Pre-appointment support for DOCA may be an inducement for valuable consideration

Registered liquidators are aware that they are prohibited by law from giving, or agreeing or offering to give, someone valuable consideration with a view to securing their own appointment or nomination as a liquidator or an administrator of a company, or an administrator of a deed of company arrangement (section 595 of the Corporations Act 2001).

But I wonder how many of them would be aware that giving an assurance of support for a proposed Deed of Company Arrangement may be an inducement under section 595.

The Chief Justice of the South Australian Supreme Court, Chief Justice Kourakis, took this view in his judgment in the case of Viscariello v Macks [2014] SASC 189, handed down on 9 December 2014.

Mr John Viscariello, a company director, alleged that registered liquidator Mr Peter Macks, administrator of two of Mr Viscariello’s companies, wrongfully failed to negotiate and put in place a Deed of Company Arrangement which would have allowed the companies to continue to trade under a changed ownership structure.

There were several other matters adjudicated upon in this case, and in a sense the allegation that the administrator had given an undertaking to the director that he would support a certain Deed of Company Arrangement (DOCA) became secondary.

But the comments by Chief Justice Kourakis are intriguing.

Mr Viscariello alleged that Mr Macks made certain representations to him and Mr Fred Bart (a businessman and entrepreneur who was a prospective purchaser of the company’s business) in a meeting in November 2001 to the effect that if he (Macks) were appointed as administrator, he would cause the company to enter into a deed of company arrangement reflecting the terms in a Heads of Agreement document, refered to by His Honour as “the proposed Bart DOCA”.

His Honour said:

“I find it unlikely that Mr Macks would have given an unqualified assurance that he would support the proposed Bart DOCA in breach of his duty to investigate the financial circumstances of the Companies and provide opinions to creditors.” [Para 122 of judgment]
….
“It is inherently improbable that he would have made the unqualified representations pleaded by Mr Viscariello.”[Para.125]
….
“If the pleaded representations were made and an agreement or understanding reached to that effect, Mr Macks would have breached s 595 of the Corporations Act and both Mr Bart and Mr Viscariello would have procured him to do so.” [Para.128]
….
“It would be contrary to the public interest to allow Mr Viscariello to recover damages for a misrepresentation which arises out of a failure to give effect to an unlawful arrangement.(Footnote 76) With respect to the false and misleading conduct alleged against Mr Macks in respect of the 27 November meeting with Mr Viscariello and Mr Bart, I reject Mr Viscariello’s evidence that Mr Macks gave an assurance that he would ensure that the Companies would enter into the Bart DOCA.” [para. 130](Emphasis added)

Footnote 76: Yango Pastoral Co Pty Ltd v First Chicago (Australia) Limited (1978) 139 CLR 410; Brownbill v Kenworth Trucks Sales (NSW) Pty Ltd (1982) 39 ALR 191; Alexander v Rayson [1936] 1 KB 169; McCarthy Rose (Milk Vendors) Pty Ltd v Dairy Farmers Coop Milk Co Ltd (1945) 45 SR(NSW) 266; Mason v Clarke [1955] AC 778.

Click here for pdf copy of judgment by Chief Justice Kourakis on 9 December 2014: Judgment in Viscariello v Macks [2014] SASC 18