NSW Court rejects bid to unwind Mercon DOCA

The Supreme Court of New South Wales has dismissed an attempt to set aside the deed of company arrangement of Mercon Group Pty Ltd, rejecting claims that the company’s administrators improperly admitted creditor claims and allowed related creditors to determine the outcome of the restructuring vote. Justice Nixon held that the administrators made permissible “just estimates” of disputed defect claims for voting purposes and that the DOCA was neither oppressive nor an abuse of the voluntary administration regime.

The proceeding was brought by The Owners – Strata Plan No 93170, which had sued Mercon, a building contractor, over alleged construction defects at a residential development in Baulkham Hills known as The Jacob. After Mercon entered voluntary administration in mid-2025, the owners corporation and individual unit owners lodged proofs of debt for voting at the second creditors’ meeting, largely based on unresolved and unquantified defect claims. The administrators admitted several of those claims at $1 for voting purposes, rejected others entirely, and admitted four related-party creditor claims in full.

The owners corporation argued that the administrators failed to make proper estimates of the defect claims, that the DOCA only passed because of the votes of related creditors, and that misleading information was provided to creditors. It also sought to terminate the DOCA on the basis that it unfairly prejudiced the owners corporation and unit owners by preventing them from pursuing claims that could be investigated in a liquidation.

Justice Nixon rejected each of those grounds. The Court held that, given the early stage and contested nature of the defect claims, including the absence of admissible expert evidence quantifying loss, the administrators were entitled to admit the claims at a nominal value for voting. The judgment emphasised that the statutory task is not to determine the ultimate merits of a claim, but to form a reasonable estimate based on the information available at the time.

The Court also declined to interfere with the administrators’ decision to admit related-party creditor claims, finding no error in principle or evidence of improper purpose. Even if the related creditors were excluded, the Court noted that the DOCA would still have passed on value, and there was no basis to conclude that the administration process had been manipulated to defeat the owners corporation’s interests.

Arguments that the DOCA was designed to frustrate defect claims were likewise rejected. The Court accepted evidence that Mercon had no capacity to meet those claims prior to administration and that the withdrawal of funding by related creditors, driven by the escalating cost of defending construction litigation, precipitated the insolvency. In that context, the DOCA improved, rather than worsened, the position of unrelated creditors by establishing a deed fund that would not exist in a liquidation, where the administrators estimated there would be no return.

The Court was also unpersuaded that the possible existence of insurance coverage for defect claims justified terminating the DOCA. Justice Nixon held that speculative insurance recoveries, unsupported by evidence of policy terms or coverage, were insufficient to establish oppression or unfair prejudice, and that variation of a DOCA, rather than termination, would ordinarily be the appropriate remedy in any event.

Read the decision here.

Professionals involved:

• David Weinberger SC of 9 Wentworth Chambers (instructed by Bird and Bird) for Rashnyl Prasad and Sean Wengel of William Buck in their capacities as Voluntary Administrators of Mercon Group Pty Ltd

• Gregory George of Tenth Floor St James Hall (instructed by Pateman Legal) for the Owners – Strata Plan No 93170

• Nicholas Mirzai of 3 St James' Hall (instructed by HWLE) for Mercon Group Pty Ltd and George Merhi