Setting aside a DOCA: suspected phoenix activity

The recent decision of the Federal Court in Canadian Solar (Australia) Pty Ltd v ACN 138 535 832 Pty Ltd (subject to deed of company arrangement) [2014] FCA 783, is a useful reminder that a deed of company arrangement (DOCA) approved by a majority of creditors at the second creditors meeting can still be terminated by order of the Court if it is found to be unfairly prejudicial to one or more creditors or contrary to the interests of creditors as a whole.

This can be particularly important where, as in this case, a DOCA proposal or previous transaction involves suspected "phoenix activity". That is, where some or all of the assets and/or business of a distressed company are reborn in a new business controlled by parties related to management of the previous entity. Creditors' debts remain unpaid or only partially repaid, yet management emerges in control of a new company and their actions remain unscrutinised by liquidator investigations.