DOCA Funding Risk Exposed: Refund Clauses May Not Survive Termination
A parent company advanced $3.5 million to help save its subsidiary through a restructure, and when the deal fell apart, found it had no right to get the money back. That's the outcome in the Queensland Court of Appeal's decision in Seafarms Group Ltd v McKinnon [2026] QCA 169, and it's a decision every deed proponent, funder and insolvency adviser should read closely.
Background
Seafarms Group Ltd contributed $3.5 million to a Deed Fund established under a Deed of Company Arrangement (DOCA) for its subsidiary, Project Sea Dragon. The DOCA included what looked, on its face, like a safety net: any unused portion of the contribution would be refunded to Seafarms if the DOCA was terminated.
That safety net was tested when the Federal Court later terminated the DOCA and the subsidiary went into liquidation. Seafarms sought repayment of the funds still sitting in the Deed Fund, and the matter ended up before the Court of Appeal.
The Court's Decision
The Court rejected Seafarms' claim, for three connected reasons:
- No accrued right. The refund entitlement was not an accrued right preserved by s 445H of the Corporations Act. It only came into existence upon termination of the DOCA, so there was nothing accrued for s 445H to protect.
- Statute, not contract. A DOCA draws its force from the Corporations Act itself, not from ordinary contractual principles. That limits how far a funder can rely on contractual doctrines around accrued or vested rights.
- No trust. The $3.5 million was not held on trust for Seafarms. Once contributed, the funds became part of a mixed Deed Fund. They were not segregated, and there was no sufficiently clear intention to create a trust in Seafarms' favour.
Take Aways
Seafarms is a cautionary tale. A well-intentioned refund clause, drafted without adequate consideration for how a DOCA actually operates under the Corporations Act, gave a $3.5 million funder no more protection than an unsecured creditor once the deed failed.
A refund entitlement can be protected. For example, where the contribution is expressed to be held on express trust, where it is segregated from other funds and where the proponent retains the beneficial ownership of unused funds.
For parties proposing to fund a DOCA, whether as a parent company, a director, or an external financier, the message from Seafarms is to get that structure right before money changes hands.
For further information, contact Graeme Scott to discuss your restructuring and insolvency needs.
Graeme Scott | Partner | Litigation & Dispute Resolution
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