Unfair prejudice to members for share transfers during external administration? The court said no if the transfer gives benefits to the creditors and the company equity has no residual economic value

10 February 2023
Guy Edgecombe, Partner, Brisbane

On 19 October 2022, the Federal Court of Australia made an order granting leave for the Deed Administrators to transfer all existing shares in the capital of the Collection House Limited to Credit Corp Group Limited, or its nominee, in accordance with the Deed of Company Arrangement entered into between the parties on 21 September 2022.

The Court held that based on the evidence available before the Court, such share transfer will not cause unfair prejudice the interests of the Company’s current shareholders.


Collection House Limited (Collection House) is a public company listed on the ASX, that provides debt collection services and purchases and otherwise manages receivables on behalf of its customers.

Since 2020 financial year, Collection House had been suffering significant trading losses as a result of COVID-19 related restrictions, which impacted its core business model as its clients had engaged in reduced active debt collection activities. After entering into a standstill agreement with its secured creditors and engaging in selling key assets, on 29 June 2022, the Deed Administrators were appointed as voluntary administrators of Collection House by a directors’ resolution.

On 7 July 2022, the Deed Administrators obtained funding from Westpac in order to continue to trade the business and pay employee entitlements and other debts with a view to selling or recapitalising the business of Collection House.

In September 2022, following rounds of negotiations, the Administrators entered into a Deed of Company Arrangement (DOCA) with Credit Corp Group Limited (Credit Corp) for the acquisition of Collection House’s business and assets. The transactions with Credit Corp also included the proposed share transfer, the establishment of a Creditors’ Trust Fund to meet the creditors’ claims, and the injection of capital in the sum of $11 million to the Creditor’s Trust Fund (the Credit Corp Transactions). The Credit Corp Transactions were announced to the ASX and the creditors.

Discretion of the Court – Unfair Prejudice to Members?

Pursuant to section 444GA of the Corporations Act, the Deed Administrators needed to obtain the Court’s leave to transfer shares in Collection House. Upon receiving the share transfer application, the Court needed to determine whether the share transfer resulted in any unfair prejudice to the members of the company.

Key considerations regarding any potential unfair prejudice need to be assessed having regard to all circumstances of the case. It was well-established that the transfer of shares without compensation cannot on its own establish unfair prejudice, and where the company’s equity has no residual value, the members are unlikely to suffer prejudice.

The Court found in this case that given Collection House’s ongoing trading losses, despite the Westpac funding, the failure to obtain further funding would lead to a shortfall in working capital and an inability to meet debts and other financial commitments.

Further, the Court was satisfied that the Credit Corp Transactions would:

  1. benefit all classes of creditors of Collection House;
  2. not prejudice Collection House’s current shareholders or have any financial impact on them, particularly because the equity in the Company had no residual economic value to its members; and
  3. assist the continuation of the business of Collection House.

The Court therefore granted the leave to the Deed Administrators for the share transfer.

Key takeaway

Not all share transfers for a company during external administration would be rejected by the Court. If such a share transfer or transaction is in the best interests of the company creditors and members, the Court would allow the transfer for the continuation of the company.

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Authored by: 

Guy Edgecombe, Partner
Violet Li, Solicitor

This update does not constitute legal advice and should not be relied upon as such. It is intended only to provide a summary and general overview on matters of interest and it is not intended to be comprehensive. You should seek legal or other professional advice before acting or relying on any of the content.

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