TGIF 26 June 2026 - Undertaking as to damages key to court refusing DOCA restraint

This week’s TGIF considers the decision of Shariff J in Bunter v Hardy, in the matter of FT Sydney Pty Ltd (subject to a deed of company arrangement) (Application for stay and interlocutory relief) [2026] FCA 742, in which the Federal Court dismissed creditors’ applications for interlocutory relief to restrain the effectuation of a deed of company arrangement (DOCA) – that is, to prevent the DOCA from taking effect – along with a secured creditor’s application for a stay of proceedings, in a dispute involving a major Sydney CBD property development.  

Key takeaways

• Even where creditors establish prejudice from effectuation of a DOCA, the Court will weigh this against prejudice to other parties including risks to major commercial transactions. 

• The failure to proffer an undertaking as to damages may be fatal to an application for interlocutory relief. The circumstances in which a court will exercise its discretion to grant interlocutory relief without an undertaking as to damages are limited.

• Following Project Sea Dragon, the Court confirmed that a DOCA may be terminated or varied where its predominant purpose was to strip a company of an unwanted debt, but the strength of such a claim depends on the factual matrix – in particular, where multiple classes of creditors are affected and liquidation was the only alternative.

Background

FT Sydney Pty Ltd (FT Sydney) was the developer of the ‘Halo Project’, a proposed high-rise hybrid commercial tower on a development site at Pitt Street and Hunter Street in Sydney’s CBD. On 1 April 2026, voluntary administrators were appointed to FT Sydney and related companies (together the FT Companies). At the second creditors’ meeting on 12 May 2026, a resolution to execute a DOCA proposed by the sole director was passed by the casting vote of the administrator. The DOCA was executed on 25 May 2026.

The 22 plaintiffs (the Deferred Vendors) commenced proceedings on 29 May 2026. Effectuation of the DOCA would extinguish the Deferred Vendors' interests as creditors, leaving them with no claims against FT Sydney in respect of those debts.

Prior to the FT Companies entering administration, in September 2025, FT Sydney had entered a contract to sell Cbus Property a 50% interest in the Properties (the Cbus Contract), subject to conditions including the effectuation of a DOCA and delivery of ‘Clear Title’. 

The Deferred Vendors’ application

The Deferred Vendors’ application for interlocutory relief restraining effectuation of the DOCA came before the Court on an urgent basis ahead of a final hearing. Their applications were for:

• declarations that the voluntary administration was invalid (section 447C of the Corporations Act 2001 (Cth));
   
• orders to terminate or vary the DOCA (sections 445D and 447A); and
   
• a declaration that they held an equitable lien over the properties to secured the Deferred Payments they had paid (making them secured creditors under section 444D(2)). 

The plaintiffs’ contentions included:

• The Administrators accepted the FT Companies were placed into administration for the purposes of the sole director to propose a DOCA, as such a course was consistent with the terms of the Cbus Contract.  
   
• The estimated 0.72 cent in the dollar return to creditors was such a small amount that the practical effect was that the Deferred Creditors’ claims would be extinguished for effectively no consideration. 
   
• The DOCA was entered into for an improper purpose in that the predominant purpose of the DOCA was to strip the FT Companies of unwanted debts, and was therefore an abuse of Part 5.3A of the Corporations Act.
   
• The resolution was passed by casting vote; only three creditors voted in favour of the resolution and 20 voted against, and the report to creditors contained material misstatements and omissions.

Justice Shariff found the Deferred Vendors’ claims had some reasonable prospects of success, but could not be characterised as “strong claims”:

• The section 447C claim (that the administration was invalid because the director did not genuinely believe the companies were insolvent) had prospects assessed as “greater than weak but less than moderate”. However, this claim could be maintained regardless of whether the DOCA was effectuated.
   
• The DOCA termination/variation claims (sections 445D and 447A) had some reasonable prospects but were distinguishable from Project Sea Dragon Pty Ltd v Canstruct Pty Ltd [2024] FCAFC 141; 305 FCR 465, because multiple creditors (being the Deferred Vendors and the related party creditors) had their debts extinguished (not just a single creditor), the secured creditor who was owed in excess of $650 million could appoint a receiver or a liquidator, and liquidation had been the realistic alternative to the DOCA. 
   
• The provisions of the Insolvency Practice Schedule (Corporations) (IPS) relied upon by the Plaintiffs’ did not change the Court’s assessment of the prospects of the claims, as they require the exercise of discretion on the part of the Court, which necessarily entails similar considerations to those which the Court already addressed as part of the section 447A application.
   
• The equitable lien claim was not meritless but required the plaintiffs to address clause 2(d)(iii) of the Irrevocable Undertakings, which provided that the instrument does not provide the Deferred Vendors with any proprietary right, security interest or caveatable interest in respect of the Properties or any other real property.

Balance of convenience

The Court accepted the Deferred Vendors would suffer significant prejudice if the DOCA was effectuated before the final hearing. In particular, the Court noted that the powers under sections 445D and 447A could not be exercised after effectuation.

However, the Court also found significant prejudice on the other side.  Cbus Property was not prepared to enter into further documentation while the FT Companies remained subject to the DOCA. There was a real risk that the Cbus Contract could fall over, exposing the development to liquidation and a loss of a favourable construction tender price.

Undertaking as to damages

This proved to be the critical factor. The Deferred Vendors refused to provide any undertaking as to damages. Justice Shariff stated the absence of an undertaking “could be fatal”. His Honour held this refusal was inconsistent with the Deferred Vendors’ own position that the risk of the Cbus Contract falling over was low.  If that risk was truly low, the undertaking should have been readily proffered. 

Justice Shariff referred to the principle in Weribone on behalf of the Mandandanji People v State of Queensland [2013] FCA 255 at [81]-[86] as the true statement of the principle; the usual position is that the provision of an undertaking as to damages is necessary to justify the grant of interlocutory relief, however, that does not mean the court has no discretion. 

Justice Shariff was satisfied that no special circumstances existed; 

• there was no evidence the Deferred Vendors were impecunious;
   
• the case did not involve any element of public interest where the Attorney General is a party; and
   
• any damages that could be claimed in the future were not entirely indeterminate or so exorbitant. 

Justice Shariff commented it will depend on the circumstances, which may include the financial position and circumstances of the applicant, the nature of the parties claiming the potential loss, the nature of the litigation, and whether the posturing between the parties as to the potential exposure to damages is realistic. 

Justice Shariff concluded the Deferred Vendors had elected to engage in high-stakes litigation and should be prepared to pay the price of the relief they sought. Having elected that course, there was no evidence before his Honour to suggest they should be relieved of that consequence. 

Comment

This decision raises several important practical points for insolvency practitioners, secured creditors and litigants in DOCA disputes:

1. Creditors seeking interlocutory relief in urgent DOCA disputes must be prepared to offer an undertaking as to damages.  Justice Shariff’s comments make clear that an outright refusal to provide any undertaking – even in a reduced amount – can prove fatal, particularly where the applicant simultaneously contends that the risk of loss to other parties is low.
    
2. The decision clarifies the reach of the Project Sea Dragon decision. While the Full Court’s reasoning in that case remains good law, this decision confirms that the strength of a claim to terminate a DOCA will depend on the specific factual matrix – including the number and classes of creditors affected and whether liquidation was the realistic alternative.