Re Covaler Pty Ltd (subject to deed of company arrangement)
[2025] VSC 473
•5 August 2025
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2025 02947
IN THE MATTER OF COVALER PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) (ACN 610 182 566)
| JASON GLENN STONE IN THEIR CAPACITY AS JOINT AND SEVERAL DEED ADMINISTRATOR OF COVALER PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) (ACN 610 182 566) | First Plaintiff |
| PAUL ANTHONY ALLEN IN THEIR CAPACITY AS JOINT AND SEVERAL DEED ADMINISTRATOR OF COVALER PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) (ACN 610 182 566) | Second Plaintiff |
| COVALER PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) (ACN 610 182 566) | Third Plaintiff |
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JUDGE: | Waller J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 4 August 2025 |
DATE OF RULING: | 5 August 2025 |
CASE MAY BE CITED AS: | Re Covaler Pty Ltd (subject to deed of company arrangement) |
MEDIUM NEUTRAL CITATION: | [2025] VSC 473 |
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CORPORATIONS – Voluntary administration – Deed of company arrangement – Application under s 444GA of the Corporations Act 2001 (Cth) for leave to transfer shares pursuant to deed of company arrangement – Whether residual value of shares in company – Whether shareholders unfairly prejudiced – Leave granted.
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APPEARANCES: | Counsel | Solicitors |
| For the First and Second Plaintiffs | J Kohn | Ark Legal |
HIS HONOUR:
The first and second plaintiffs, Jason Stone and Paul Allen, are joint and several deed administrators of the third plaintiff, Covaler Pty Ltd (Covaler). They seek leave pursuant to s 444GA(1)(b) of the Corporations Act 2001 (Cth) (the Act) to transfer shares in Covaler in accordance with the terms of a deed of company arrangement (DOCA).
The DOCA provides, among other matters, for the transfer of 90% of the shares of all current shareholders in Covaler to a set of existing shareholders and creditors on a pro-rata basis commensurate with the amount owing to them as creditors as at 13 September 2024.
The application is supported by two affidavits and supporting exhibits from the first plaintiff, dated 23 May 2025 and 16 July 2025 respectively. Among other matters, they detail the history of Covaler, the terms of the DOCA and financial reports and expert valuations assessing the value of Covaler’s assets and its shares.
Of the 32 total shareholders in Covaler, 22 have provided their written consent to the transfer of shares. None of the 10 remaining shareholders, who have not consented to the transfer of shares, opposes this application.
A. RELEVANT FACTS
Covaler carried on business providing technology services to organisations.
Around December 2018 and January 2019, Covaler successfully undertook a capital raising and acquired all of the shares in Acceleon Australia Pty Ltd, a technology services business.
Between November 2020 and July 2021, Covaler successfully undertook a further capital raising which enabled it to acquire all of the shares in three companies owned by Beddoes Holdings Pty Ltd ATF the Beddoes Group Trust (Beddoes Group): The Beddoes Institute Pty Ltd, Allori Pty Ltd, and Beddoes Consulting Pty Ltd.
On 12 April 2023, Covaler failed to make payment of $300,000 pursuant to the share sale agreement to acquire share capital from the Beddoes Group. Accordingly, Covaler and Beddoes Group entered into a deed of settlement requiring Covaler to pay $307,693 to the Beddoes Group to resolve the breach.
Around June 2024, Covaler was notified that its major customer, Big 4 Holiday Parks, would be insourcing its technology capabilities and that revenue from that customer would be decreasing significantly. Big 4 Holiday Parks was the largest source of trading income for Covaler, and Covaler projected that its cashflow would decline significantly as a result.
On 26 August 2024, Covaler was served with a statutory demand demanding payment of $307,693 to the Beddoes Group owing pursuant to the deed of settlement executed on 12 April 2023.
On 13 September 2024, the director of Covaler, David Johnson, resolved that the company was likely to become insolvent, and the first and second plaintiffs were appointed as joint and several administrators pursuant to s 436A of the Act.
On 17 September 2024, the administrators sent a report to creditors which advised of a meeting of creditors of Covaler, which was duly held on 25 September 2024.
On 14 October 2024, a second report was sent to creditors (Second Report) and a second meeting of creditors was held on 21 October 2024.
The Second Report recorded details of Covaler’s share capital and shareholders. It also included a summary prepared by the first plaintiff of Covaler’s external financial statements for the financial years ending 30 June 2022, 2023, and 2024, as well as a summary of management accounts as at 13 September 2024.
According to those records:
(a) Covaler has 32 shareholders, with total shares of 92,109,439 and a paid up value of $9,828,284;
(b) in FY24, Covaler made a loss of $6,093,538, which was in part due to an accounting adjustment write-off of some $5.5 million of related party loans;
(c) as at 13 September 2024, the net assets of Covaler are $5,790,247, including some $2.2 million in liabilities and around $8 million of assets; however, $7.6 million of those assets are investments in related entities and the first plaintiff’s opinion is that those investments appear to be overstated and warrant further investigation; the only significant investment asset appears to be a 37% shareholding in Talefin Holdings Pty Ltd (Talefin);
(d) an estimated realisable value of Covaler’s assets is recorded as $96,695.87, corresponding to the same amount being Covaler’s cash at bank, with other assets being assigned an unknown or nil value or otherwise described in further detail as being difficult to realise;
(e) an estimation of Covaler’s liabilities includes $121,046 in employee entitlements, some $1.2 million from partly secured creditors and a further $1.4 million from unsecured creditors, producing a total shortfall of $2,666,602.13 from the estimated realisable value of Covaler’s assets.
A proposed deed of company arrangement was also included in the Second Report. The proponents of the proposed deed were the following shareholders or creditors of Covaler:
(a) David Johnson ATF D&B Johnson Family Trust;
(b) Harewood Superannuation Pty Ltd ATF Maissan Superannuation Fund;
(c) Patrick Blume ATF Blume Family Trust;
(d) Thomas Castles & Suzanne Castles ATF Castles Super Fund;
(e) PKT Springbrook Pty Ltd atf PKT Family Superannuation Fund;
(f) David F Browne;
(g) Local Tonic Pty Ltd ATF GLN Unit Trust;
(h) Gregory Creece;
(i) Martin Hugh Foreman;
(j) P&A Rawson Family Holdings Pty Ltd ATF P&A Rawson Family Trust;
(k) L&L Rawson Investments Pty Ltd ATF L&L Rawson Family Trust;
(l) Rawson Family Company Pty Ltd ATF The Rawson Family Trust;
(m) Hograw Pty Ltd ATF Hogan Family Trust;
(collectively, the DOCA Proponents).
The key terms of the proposal were that:
(a) the administrators of the deed would establish a deed fund comprising a payment of $250,000 to be paid by the DOCA Proponents upon the acceptance of the proposal, or within two business days of any DOCA incorporating the terms of the proposal being duly executed in full, whichever occurs later;
(b) all creditors with claims at the date of the appointment of the administrators would be eligible to participate in a distribution from the deed fund;
(c) the DOCA Proponents would prove for their debts and claims in the DOCA, be entitled to vote on the DOCA and upon the approval of the DOCA, waive the total of their aggregate debts in Covaler and convert the value of their debts to equity commensurate with the value of their debt as a proportion to their total aggregate debts expressed as a percentage (Relative Debt Percentage);
(d) the DOCA Proponents would assume 90% of the shares in Covaler in accordance with their Relative Debt Percentage, and the existing shareholders would retain 10% of the shares in an equal proportion to their existing shareholding, with the existing number of shares of 92,109,439 remaining as the total number of shares;
(e) the deed fund would be applied:
(i) first, to all of the administrator’s fees, costs and disbursements including trading liabilities and disbursements;
(ii) second, to all of the fees, costs and disbursements of the administrators of the deed;
(iii) third, to any priority employee creditor claims in accordance with the priority of payments stipulated in s 556 of the Act; and
(iv) fourth, to participating unsecured creditors, to be paid on a pro-rata basis;
(f) the DOCA Proponents would provide an irrevocable written undertaking within five business days of the administrators issuing their report under s 439 of the Act to creditors that they will:
(i) do all things reasonably necessary to resolve a shareholder resolution to transfer shares to the DOCA Proponents equivalent to 90% of the equity in Covaler, on a pro-rata basis commensurate with the amount owing to them as a creditor as at 13 September 2024;
(ii) do all things reasonably necessary to resolve ratification by Covaler of a new standard shareholders agreement that affords all shareholders the same rights commensurate with their shareholding;
(iii) waive all other rights as shareholders until the new agreement is established; and
(g) the administrators of the deed would, promptly and without delay after the commencement of the DOCA, work with the director and DOCA Proponents to seek consent of the transfer of shares, including, potentially, an application to the Court pursuant to s 444GA of the Act, seeking leave to transfer shares to such entity or entities nominated in writing by the DOCA Proponents.
The Second Report also contained a comparison of the estimated net return to creditors under the DOCA with the net return to creditors in a liquidation of the company. It estimated that, after relevant administration and DOCA or liquidation costs, a liquidation would return nil value to any creditors, whereas the DOCA would return between 5.3 to 7.6 cents in the dollar.
The deed of undertaking referred to in the proposal was sent to the DOCA Proponents on 17 October 2024 and subsequently executed.
A letter dated 18 October 2024 from Marcus Price sent to the first plaintiff provided a non-binding indicative offer to purchase some or all of the assets of Covaler for up to $450,000. The offer was subject to a 30 day due diligence process which required the directors of Covaler to be replaced to facilitate the due diligence as well as free and unfettered assets to the records and information of the company. The offer included a 20% deposit to be paid immediately and held in a trust account managed by a third party.
In a reply letter sent by the first plaintiff’s solicitors (Ark Legal) dated the same day, Mr Price was advised that the first plaintiff was unable to consider the offer presented in its current form and was unable to confirm that it was in the best interests of all creditors. The first plaintiff considered that the offer did not provide certainty to the creditors in circumstances where it lacked a definitive price; was unclear as to what assets were proposed to be acquired; lacked a guarantee as to any minimum price; lacked benefit to the company from any deposit monies being held in a third party account; did not provide the identities of the proposed persons replacing the directors during the due diligence period; and did not provision for the funding of any trading and administrators’ costs.
No response was received from Mr Price prior to the second meeting of creditors. At that second meeting, the creditors resolved to accept the proposed deed of company arrangement. The only parties who voted against the proposal were North Face Investments Pty Ltd, Vanaheim Investments Pty Ltd and Adam Tucker ATF Beddoes Holdings Pty Ltd. The total value of their debts was $396,703.64, being 18.6% of the total quantum of creditors’ debts.
On 4 November 2024 the DOCA was executed in accordance with the proposal.
On 15 November 2024 all creditors were notified that the DOCA had been executed and that the administration of the company was at an end.
On 28 November 2024, the DOCA funds were received by the administrators from the DOCA Proponents.
On 29 November 2024, a letter was sent to each shareholder holding ordinary shares in Covaler requesting that they provide written consent for the transfer of shares.
Between 4 December 2024 and 10 December 2024, various emails requesting information about the DOCA and the debt-to-equity conversion were sent by Andrew Julian of Vanaheim Investments Pty Ltd and Scott Julian of Northface Investments Pty Ltd to the first plaintiff. Responses to these requests were duly provided by Ark Legal.
On 11 December 2024, the deadline for shareholders of the company to provide their consent was extended to 18 December 2024.
By 18 December 2024, 22 of the total 32 shareholders had provided their written consent to transfer their shares.
On 23 May 2025, the first and second plaintiffs filed the originating process which is the subject of this application, supported by an affidavit of the first plaintiff, Jason Stone, with exhibits.
On 13 June 2025, each of the 10 shareholders who had not provided their consent to the transfer of the shares (among others) were served with a copy of the originating process, the affidavit and exhibits, and an email from the Court notifying the listing of this proceeding for a directions hearing on 27 June 2025. The 10 non-consenting shareholders were subsequently also served with the orders made at, and the transcript of, that directions hearing.
An affidavit of the first plaintiff dated 16 July 2025 deposes that shares in Covaler would have a nil value if the company were placed into liquidation. The basis of this assessment is a valuation of Covaler prepared by Steven Perri of PKF Melbourne Advisory Pty Ltd dated 16 July 2025.
Mr Perri was asked by the first and second plaintiffs to prepare a valuation of the shares in Covaler as at 13 September 2024 as if the company had been placed into liquidation on that date.
Mr Perri assessed the true value of Covaler’s total assets at that date to be $336,082 and its total liabilities to be $2,211,834.
Although Covaler’s reported assets included investments in other companies that were reported to be worth some $7.6 million, Mr Perri estimated that their market value is in fact only $138,849. The significant difference was due to the fact that most of the companies in which Covaler had invested were in liquidation or had a deficiency in net assets. The only investment of any substantial value was Covaler’s 37% interest in TaleFin Holdings Pty Ltd.
Based on a comparable markets analysis, Mr Perri concluded that the value of Covaler’s 37% shareholding interest in TaleFin is $891,715. However, in Mr Perri’s opinion that is unlikely to be realised because a special majority of Talefin shareholders would need to approve such a sale and the sale process would also be costly and time consuming, which would be prohibitive were Covaler to be liquidated. Accordingly Mr Perri adopted a net assets basis as the most appropriate valuation basis for TaleFin. This resulted in the value of TaleFin being assessed at $283,376 with Covaler’s 37% interest being assessed at $104,849.
Mr Perri concluded that he assessed the value of the shares in Covaler as at 13 September 2024 to be nil.
On 18 July 2025, each of the 10 non-consenting shareholders was served with a copy of the affidavit of the first plaintiff dated 16 July 2025 exhibiting Mr Perri’s valuation memorandum.
On 1 August 2025, each of the 10 non-consenting shareholders was served with a copy of the first and second plaintiffs’ submissions in support of the application.
Despite service of the relevant documents relating to the application on the 10 non-consenting shareholders, the application remains unopposed.
B. LEGAL PRINCIPLES
Section 444GA of the Act provides as follows:
Transfer of shares
(1)The administrator of a deed of company arrangement may transfer shares in the company if the administrator has obtained:
(a) the written consent of the owner of the shares; or
(b) the leave of the Court.
(2) A person is not entitled to oppose an application for leave under subsection (1) unless the person is:
(a) a member of the company; or
(b) a creditor of the company; or
(c) any other interested person; or
(d) ASIC.
(3)The Court may only give leave under subsection (1) if it is satisfied that the transfer would not unfairly prejudice the interests of members of the company.
In Weaver v Noble Resources Ltd (Weaver), Martin CJ noted that other than requiring the Court to be satisfied that ‘the transfer would not unfairly prejudice the interests of members of the company’, s 444GA itself provides no guidance as to the considerations properly taken into account by the court when determining whether or not leave should be granted.[1]
[1](2010) 41 WAR 301, 311 [59] (Weaver).
His Honour thus undertook a detailed examination of the legislative history of the provision. Relevantly, the Corporations Amendment (Insolvency) Bill 2007 (Cth) provided for the insertion of s 444GA into the Act. Its explanatory memorandum noted that the requirement that the transfer of shares not unfairly prejudice shareholders is intended to direct the Court to consider the impact of a compulsory sale on shareholders where there may be some residual value in the company.[2]
[2]Weaver 312 [69].
Chief Justice Martin went on to observe:
If the shares have no value, if the company has no residual value to the members and if the members would be unlikely to receive any distribution in the event of a liquidation, and if liquidation is the only alternative to the transfer proposed, then it is difficult to see how members could in those circumstances suffer any prejudice, let alone prejudice that could be described as unfair. As Master Newnes identified in Fleet Broadband Holdings, it is also important to note s 435A which sets out the objects of Pt 5.3A of the Act, of which s 444GA forms part. That section provides:
The object of this part is to provide for the business property and affairs in an insolvent company to be administered in a way that:
(a)maximises the chances of the company or as much as possible of its business, continuing in existence; or
(b) if it is not possible for the company or its business to continue in existence — results in a better return for the company’s creditors and members than would result from an immediate winding up of the company.
Before moving on to the circumstances of this case I would also observe that a mere transfer of shares without compensation cannot of itself constitute unfair prejudice, otherwise the section’s operation would be significantly constrained. So, something more would have to be established before it could said that unfair prejudice to the members of the company could arise.[3]
[3]Weaver 314 [79]–[80].
These observations of Martin CJ were cited with approval by Sifris J in Re 3GS Holdings Ltd (subject to deed of company arrangement).[4]
[4][2015] VSC 145, [8]–[9] (Sifris J).
In Re Big Un Ltd (subject to deed of company arrangement), Jagot J stated that:
…the test involves unfair prejudice to the interests of the shareholders. Further, in order to determine this, the Court must consider whether there is any residual value in the company as the issue involves comparing the circumstances in the event of a transfer of shares with the circumstances which would prevail in a liquidation.[5]
[5][2019] FCA 1162, [5] (emphasis in original).
In Re Hills Ltd (subject to deed of company arrangement), Black J summarised the case law relevant to the Court’s grant of leave under s 444GA as follows:
The case law establishes that the test to be applied under this section is concerned with “unfair prejudice” rather than any prejudice to the interests of relevant shareholders. The statutory test requires the Court to consider the circumstances of the case and the policy of the legislation, as summarised in s 435A of the Act. The transfer of shares without compensation does not, of itself, establish unfair prejudice. The statutory test generally focuses on whether there would be any residual value in the shares if the relevant company was to proceed in liquidation, at least where that is the likely or necessary consequence of the transfer of shares not being approved. Ordinarily, there will be no “unfair prejudice” if the shares have no value, and there would be no distribution in the event of a liquidation, which is the only realistic alternative to the proposed transfer.
The applicants, here the Deed Administrators, bear the legal onus of proving that the discretion to allow the share transfer should be exercised in their favour. However, shareholders (had any appeared to oppose this application) would bear an evidentiary onus to establish the facts relevant to any prejudice on which they rely in such an application.[6]
[6][2023] NSWSC 1308, [19]–[20] (citations omitted).
The authorities thus make clear that in circumstances where the evidence demonstrates that shares in a company hold no residual value, it would be difficult to find any unfair prejudice suffered by the members of the company from any transfer of shares.
C. SUBMISSIONS OF THE FIRST AND SECOND PLAINTIFFS
The first and second plaintiffs advance five reasons in support of their contention that it is appropriate for the Court to exercise its discretion to make orders facilitating the transfer of shares.
First, they submit that the DOCA maximises the chances of a return to creditors and shareholders.
Secondly, they submit that if the transfer of shares is not approved, the DOCA would likely be terminated and Covaler will be placed into liquidation in which case unsecured creditors and shareholders will receive nothing.
Thirdly, they submit that no shareholder has sought to be heard in relation to the application.
Fourthly, they submit that the shareholders who have not consented to transferring their shares have not provided evidence of any prejudice, let alone unfair prejudice which meets the threshold contemplated by the authorities.
Finally, they submit that the interests of shareholders will not be unfairly prejudiced if leave is granted because there is no residual value in the shares of Covaler.
D. DETERMINATION AND ORDERS
I am satisfied that all of the shareholders in Covaler have been provided with an accurate description of the proposal and have been given ample opportunity to appear in opposition to the application. Despite that, no shareholder has appeared to oppose the application.
I accept that the evidence establishes that Covaler’s shares have no residual value if the company were to be wound up, which is the likely consequence if the transfer of shares is not approved.
I am therefore satisfied that the proposed transfer of the shares in Covaler will not unfairly prejudice the interests of members of the company.
Accordingly, I will grant the first and second plaintiffs leave under s 444GA(1)(b) of the Act to transfer shares in Covaler according to the terms of the DOCA.
The first and second plaintiffs also seek orders under s 447A of the Actin respect of the execution of share transfer forms and the entry of the transferee’s name in the share register of Covaler. Under s 447A of the Act, the Court may make such order as it thinks appropriate about how Pt 5.3A is to operate in relation to a particular company, and such an order can be made, where a company has executed a deed of company arrangement, on application by the deed administrators. I accept that the Court has power to make and should make the orders sought to facilitate the transfer of shares in Covaler, where an order has been made under s 444GA of the Act in respect of that transfer.[7]
[7]See, eg, Re Paladin Energy Ltd (subject to deed of company arrangement) [2018] NSWSC 11, [1], [70] (Black J); Re OrotonGroup Ltd (subject to deed of company arrangement) [2018] NSWSC 1213, [43]–[44] (White J); Re Black Oak Minerals Ltd (subject to deed of company arrangement) (in liq) (2019) 134 ACSR 472, 478 [39]–[40] (Banks-Smith J).
I am also satisfied that this application was properly brought in the performance of the first and second plaintiffs’ role as deed administrators and to advance the implementation of the DOCA and the interests of creditors and I will make the order as to costs sought by the deed administrators on that basis.
I will make the following orders:
1. Pursuant to s 444GA(1)(b) of the Corporations Act 2001 (Cth) (the Act), the first and second plaintiffs have leave, jointly or severally, to transfer 82,898,495 of the collective shares of all shareholders in the third plaintiff (Company) to David Johnson ATF D&B Johnson Family Trust, Harewood Superannuation Pty Ltd ATF Maissan Superannuation Fund, Patrick Blume ATF Blume Family Trust, Thomas Castles & Suzanne Castles ATF Castles Super Fund, PKT Springbrook Pty Ltd atf PKT Family Superannuation Fund, David F Browne, Local Tonic Pty Ltd ATF GLN Unit Trust, Gregory Creecy, Martin Hugh Foreman, P&A Rawson Family Holdings Pty Ltd ATF P&A Rawson Family Trust, L&L Rawson Investments Pty Ltd ATF L&L Rawson Family Trust, Rawson Family Company Pty Ltd ATF The Rawson Family Trust and Hograw Pty Ltd ATF Hogan Family Trust and/or their nominee in accordance with cl 10(a)(iii) and 11(a)(i) of the deed of company arrangement dated 4 November 2024.
2. Pursuant to s 447A(1) of the Act, the first and second plaintiffs have leave, jointly or severally, to execute all necessary share forms and other documents ancillary to the relevant share transfer and the entry of shareholders in the Company’s share register.
3. The plaintiffs’ costs of and incidental to the application be the costs and expenses in the deed administration and be paid out of the deed fund and assets of the Company.
4. Liberty to apply.
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