WA Supreme Court clears rare DOCA share transfer with cash return for equity

The Supreme Court of Western Australia has approved the compulsory transfer of all shares and options in Lucapa Diamond Company Ltd to deed proponent Gaston International DMCC under section 444GA of the Corporations Act, notwithstanding that the DOCA contemplates a cash surplus for shareholders after creditors are paid in full. Justice Hill held that the transfer would not unfairly prejudice members, even though equity holders are expected to receive approximately 1.8 cents per share from a trust established under the DOCA, an outcome rarely seen in section 444GA applications.

Lucapa, a former ASX listed diamond miner with assets in Australia and Angola, entered voluntary administration in May 2025 after facing acute liquidity constraints, adverse diamond market conditions, and delays in cash distributions from its Angolan joint venture. Administrators Richard Tucker and Paul Pracilio of KordaMentha ran a truncated but competitive dual track sale and recapitalisation process, receiving four formal bids. The Gaston proposal was the only transaction that contemplated a return to shareholders and was unanimously approved by creditors in August 2025.

The administrators then sought leave to transfer all issued shares to Gaston under section 444GA, together with ancillary relief under sections 447A and 90-15 to facilitate the transfer of options and performance rights. Unlike the typical section 444GA case, where equity is extinguished with no residual value, the Gaston DOCA provided for payment of all secured, priority, and unsecured creditors in full and the distribution of any remaining surplus to shareholders on a pro rata basis.

Justice Hill accepted that this unusual feature did not place the application outside the scope of section 444GA. The statutory test, the Court emphasized, is not whether shareholders receive nothing, but whether the proposed transfer would unfairly prejudice members when compared with the counterfactual of liquidation. On the evidence, liquidation was the only realistic alternative if the DOCA failed.

Central to the Court’s analysis was extensive expert valuation evidence from FTI Consulting and ERM Australia. The experts valued Lucapa’s assets on a liquidation basis, applying distressed sale discounts and conservative assumptions about future diamond prices, production risk, and exploration upside. On that basis, the residual equity value of Lucapa shares in a winding up scenario ranged from nil to 1.6 cents per share, with a preferred value of 0.7 cents.

Against that benchmark, the Court found the anticipated shareholder return of up to 1.8 cents per share under the Gaston DOCA exceeded both the preferred and high end liquidation valuations, as well as the last traded ASX price of 1.4 cents before suspension. Justice Hill inferred that there was no realistic prospect a liquidator could achieve a superior outcome for shareholders through a further sales process.

A number of shareholders had written to the administrators objecting to the transaction, alleging undervaluation, lack of independence, and excessive conservatism in diamond price assumptions. However, no shareholder or ASIC formally appeared to oppose the application. The Court rejected the substantive complaints, finding the administrators had acted properly, the experts were independent, and the valuation methodology appropriately reflected prevailing market conditions and funding constraints.

The Court also granted relief under section 447A to permit the compulsory transfer of listed options with a strike price of 6 cents expiring in 2028. Accepting expert evidence that the options had no residual value in either a DOCA completion or liquidation scenario, Justice Hill held that their transfer would not unfairly prejudice optionholders, adopting reasoning consistent with recent Federal Court authority in the Toys “R” Us ANZ administration.

Read the decision here.

Paul Edgar SC and Stefan Tomasich of Quayside Chambers & SP (instructed by Lavan) acted for the joint administrators.