Dyldam Developments - Case Update

The Federal Court of Australia has approved a settlement in the long-standing administration of prominent Sydney-based apartment developer Dyldam Developments that will reduce the available deed fund and deviate from the terms approved by creditors.

The Dyldam Group has a long and storied past. It began building apartments in the early 1970s and grew to a veritable corporate giant, comprising 180 companies which had loaned money to each other through “a complex web of intercompany loans”.

The first signs of weakness appeared in 2012, when one of the Dyldam Group companies went into administration, followed by another in 2016. Then, in late 2020, 22 of the companies entered voluntary administration, reportedly owing half a billion dollars to creditors. Parent company Dyldam Developments held on until January 2022, when it entered voluntary administration with debts of over $180 million. Andrew Blundell and Simon Cathro of Cathro & Partners were appointed as administrators.

In April 2022, the creditors of Dyldam Developments voted in favour of a DOCA proposal with a deed contribution payment of $8 million. The DOCA was entered into in May 2022. Sam Fayad and Maria Fayad, the directors of Dyldam Developments, paid the deed contribution by way of four equal instalments of $2 million.

The third and fourth of those instalments were challenged by the liquidators of Special Gold, a special purpose entity of which Mr Fayad was also a director. Special Gold sold a property in Parramatta for nearly $74 million in 2020. The liquidators of Special Gold argued that the third and fourth payments (totalling $4 million) were sourced from the proceeds of the Parramatta property sale, and that Mr Fayad had breached his fiduciary duty to Special Gold, since the company received no benefit from the payments and Mr Fayad simply used the company’s money to meet his own obligations under the DOCA.

The liquidators of Special Gold sought proprietary remedies over the $8 million deed fund under the DOCA, a claim that, if successful, would have conferred a significant advantage on Special Gold in relation to other creditors, whose claims total $270 million. While Dyldam Developments believed it had a strong defence, the deed administrators recognised litigation risk and sought approval of a settlement whereby they will make a payment out of the deed fund, but in an amount less than that claimed by Special Gold. This required Court approval under s 90-15 of the Insolvency Practice Schedule and a variation of the DOCA under s 447A of the Corporations Act, as the settlement would reduce the available deed fund and deviate from the terms approved by creditors.

The Court found that the administrators were justified in settling, as the terms balanced litigation risk and creditor return, allowing for earlier distribution and avoiding costly delays. While normally such a variation should be approved by creditor vote, the urgency of the trial and support from the largest creditor, Persephone Company (representing over 59% of the admitted debts), warranted the Court’s intervention. The Court also granted confidentiality orders due to the sensitive nature of the legal advice and settlement negotiations.

Read the decision HERE.

Professionals involved:

• Doran Cook S.C. of 9 Wentworth Chambers and Andrew Emmerson of Eight Selborne Chambers (instructed by Johnson Winter Slattery) for the Deed Administrators, Andrew Blundell and Simon Cathro of Cathro & Partners:

• Stephen Ipp of Greenway Chambers for Persephone Company