Frisken (Trustee) v E K Recruitment Pty Ltd (in liq), in the matter of E K Recruitment Pty Ltd (in liq) [2026] FCA 223

This case came out of an attempted rescue of E K Recruitment Pty Ltd through a deed of company arrangement and a creditors' trust. The commercial objective was straightforward. The administrator's report said the trust structure would help the company leave external administration quickly, allow the director to keep operating the business, and avoid the stigma of the company name carrying the words "subject to deed of company arrangement" while trading improved.

That kind of structure can make commercial sense. A company may want to separate the management of creditor claims from the day to day operation of the business. But the structure only works if the documents say clearly how the pieces fit together. Here, the Federal Court found that the DOCA and the trust deed were not well drafted. That was not a passing criticism. It became the central problem in the case.

The documents were executed on 23 June 2020. On the same day, the administrator's role as voluntary administrator ceased, his role as DOCA administrator began and ended, and the DOCA was later recorded with ASIC as wholly effectuated on that same date. The company then made monthly contributions for a period. In 2022, the trustee moved toward declaring dividends, but the ATO lodged a much larger proof of debt than had previously been expected. Later, the company entered administration and then liquidation again under a different insolvency practitioner.

That later insolvency exposed the drafting weaknesses. The new liquidator took the position that the trust should terminate and the funds held by the trustee should be returned to the company. At a meeting of trust beneficiaries, the liquidator's solicitor expressed the view that the beneficiaries' claims against the company may never have been released at all. That meant the same creditors might potentially claim both against the trust and in the liquidation, depending on how the documents were read. Mr Frisken, now acting as trustee of the creditors' trust rather than administrator, asked the Federal Court for judicial advice and other orders so he could know how to proceed.

The reasons set out a long list of drafting defects. In the DOCA, clause 8 referred to "Conditions Precedent" even though that term was not defined, and another clause said the DOCA was not subject to any conditions precedent. The same implementation clause referred to terms such as "Deed Proponent", "Implementation Date" and "Top Up Cash Amount" without defining them. Clause 10, which was supposed to deal with creation of the fund, used wording that created uncertainty about whether the administrator had to pay a later fixed amount into the bank account before transferring the fund to the trustee.

The trust deed had its own problems. Its recitals referred to the document as though it were the DOCA and incorrectly stated that guarantors had executed it. It used dates and definitions that did not line up neatly with the DOCA. It referred to old Corporations Regulations provisions for meetings and to section 449E for remuneration, even though the trust was not simply a standard external administration. It also used terms such as "Trust Creditors", "Excluded Creditors" and "Admitted Claim" in ways that required the court to work out what the drafter must have meant.

These defects mattered because they affected the commercial operation of the restructuring. If the documents did not clearly identify the trust fund, there could be a dispute over whether money belonged to the trust or to the company. If they did not clearly state when claims against the company were discharged, creditors might still be able to prove in a later liquidation. If meeting and remuneration clauses pointed to the wrong legal regime, the trustee could face challenges about process and payment. The case is a reminder that drafting quality is not cosmetic. It determines whether the deal can actually be administered.

The court also noted an important factual point about the second creditors' meeting. Creditors resolved to execute a DOCA in terms not materially different from a draft said to be tabled at the meeting, but it did not appear that any draft DOCA was in fact tabled. The report contained only a summary of the proposed deed. That matters because later disputes often turn on whether the final executed documents truly reflected what creditors approved. If the approval process is loose, later arguments about intention become harder to resolve.

The legal problem was not simply whether the documents were badly drafted. Everyone could see that they were. The real issue was what the court could do about it years later. Mr Frisken sought judicial advice under the Trustee Act 1925 (NSW) and also relied on section 447A of the Corporations Act and section 90-15 of the Insolvency Practice Schedule (Corporations). In practical terms, he wanted the court either to construe the documents in a workable way, to vary them, or to do some combination of both.

That raised several linked questions. What did the word "Fund" mean in the DOCA? Did the administrator have to pay the fixed amount into the bank account before transferring the fund to the trustee? When, if at all, were creditors' claims against the company discharged and converted into claims against the trust fund? Who counted as trust creditors? What did the trust fund include? How should the trust deed's outdated references to meetings and remuneration be read? And, critically, did the court have power under the insolvency provisions relied on to vary the trust terms now that the plaintiff was no longer administrator and the DOCA had already terminated?

The distinction between construction and variation was central. Construction is about identifying the legal meaning of the words the parties used, including by correcting obvious drafting slips where the law permits. Variation is different. It asks whether the court can alter the legal effect of the document. The catchwords and orders show that the court accepted it could resolve the drafting issues by construction to a significant extent, but held there was no power in the circumstances to vary the trust terms under section 90-15 of the Insolvency Practice Schedule or section 447A of the Corporations Act.

That limit is commercially important. Businesses sometimes assume that if a restructuring document is defective, a court can later "fix" it. This case shows that assumption is dangerous. The court may be able to tell you what the document means, but not necessarily change it into the document you wish had been signed.

Jackman J gave judicial advice under section 63 of the Trustee Act. The orders set out, in detail, the basis on which the trustee would be justified in proceeding. First, the court advised that the "Fund" under the DOCA meant the bank account referred to in clause 10.1 for the purposes of clauses 10.1 and 10.2, and meant the money standing to the credit of that bank account for the purposes of clause 10.4(d). That was important because it identified the relevant property with enough precision for the transfer mechanics to work.

Second, the court advised that clauses 10.2 and 10.4 meant the administrator had to transfer the bank account to himself as trustee once he had received the amounts referred to in clauses 10.2(a) and 10.2(b). The administrator was not required to pay into that bank account the fixed amount referred to in clause 10.2(c) before the transfer. That resolved a practical uncertainty about whether the trust could come into operation before the later fixed amount had actually been paid.

Third, and most importantly, the court advised that simultaneously with or immediately after that transfer, each creditor's claim against the company was discharged and extinguished and converted into a claim against the trust fund under the trust deed. That point went to the heart of the later dispute with the liquidator. On the court's construction, the claims did move from the company to the trust at the relevant time.

The court also advised that clause 8.2 of the DOCA could be disregarded. It advised that the "Trust Creditors" for the purposes of the trust deed were each a "Claimant" as defined in the trust deed. It advised that the "Trust Fund" meant the amount transferred plus any amount later received by the trustee by way of the fixed amount referred to in clause 10.2(c) of the DOCA and clause 2.2 of the trust deed. Those rulings gave the trustee a workable basis for identifying the participating creditors and the property available for distribution.

The court then dealt with several defective references in the trust deed. It advised that the reference in clause 6.3 to old Corporations Regulations provisions for meetings should be read as referring instead to Division 75 of the Insolvency Practice Schedule and Division 75 of the Insolvency Practice Rules, adapted so that references to an external administrator were read as references to the trustee. It advised that the "Excluded Creditors" for the purposes of clause 5.11 were any "Non Participating Creditor" as defined in the DOCA. It also advised that the second sentence of clause 2.2 should be read as requiring the company to pay a fixed amount to ensure unsecured creditors received no less than two cents in the dollar after payment of priority creditors.

Finally, the court advised that the references in clauses 7.1 and 7.2 of the trust deed to section 449E should be read as if they referred to Division 60 of the Insolvency Practice Schedule, with modifications so the trustee, the trust and the beneficiaries were treated as the relevant actors. Subject to costs, the amended originating process was otherwise dismissed. The catchwords make clear that the court held there was no power to vary the trust terms under the insolvency provisions relied on because the plaintiff was no longer administrator and the DOCA had already terminated.

For directors and owners, the first lesson is that a restructuring document must be tested against future events, not just the immediate deal. Ask what happens if a major creditor increases its proof of debt. Ask what happens if the company later enters administration or liquidation again. Ask whether claims against the company are released immediately, only after a transfer, or only after final dividend. Ask whether later contributions become trust property automatically or only if paid in a particular way. If the documents do not answer those questions clearly, the business is carrying a hidden legal risk.

The second lesson is that interlocking documents must use matching language. Here, the DOCA, trust deed and surrounding steps were meant to operate as one structure, but they used inconsistent definitions, dates and references. That is a common source of disputes in many business contexts, not just insolvency. The same problem can arise with shareholders agreements, subscription deeds, security documents, guarantees and trust arrangements. If one document assumes a payment happens before a transfer and another assumes the opposite, the commercial deal may unravel when pressure arrives.

The third lesson is about process. The court noted that creditors resolved to execute a DOCA in terms not materially different from a draft said to be tabled, but it did not appear that any draft was actually tabled. Businesses should make sure the approved documents are the actual documents, or at least that the final form is clearly tied back to what was approved. Loose process creates room for later argument about whether the final paperwork reflected the deal creditors or stakeholders accepted.

The fourth lesson is about court risk. Once a DOCA has terminated and the original officeholder is no longer administrator, the court may be limited to construing the documents rather than remaking them. That means a business cannot safely assume that a later application will cure every drafting defect. If the structure depends on a trust, a release, a guarantee and staged payments, each element should be checked before execution by someone who is testing the mechanics, not just the broad commercial intent.

The judgment was delivered on 9 March 2026 by Jackman J in the Federal Court of Australia. The orders gave the trustee judicial advice and otherwise dismissed the amended originating process subject to costs. The court then set a timetable for affidavits and submissions on costs extending into May 2026.

Because the available reasons end before the full judgment text finishes, this summary focuses on the principal findings and orders that are clearly stated. It does not state any later costs result. Anyone relying on the case for a transaction, advice or litigation step should check the complete judgment and any later orders.