Probuild Group - Case Update

The Court has declined to give judicial advice sought by the administrators of the Probuild Group which would have required creditors to fund administration costs associated with their insurance litigation being ongoing.

The Probuild Group — once one of the largest construction groups in Australia —entered administration in February 2022. The administration culminated in creditors for 16 of the companies voting in favour of a single DOCA which provided for the companies’ assets to be pooled into a single fund, as well as a contribution of over $9 million to the fund by WBHO Construction, a South African company and the deed proponent. The DOCA was approved by the creditors in late June 2022 and executed in July 2022.

In their report to creditors on the DOCA, the administrators had warned that there may be significant outstanding unsecured claims by principals under building contracts (principal claims) which could not be quantified until projects were completed and defect liability periods had expired. The administrators estimated these claims to be between $30 million and $76 million, but stated the amount was highly uncertain and subject to change.

The risks identified in the administrators’ report materialised — a number of claims/proceedings were brought against certain deed companies, including principal claims to which insurance may respond. These include personal injury and workers compensation claims, as well as claims/proceedings in respect of allegedly defective work.

All parties to the proceeding agreed that the DOCA required variation to achieve one of its purposes: that insured persons be free to pursue their claims against the relevant companies as if s. 562 of the Corporations Act 2001 (Cth) applied. This section allows third parties direct access to insurance proceeds covering the company’s liability where a company is in liquidation.

Certain creditors brought an application to vary the DOCA to effect this change, while the administrators brought their own application for directions that: (1) the variation to the DOCA be referred to a creditors’ meeting for consideration by the creditors rather than implemented by the Court; and (2) some insured creditors bear costs, including general administration costs, associated with their insurance litigation being ongoing, from a specified point in time at which the administration would otherwise likely come to an end if not for that ongoing insurance litigation.

The Court granted the creditors’ application but refused to give the directions sought by the administrators, finding that they were not a just or efficient way to proceed. Among other things, the Court had issues with the details and potentially unintended consequences of the costs mechanism. The Court also found that unsecured creditors should not, as a general principle, be treated differently in the administration based on whether they are insured or not, and noted that it was quite an unusual position to advance that insured creditors should effectively have to fund some of the defence costs of the company they are pursuing for a claim.

Read the decision HERE.

Counsel for the applicant creditors: Philip O’Higgins KC of Carbolic Chambers with E Robinson
Solicitors for the applicant creditors: Carter Newell

Counsel for Salvatore Algeri, Jason Tracy, David Orr and Matt Donnelly of Deloitte (the administrators): Craig Wilkins KC of Level 10, Inns of Court with V Bell 
Solicitors for the administrators: King & Wood Mallesons