developments in deeds of company arrangement - DibbsBarker

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circumvent usual priority rules prescribed in Part 5.3 of the Corporations Act, inparticular the “pari passu” rule. 11FactsAnsett collapsed in September 2001, and administrators were appointed over thecompany’s affairs. Ansett was, at that time, a member of the International Air TransportAssociation (IATA) Clearing House. “Clearing house” arrangements are part ofagreements between various airlines to provide for the payment for services rendered byairlines that carry the passengers and cargo of airlines also party to the arrangement.Airlines could lodge claims for payment with a clearing house body in which theyamassed a series of debits and credits.In March 2002, the Ansett’s creditors resolved to enter into a DOCA.During the course of the DOCAs administration, the IATA clearing house lodged a proofof debt for around $4 million arising from a clearing house agreement. The DeedAdministrators rejected the poof of debt lodged by the clearing house. Normally, the “paripassu” rule under s 555 of the Corporations Act operates so that creditors of the samepriority receive the same percentage share of the proceeds of administration. Section 555is normally imported into DOCAs under Part 5.3 of the Corporations Act. The DeedAdministrators also sought to recover from other members of the IATA scheme, allegingthat they were indebted to Ansett.11 See also J Harris, A Hargovan, “The Scope of the Pari Passu Rule: Ansett and British Eagle” (2008)17 Australian Insolvency Journal 37.11899717 v1 Brisbane 05 08 096
IssueThe Court was asked to decide whether or not the clearing house arrangement was anagreement designed to give priority to the participating airlines over other unsecuredcreditors. The Court had to determine whether rights accrued between participants underthe clearing house arrangement, or whether rights merely accrued for or against theclearing house itself.DecisionThe High Court found that the contract did not violate the pari passu rule. The airlineswere held to have agreed that their legal rights to payment would arise with the clearinghouse and not with other participants in the scheme. The arrangements stated clearly thatthere was no enforceable debt between the airline participants.Ansett had argued that the clearing house arrangement circumvented the order ofpriorities set out in the DOCA. This argument was dismissed by a majority of the HighCourt. Rather, the Court found that the arrangement reflected legitimate dealings withcompany property before the DOCA came into being. The DOCA could notretrospectively alter these arrangements.The decision indicates the High Court’s willingness to recognise commercial dealingsentered into in good faith between creditors prior to insolvency as having priority over thenormal legislative arrangements under a DOCA. The High Court did not read the11899717 v1 Brisbane 05 08 097
Page 1 and 2: DEVELOPMENTS IN DEEDS OF COMPANYARR
Page 3 and 4: DEVELOPMENTS IN DEEDS OF COMPANY AR
Page 5: inevitable disadvantage of potentia
Page 9 and 10: The Administrators argued that even
Page 11 and 12: 3.3 Liquidation as an event termina
Page 13 and 14: If the administrator were required
Page 15 and 16: DecisionThe Court found that the DO
Page 17 and 18: ecommended that Storm be wound up.
Page 19: 4.3 Opting for a DOCA instead of wi
Page 22 and 23: Courts have shown a willingness to

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