Unlocking Section 444GA: When Courts Can Bless Share Transfers in a DoCA

The Corporations Act gives administrators a powerful mechanism in section 444GA: the ability to transfer shares in a company under a Deed of Company Arrangement (DoCA) without shareholder approval. In practice, this often means wiping out existing equity and handing control to a new investor. Because this is an extraordinary interference with shareholder rights, the courts approach it cautiously.

The Statutory Test: “Unfair Prejudice”

The court’s task under s 444GA(3) is to decide whether the transfer “would not unfairly prejudice the interests of members.” The enquiry is not about whether shareholders lose their shares. That is inevitable in these applications. The assessment centres on whether they are losing something of real value. If their equity is worthless, or will be worthless in liquidation, the transfer will not usually be unfair.

Key Precedents

The principles have been developed in a series of important Federal and Supreme Court decisions which concern, amongst other things, the following:

• Where shareholders have no residual economic interest in the company (because liabilities vastly exceed assets) the court can conclude there is no unfair prejudice. The focus is on substance, not form: if equity is valueless, its compulsory transfer does not offend fairness.
• The importance of procedural fairness. Shareholders must receive adequate notice of the application and sufficient information, including access to the independent expert report, to assess their position.
• Determining whether “prejudice” requires more than disappointment. Where there is no realistic prospect of shareholders receiving value in a liquidation, the fact that they are displaced under a DoCA does not amount to prejudice, let alone unfair prejudice.
• The need to compare outcomes under the DoCA and under liquidation. If the DoCA preserves some value for creditors while leaving nothing for shareholders, and liquidation would do the same, then members cannot complain of unfairness.
• Any analysis must be grounded in evidence, not speculation. Assertions of potential future value must be supported by credible expert analysis.

Together, the principles demonstrate that s 444GA applications hinge on three elements: the presence or absence of residual equity, the adequacy of disclosure and notice to members, and a realistic comparison with what shareholders would receive if the DoCA failed.

Expert Evidence: The Bedrock of the Application

Courts almost invariably require an independent expert’s report. That report must establish the value of the company’s business and assets, the expected return in liquidation, and whether any surplus could flow to shareholders. Asset-based valuation approaches dominate because earnings or market-based methods are unreliable for companies already insolvent or suspended from trading.

The Role of Regulators

Applications under s 444GA often intersect with Australia’s takeover regime. A transfer of all shares in a company to a single acquirer will almost always breach the 20% rule in s 606, which prohibits a person acquiring more than 20% of voting shares outside formal takeover or scheme processes.

This is where ASIC’s role becomes central. The regulator has the power under s 655A to grant relief from the takeover prohibition. Courts expect administrators to engage with ASIC early, seeking “in-principle” or formal relief before the s 444GA hearing. Evidence that ASIC has considered, and does not oppose, the transaction carries significant weight.

The Takeovers Panel can also be relevant. While rare, if shareholders argue that the circumstances of the recapitalisation are “unacceptable” under Chapter 6, they may apply to the Panel for a declaration. Courts are mindful of this parallel jurisdiction, though in practice most s 444GA applications proceed with ASIC oversight and no recourse to the Panel.

ASIC’s broader regulatory function is to ensure that members are properly informed. Administrators usually provide an explanatory circular and make the expert report available. If disclosure is deficient, ASIC may intervene or oppose relief.

Conclusion

Section 444GA is a powerful but carefully policed tool. Its central rationale is straightforward: where shareholders’ equity has no value, they are not unfairly prejudiced if it is transferred for nothing. But this simplicity conceals significant safeguards. Independent expert evidence, procedural fairness, creditor approval, and ASIC’s regulatory oversight all combine to ensure that the power is not abused. When these conditions are met, the courts have shown a willingness to grant leave even when the result is the complete extinguishment of shareholder ownership. That is because the alternative, liquidation, leaves them no better off.

This article was written with the assistance of Jade Daly.