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ARTICLE · 13 APRIL 2010

Can a DOCA Extinguish a Creditor’s Claim Against a Third Party?

Gadens Lawyers
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The recent High Court decision to dismiss the appeal in City of Swan & Co v Lehman Brothers Asia Holdings Limited (In Liquidation) [2009] FCAFC 130 (Lehman Decision) is a reminder that Deeds of Company Arrangement (DOCAs) have limitations and cannot extinguish creditors’ claims against third parties. However, Schemes of Company Arrangement may resolve this issue.

AustraliaInsolvency/Bankruptcy/Re-Structuring
Luke Bradshaw
Luke Bradshaw

The recent High Court decision to dismiss the appeal in City of Swan & Co v Lehman Brothers Asia Holdings Limited (In Liquidation) [2009] FCAFC 130 (Lehman Decision) is a reminder that Deeds of Company Arrangement (DOCAs) have limitations and cannot extinguish creditors' claims against third parties. However, Schemes of Company Arrangement may resolve this issue.

DOCAs cannot extinguish creditors' claims against third parties

In the Lehman Decision, the High Court's reasons for which are yet to be published, creditors of Lehman Brothers Asia Holdings Limited (In Liquidation) (Lehman) claimed that the DOCA, passed by a majority of creditors (in value and number), purported to extinguish their right to sue other members of the Lehman Group. The creditors sought to have the DOCA set aside.

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