In the matter of Ally Fashion Pty Ltd (in liquidation)

1. [1]

   On 28 February 2025, the Applicants, Mr Jeffrey Marsden and Mr Duncan Clubb, were appointed by the Federal Court of Australia as joint and several Liquidators of Ally Fashion Pty Ltd.

2. [2]

   Ally Fashion was established in 2001 and operates a multi-channel fashion retail business (the Business). As at the date of the Liquidators’ appointment, Ally Fashion operated more than 150 retail stores throughout Australia.

3. [3]

   Mr David Dai is the sole director and sole shareholder of Ally Fashion. Following negotiations between Mr Dai and the Liquidators, Ally Fashion entered into a licence agreement with Grandline Pty Ltd, a company associated with Mr Dai, in respect of the continued operations of Ally Fashion. Grandline has, since that time, continued to operate the Business of Ally Fashion in a reduced form.

4. [4]

   On 12 March 2025, Mr Dai commenced this proceeding, seeking orders compelling the Liquidators to appoint certain persons as administrators to Ally Fashion, in order to allow Mr Dai to propound a deed of company arrangement to its creditors (the First DOCA Proposal).

5. [5]

   On 21 March 2025, Black J dismissed Mr Dai’s application: In the matter of Ally Fashion Pty Ltd (in liq) [2025] NSWSC 268.

6. [6]

   In short, his Honour accepted that the reservations of the Liquidators regarding the First DOCA Proposal were “well-founded”, and that the uncertainties as to its terms and whether it would be performed “are such that there is no reason to appoint a voluntary administrator quickly, with a view to facilitating the entry into the [First] DOCA Proposal while those difficulties are unresolved” (at [45]). His Honour accepted that the terms of the First DOCA Proposal “could well be the subject of further negotiations”, but concluded that there was “no need to appoint voluntary administrators to allow those negotiations to occur, since they can readily take place between Mr Dai and the Liquidators” (ibid).

7. [7]

   Following the dismissal of Mr Dai’s application, the Liquidators engaged in negotiations with Mr Dai from late March to early May 2025 regarding the development of a further DOCA proposal, and regarding the material which the Liquidators would require in order for the reservations which they had expressed about the First DOCA Proposal to be addressed.

8. [8]

   These negotiations have resulted in Mr Dai propounding a further proposed deed of company arrangement (the Second DOCA Proposal).

9. [9]

   The Liquidators have formed the view that the Second DOCA Proposal adequately addresses the issues which they had raised about the First DOCA Proposal. Accordingly, the Second DOCA Proposal is now in a form which the Liquidators are prepared, subject to the orders sought on the present application being made, to recommend to the creditors of Ally Fashion.

10. [10]

    By an Interlocutory Process filed on 8 May 2025, the Liquidators seek leave pursuant to s 436B(2)(g) of the Corporations Act 2001 (Cth) (the Act) to appoint themselves as administrators of Ally Fashion, so that they can put the Second DOCA Proposal to creditors, together with consequential orders including an order pursuant to s 482 of the Act staying the winding up of Ally Fashion, and orders pursuant to s 447A of the Act modifying the operation of Part 5.3A of the Act so as to truncate various steps which are usually required to be taken in an administration.

11. [11]

    In support of their application, the Liquidators relied on two affidavits of Mr Marsden affirmed 19 March 2025 and 8 May 2025.

12. [12]

    The Liquidators have given notice of this application to those creditors of Ally Fashion for whom the Liquidators have contact details, as well as to the Australian Securities and Investments Commission and the Commonwealth of Australia as represented by the Department of Workplace Relations.

13. [13]

    No person has sought to be heard or has indicated any opposition to the relief sought by the Liquidators.

Differences between First DOCA Proposal and Second DOCA Proposal

1. [14]

   In Ally Fashion at [12]-[14], Black J summarised the main features of the First DOCA Proposal as follows:

2. [15]

   At the hearing before Black J, Mr Marsden gave evidence that he had undertaken a comparison of the potential outcome of a liquidation and the First DOCA Proposal, which showed “a better return from a liquidation in a high case and a lesser return on a low case” than under the First DOCA Proposal (at [26]). Mr Marsden pointed to several issues which, Black J accepted, raised “significant concerns as to whether [Ally Fashion] would have the capacity to generate funds from which the contributions to the deed fund would be made under the [First] DOCA Proposal, in future trading over a period of two years” (at [28]). Mr Marsden explained that, in order to give proper consideration to the First DOCA Proposal and to make a recommendation to creditors, he would require the following information (at [29]):

   1. (1)

      a detailed profit and loss and cashflow forecast, demonstrating Ally Fashion’s ability to meet the required DOCA contributions;

   2. (2)

      an outline of the business plan which it is proposed to implement in order to turn the Business around from its loss-making position to a profitable business;

   3. (3)

      the form of security proposed to be provided; and

   4. (4)

      confirmation that the secured creditor does not propose to participate in the DOCA.

3. [16]

   Mr Marsden has analysed the Second DOCA Proposal and has compared it with the First DOCA Proposal. He has identified the key variances between the First DOCA Proposal and the Second DOCA Proposal, as follows:

4. [17]

   Mr Marsden expressed the following views in relation to the significance of these changes.

   1. (1)

      First, the upfront contribution has been increased from $500,000 to $700,000. This upfront contribution is a condition precedent and will be funded personally by Mr Dai. In Mr Marsden’s opinion, this increase in the upfront contribution provides a quicker and more certain return than under the First DOCA Proposal and represents a material improvement.

   2. (2)

      Secondly, the nature of the security to be provided has now been explained. Mr Dai proposes that security for the Deed Proponents’ obligations under the proposed DOCA be provided by way of a general security agreement over Ally Fashion. In Mr Marsden’s view, this represents “adequate security”, and while there is some doubt about its “material value”, security over the assets of the deed company is commonplace and, in Mr Marsden’s experience, provides an incentive to the deed proponent to take steps to comply with the obligations under the deed of company arrangement.

   3. (3)

      Thirdly, a fixed dividend rate has now been applied. Mr Dai now proposes that the DOCA contributions will be equal to the amount required to contribute 25 cents in the dollar to unsecured creditors. In Mr Marsden’s opinion, this provides a measurable return to creditors and is an improvement over the First DOCA Proposal, which did not provide a fixed rate of return to unsecured creditors.

   4. (4)

      Fourthly, there is now greater certainty as to contributions under the Second DOCA Proposal. Although, as with the First DOCA Proposal, a large proportion of the deed fund is to be funded from future trading of Ally Fashion, such that there remains an element of uncertainty under the Second DOCA Proposal, Mr Marsden believes, based on his assessment of the detailed turnaround plan, monthly profit and loss, and weekly cash flow forecast provided by Mr Dai, that Ally Fashion will have sufficient cashflow to make the required contributions under the Second DOCA Proposal.

   5. (5)

      Fifthly, Mr Marsden has formed the view that there now appear to be sufficient funds to meet claims of priority creditors. Mr Marsden’s analysis in respect of the First DOCA Proposal indicated that priority creditors would need to wait six to nine months to be paid in full. However, based on realisations to date and the increased upfront contribution under the Second DOCA Proposal, Mr Marsden now considers that there will be sufficient funds on execution of the proposed DOCA to pay priority creditors in full following adjudication of their claims.

5. [18]

   In addition, Mr Marsden deposes that his concerns as to the control of Ally Fashion reverting to Mr Dai have been addressed by various matters, including by reason that Mr Dai has engaged advisers (PricewaterhouseCoopers and Johnson Winter Slattery) who have significant experience in providing restructuring and turnaround advice and, with their assistance, has prepared a detailed turnaround plan which outlines initiatives to reduce costs and improve the profitability of Ally Fashion, and which is supported by a detailed monthly profit and loss and weekly cash flow forecast. In addition, the Second DOCA Proposal includes a provision that during the term of the DOCA, Mr Dai must provide quarterly updates to the Deed Administrators regarding Ally Fashion’s financial performance and cash flow, which will allow the Deed Administrators to supervise and monitor cash flow, including any payments to related parties.

6. [19]

   Mr Marsden also sets out other options which the Liquidators have explored to date, including any potential sale of the Business. He explains that any such sale would be “highly complicated and unlikely”, having regard to the terms of an existing trademark agreement between Ally Properties Pty Ltd and Ally Fashion and the relatively modest value of Ally Fashion’s inventory if it were to be sold to a third party.

7. [20]

   Mr Marsden has undertaken an analysis of the estimated return to creditors in a liquidation scenario and under the Second DOCA Proposal. He has concluded that:

   1. (1)

      in a liquidation scenario, the estimated return will range between:

   2. (2)

      under the Second DOCA Proposal, the estimated return will be:

8. [21]

   Having regard to those matters, Mr Marsden has concluded that the Second DOCA Proposal is in the best interests of the creditors of Ally Fashion. In particular, he is of the view that the Second DOCA Proposal will provide for equal, if not greater, returns to each class of creditors, and likely more accelerated returns to each class of creditors, with priority creditors likely to be paid in full shortly after entry into the proposed DOCA.

9. [22]

   If the orders sought in the Liquidators’ application are made, Mr Marsden intends to seek to convene a meeting of creditors to consider the Second DOCA Proposal as soon as possible.

Appointment of Liquidators as Administrators

1. [23]

   The Liquidators seek an order, pursuant to s 436B(2)(g) of the Act, that they be granted leave to appoint themselves as voluntary administrators of Ally Fashion and deed administrators of any deed of company arrangement entered into by Ally Fashion in the course of the voluntary administration.

2. [24]

   The relevant principles are conveniently summarised by Halley J in Mansfield (liquidator), in the matter of NR Complex Pty Ltd (in liq) (recrs and mgrs apptd) [2023] FCA 614 at [17]-[22] as follows:

3. [25]

   Having regard to those principles, I am satisfied that the Liquidators should be granted the leave sought under s 436B(2)(g) of the Act, for the following reasons.

   1. (1)

      First, as registered liquidators, Mr Marsden and Mr Clubb are appropriately qualified for the purposes of s 448B of the Act.

   2. (2)

      Secondly, the Liquidators have had, since their appointment nearly three months ago, extensive involvement in the affairs of Ally Fashion. Mr Marsden summarises in his affidavit the investigations undertaken by the Liquidators and their staff, as well as their extensive dealings with Mr Dai in relation to the First DOCA Proposal and the Second DOCA Proposal. Their appointment as voluntary administrators would avoid the inevitable duplication involved in appointing an alternative administrator. In particular, it would be necessary for significant costs to be expended in order for other persons to develop a level of familiarity with the affairs of Ally Fashion similar to that already held by the Liquidators.

   3. (3)

      Thirdly, given the extensive engagement to date between the Liquidators and Mr Dai in relation to his DOCA Proposals, there is likely to be an advantage to the efficient administration of Ally Fashion in maintaining continuity between the liquidation and voluntary administration.

   4. (4)

      Fourthly, the evidence does not disclose any real or potential conflict of duty or interest, or any issue about a lack of independence, on the part of the Liquidators.

Truncated administration orders

1. [26]

   The Liquidators seek orders pursuant to s 447A of the Act which are sometimes described as “truncated administration orders”, that is, orders modifying the operation of Part 5.3A of the Act so as to truncate various steps which are usually required to be taken in an administration.

2. [27]

   First, the Liquidators seek an order dispensing with the requirement for a first meeting of creditors in the administration of Ally Fashion to be convened or held.

3. [28]

   As Halley J observed in NR Complex at [32], there are numerous examples of the Court dispensing with the requirement under s 436E of the Act to hold a first meeting of creditors in circumstances where an administration follows a liquidation: see, for example, Smith In the matter of Actively Zoned Pty Ltd (in liq) [2012] FCA 605 (Jacobson J); Schwarz, In the matter of Gordon Smith Marketing Pty Ltd (admin apptd) [2016] FCA 1378 (Jagot J); Australian Securities and Investments Commission v Diploma Group Ltd (No 5) [2017] FCA 1147 at [64]–[65] (McKerracher J); In the matter of Equiticorp Australia Ltd (in liq) [2020] NSWSC 143 at [32]–[40] (Gleeson J); Hughes, In the matter of Vah Newco No 2 Pty Ltd (in liq) [2020] FCA 1121 at [30] (Middleton J). In particular, such orders have been made where creditors have already had an opportunity to familiarise themselves with the affairs of the relevant company, and where a first meeting would be a costly administrative burden: Gordon Smith at [17] (Jagot J). That is the case here.

4. [29]

   Secondly, the Liquidators seek an order dispensing with the requirement under s 438B(2) of the Act for Mr Dai to deliver a further report concerning the business, property, affairs and financial circumstances of Ally Fashion. Section 447A of the Act enables the Court to excuse compliance with that requirement: Peter Ngan re JKB Constructions Pty Ltd [2006] NSWSC 1040 at [7]. I am satisfied that such an order should be made. As Barrett J observed in JKB Constructions at [6], “there is no need for what would be a duplication of effort to occur under that section merely for the sake of form”.

5. [30]

   Thirdly, the Liquidators seek an order that they may convene and hold the meeting required under s 439A of the Act at any time during the convening period, provided that notice of such meeting is provided in accordance with r 75-225 of the Insolvency Practice Rules (Corporations) 2016 (Cth). I am satisfied that such an order should be made. It would not be appropriate for the Liquidators to “sit on their hands” if they are otherwise ready to convene the meeting under s 439A more quickly than Pt 5.3A contemplates: NR Complex at [34], quoting Sims, in the matter of Destra Corporation Ltd [2009] FCA 1199 at [25] (Lindgren J).

6. [31]

   Fourthly, the Liquidators seek an order that they may accept as proofs of debt in the administration of Ally Fashion any proofs of debt submitted by creditors in the course of the liquidation of Ally Fashion, without adjustment for interest in respect of the claims the subject of such proofs of debt. Such a course was adopted in Destra, where Lindgren J commented (at [5]) that it would be a “superfluous and wasteful” course for the plaintiffs to deal with new proofs of debt forms when proofs had already been submitted. The same applies here, and I am satisfied that such an order should be made.

7. [32]

   Fifthly, the Liquidators seek an order that s 439C(c) of the Act should not apply with respect to the administration of Ally Fashion. I accept the Liquidators’ submission that it is appropriate to make such an order in the circumstances of this case. In particular, excluding a potential resolution under s 439C(c) of the Act to wind up Ally Fashion at the second meeting of creditors avoids the undesirable scenario where Ally Fashion could be in two parallel liquidations: NR Complex at [40].

8. [33]

   In addition to those orders under s 447A of the Act, the Liquidators seek a direction, pursuant to s 90-15 of the Insolvency Practice Schedule (Corporations) being Sch 2 to the Act, that the Liquidators are justified and acting reasonably in not requiring or receiving a “Report on Company Activities and Property” (ROCAP) from Mr Dai.

9. [34]

   This is not a direction concerning a mere business or commercial decision. Such a direction would be advantageous to the administration of Ally Fashion, and “would aid in maximising the efficiencies in transitioning from one mode of external administration to another”: NR Complex at [47]-[48]. It would also complement the relief sought under s 447A of the Act in relation to dispensation with the requirements of s 438B(2), which has been addressed at paragraph [29] above.

Stay of the winding up

1. [35]

   The Liquidators seek an order, pursuant to s 482 of the Act, with effect from the appointment of the Liquidators as voluntary administrators of Ally Fashion, that the winding up of Ally Fashion be stayed until the end of the voluntary administration pursuant to s 435C of the Act.

2. [36]

   The relevant principles were summarised by Halley J in NR Complex at [49]-[51], as follows:

3. [37]

   I am satisfied that similar considerations support the grant of a stay in the present case. The order which is sought is framed as a conditional order, such that it only comes into effect on the commencement of the voluntary administration.

4. [38]

   For those reasons, I make the following orders.

   1. (1)

      Order pursuant to s 482 of the Corporations Act 2001 (Cth) (Act), with the effect from the appointment of the Applicants (Liquidators) as voluntary administrators of Ally Fashion Pty Ltd (in Liquidation) (Company), the winding up of the Company be stayed until the end of the voluntary administration of the Company pursuant to s 435C of the Act.

   2. (2)

      Order, pursuant to s 436B(2)(g) of the Act, that the Liquidators be granted leave to appoint themselves as voluntary administrators of the Company and deed administrators of any deed of company arrangement entered into by the company in the course of the voluntary administration.

   3. (3)

      Order, pursuant to s 447A of the Act, that Pt 5.3A of the Act is to operate in relation to the voluntary administration of the Company on the following terms (with these orders to prevail to the extent of any inconsistency with the provisions of Pt 5.3A of the Act):

   4. (4)

      Pursuant to s 90-15 of the Insolvency Practice Schedule (Corporations) being Sch 2 to the Act, that the Liquidators are justified and acting reasonably in not requiring or receiving a “Report on Company Activities and Property” from the director of the Company.

   5. (5)

      The Liquidators’ costs of and incidental to this application be costs in the liquidation of the Company and are to be paid out of the assets of the Company.

   6. (6)

      The Liquidators are to notify the creditors of the Company of these orders:

   7. (7)

      Liberty to apply on 3 days’ notice, specifying the relief sought.