Whistleblower blocks share transfer in Eratos DOCA fight, wins order removing administrator as liquidator

The Supreme Court of Victoria has refused to grant leave for a deed administrator to compulsorily transfer the shares of Eratos Group Pty Ltd under section 444GA and has taken the highly unusual step of restraining him and his firm from acting as liquidator, finding that the proposed transfer would unfairly prejudice a shareholder who had earlier made protected whistleblower disclosures and that the administrator’s conduct raised concerns about impartiality and compliance with the Corporations Act.

Justice Delany dismissed the administrator’s bid to transfer all shares in Eratos Group to a subset of “Target Members” for no consideration, a step required to effectuate a pooled deed of company arrangement proposed by director John Chung. The DOCA sought to eliminate the shareholdings of three parties, including former employee Kate Goss, whose whistleblower disclosures in September 2024 triggered internal investigations and preceded her dismissal. Although creditors approved the DOCA after the administrator exercised his casting vote, the judge found that the administrator had failed to demonstrate that the shares were valueless or that members would receive nothing in a liquidation, as required under section 444GA.

The Court found several defects in the administrator’s valuation exercise. A $549,000 R&D tax rebate was never disclosed to creditors at the second meeting. Potential recovery claims, including more than $215,000 in alleged unreasonable director-related transactions and possible insolvent trading liabilities dating back to 2022, were given a nil value. The administrator also failed to produce evidence of a balance sheet analysis or independent expert report assessing share value. While Eratos Aust continued trading in administration for roughly 12 months, the company relied on undocumented “lines of credit” provided by shareholders aligned with the DOCA, and the administrator’s own firm appeared to have advanced more than $500,000 to the business, a level of involvement the Court described as “unusual.”

Justice Delany held that even if shares had limited value today, the existence of multiple unresolved asset streams, mismanagement issues, and unexplained related-party transactions created a discernible potential benefit to members from a liquidation investigation. That alone was enough to deny leave under section 444GA.

The Court went further, finding that the DOCA’s discriminatory treatment of Ms Goss — cancelling her shares while increasing the holdings of nearly all other shareholders — lacked any rational justification. She was not part of the leadership whose conduct was said to have contributed to the company’s failure, and her exclusion was consistent with allegations that the DOCA proponent and administrator were responding to her whistleblower disclosures. The proposed transfer therefore carried an element of “unfair prejudice,” independent of share value.

On whistleblower grounds, the Court ruled that granting the transfer would permit the administrator to enforce a right against Ms Goss on the basis of her protected disclosure, contrary to section 1317AB. Because she had adduced evidence establishing a reasonable possibility of detrimental conduct and the administrator had not attempted to rebut it, the statutory burden shifted against him.

In an exceptional exercise of its powers under section 1317AE and section 90–15 of the Insolvency Practice Schedule, the Court restrained the administrator and any director or employee of his firm from acting as liquidator of either company. The judge cited concerns about independence, including the administrator’s decisive casting vote, his handling of undisclosed assets, his dispute of Ms Goss’ standing despite clear statutory entitlement, his inability to explain significant loans between his firm and the company, and the need to preserve confidence in the integrity of the winding up.

The administrator’s originating application was dismissed, and the Court granted liberty to apply on seven days’ notice for directions on appointing a replacement liquidator.

Read the decision here.