Insolvency Insights: Recent Appeal Case Considers DOCA Release Of Long-tail Payment Rights

A recent Full Court decision clarifies that future royalty claims can be released by deeds of company arrangement, with significance for businesses in the energy and resources sector and those operating on trailing payment terms.

The types of claims that can be released under a deed of company arrangement (DOCA) is a recurring issue in Australian insolvencies. It holds particular significance in the energy and resources sector, where long‑term payment obligations and royalty payments are common. The recent Full Court decision in SCL AUS Limited v Kirkalocka Gold SPV Pty Ltd¹ provides timely guidance on the types of future claims that can be released by a DOCA.

Facts

Kirkalocka owned a gold mine in Western Australia. Before entering voluntary administration, it had entered into a royalty deed with SCL, under which SCL was the royalty holder entitled to receive royalties from future gold production. Those rights were secured by a caveat over the mining lease and related transfer covenants. Subsequently, receivers were appointed to Kirkalocka, which then entered voluntary administration. The voluntary administration led to Kirkalocka’s creditors resolving to enter into a DOCA. The DOCA release relied on a standard broad definition of ‘Claims’ capturing all present and future liabilities, including contingent and prospective claims. After the DOCA was entered into, a dispute arose about whether the company remained liable for future royalties under the royalty deed, and whether the caveat and related transfer covenants survived the DOCA.

The first-instance decision

At first instance, the royalty holder argued that its right to future royalties and its caveat had not been extinguished by the DOCA because the right to payment was not a ‘Claim’ within the meaning of the DOCA and section 444D of the Corporations Act. SCL’s key argument was that the right to receive royalties was not certain to arise, as it was entirely dependent on future mining operations, which were in turn entirely dependent on the company exercising a future discretion to continue mining. In making that argument, SCL relied on the decision of the Full Court in Lam Soon,² a well-known insolvency case. That case supports the view that damages claims for future breaches of contract (in that case, a commercial lease) are too remote and uncertain to be provable in insolvency, and therefore were mere expectancies and not contingent claims.

The first-instance judge rejected SCL’s arguments, finding that although the mining company had absolute discretion over whether to continue mining, the obligation to pay royalties existed at the time the administrators were appointed. The primary judge reasoned that the obligation to pay was certain to arise if and when gold was produced. Due to this certainty, the royalty rights were legally contingent claims and, by virtue of the release clause in the DOCA and section 444D of the Corporations Act, had been released.

The royalty holder’s argument on appeal

On appeal, SCL faced the difficult task of overcoming the primary judge’s reasoning. It argued that the judge’s findings about the contingent nature of the royalty claim were incorrect, reiterating that its right to future royalties was a mere expectancy because it was entirely dependent on the uncertain event of future gold production, which was entirely at the company’s discretion. The royalty holder again relied on Lam Soon, contending that a claim for damages for future breaches of contract was too remote and uncertain to be provable. SCL submitted that the obligation to pay future royalties should not be treated as a contingent claim capable of being released by the DOCA.³ Additionally, SCL contended that the caveat rights were separate from the payment right and therefore survived the DOCA even if the payment obligation had been released.⁴

The Full Court’s decision

The Full Court rejected SCL’s submissions and, subject to a slight departure in reasoning from the primary judge, upheld the outcome of the earlier decision. The Full Court held that the obligation to pay royalties under the royalty deed was a contingent claim because, like the primary judge, it found the payment obligation was certain and existed at the appointment date, even though liability to pay depended on the company mining and producing gold.⁵

The Full Court distinguished the decision in Lam Soon, noting that it was decided in the context of winding up and concerned the provability of damages for future breaches of lease, not the scope of releases under a DOCA.⁶ Significantly, the Court expressly rejected the authority of Lam Soon, noting that the suggestion, based on the reasoning in Lam Soon, that the right to sue for damages for a future breach of contract is a mere expectancy is contrary to subsequent authorities and should not be regarded as good law.⁷

The Full Court also agreed with the primary judge that the definition of ‘Claims’ in the DOCA was broad enough to capture the royalty holder’s rights, including both the right to payment⁸ and the caveat.⁹ Specifically on the issue of the caveat, the Court clarified that the caveat and related transfer covenants were not separate or ancillary but formed part of the ‘Claim’ under the DOCA and were also released by it.¹⁰ The Court upheld the first-instance decision, finding that SCL’s rights under the royalty deed were both Claims under the DOCA and section 444D of the Corporations Act, and were therefore extinguished by the DOCA.

The outcome of the appeal was that the royalty holder’s rights to payment and the associated security rights provided by the caveat were extinguished by the DOCA.

Comments

The Full Court’s decision has implications in the insolvency context for those operating under royalty and profit-share arrangements, especially in the energy and resources sector. The Full Court’s approach confirms that, unless specifically carved out, future payment rights can be released by a DOCA and completely lost. The Full Court’s disapproval of Lam Soon also indicates that creditors should consider making claims in insolvency for all types of losses, including claims for future damages, even if those claims are difficult to value or may be nominal.

For companies needing to restructure, the decision provides greater certainty that a well-drafted DOCA can deliver genuine value for restructuring proponents and offer a company a clean slate, free from long-tail payment obligations.

For creditors and counterparties, the decision serves as a warning. Those wishing to preserve rights to future payments, especially royalty holders, must be active in the insolvency process. The case highlights the importance of seeking advice early in the administration process and carefully reviewing the terms of DOCA proposals. During the administration, key stakeholders may have opportunities to negotiate carve-outs or include specific protections to preserve valuable rights. Where negotiations fail, creditors may have options to apply to the Court to contest decisions and seek orders to set aside the DOCA.

Footnotes

1. [2026] FCAFC 60.

2. Lam Soon Australia Pty Ltd v Molit (No 55) Pty Ltd (1996) 70 FCR 34.

3. SCL AUS Limited v Kirkalocka Gold SPV Pty Ltd [2026] FCAFC 60 at [87].

4. at [96].

5. at [90].

6. at [93].

7. at [93].

8. at [94].

9. at [102]-[104].

10. at [102].

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