Unadjudicated claims not admissable to proof under DOCA

A recent decision of the NSW Court of Appeal considered the circumstances under which a person who has an unadjudicated claim against a company (here, an employee of the company who alleged her employment contract should be varied because it was an 'unfair contract' under the Industrial Relations Act) will be held to be a contingent creditor whose claim is admissible to proof under a Deed of Company Arrangement.

In BE Australia WD Pty Ltd (subject to a Deed of Company Arrangement) v Sutton [2011] NSWCA 414 the court held that:

• a person bringing proceedings against a company which subsequently goes into administration is not a creditor of the company for the purposes of the insolvency provisions of the Corporations Act unless the company owed that person a 'relevant obligation' prior to the appointment of administrators (here, the employee had commenced proceedings against the company but there was no relevant legal obligation on the part of the company towards the employee which had arisen prior to the company going into administration); and
• the court had no power under section 447A of the Corporations Act to order that a person who is not a 'creditor' should be treated as though they are one and so be allowed to prove in a DOCA (noting that the court's power under s447A should only be used to support the purposes of Part 5.3A).

As such, the court held that the deed administrators were correct to reject the employee's proof of debt because she was not a 'creditor' for the purposes of the DOCA. An application seeking special leave to appeal to the High Court has been filed.