please contact a member of our restructuring and insolvency team.
[1] Knight (Deed Administrator), in the matter of Microbio Ltd (Subject to Deed of Company Arrangement) [2026] FCA 1540
