The recent weeks have seen a number of major corporates enter voluntary administration, including Virgin Australia, Techfront Australia, Collette by Collette Hayman and Carriageworks Sydney, as a result of pre-existing distressed financial positions that were exacerbated by the consequences of the COVID-19 pandemic. The uncertainty that COVID-19 has brought, particularly the restriction on gatherings and the shutdown of non-essential services, created challenges for administrators looking to restructure businesses and maximise returns for creditors.

The impact of COVID-19 on businesses will undoubtedly require directors to consider formal restructuring and insolvency options, including the appointment of administrators. Administrators are faced with the challenge of assessing a company’s options and forming a recommendation in an era of high market uncertainty. Both proposing a holding Deed of Company Arrangement (DOCA) and extending the convening period are being discussed as options to provide administrators with more time to undertake these tasks. In this article we consider the scope and limitations of each strategy.

The Federal Government has announced a package of changes to Australian insolvency and bankruptcy laws to provide some relief to businesses and individuals who may face financial distress from the economic impacts of the current health crisis.

The package is expressed to provide a safety net to ensure that when the crisis has passed, profitable and viable businesses can resume normal operations. This is in the form of changes to the Corporations Act to provide temporary relief to assist companies to manage through the current economic climate.

On 19 June 2019, the High Court delivered its judgment in one of the most hotly anticipated insolvency judgments this year, the Amerind appeal: Carter Holt Harvey Woodproducts Australia Pty Ltd v The Commonwealth.

The High Court unanimously dismissed the appeal, upholding the Victorian Court of Appeal’s decision and confirming (although for differing reasons) that:

In a decision of considerable concern to creditors1, the High Court has determined that a bankruptcy notice founded on a judgment debt is open to challenge on the basis that there is a “sufficient reason” for questioning the underlying debt – even if that judgment was the product of a fully contested trial in which both parties were legally represented, and was not procured by fraud or collusion.

In December 2015, the Federal Government proposed changes to its insolvency laws as part of its National Innovation and Science Agenda (NISA). Changes included a proposal to reduce the minimum bankruptcy period from three years to one year, with the aim of encouraging innovation and risk taking by reducing the consequences associated with bankruptcy.

In December 2015 the Federal Government announced proposed reforms to insolvency laws as part of its National Innovation Statement (NIS).

On 1 December 2015, we wrote about the decision of His Honour Judge Chivell of the District Court of South Australia in Matthews v The Tap Inn Pty Ltd [2015] SADC 108.

With the introduction of the unfair preference regime in the Corporations Act 2001, a short provision was included which stated:

“… a secured debt is taken to be unsecured to the extent of so much of it (if any) as is not reflected in the value of the security.”(section 588FA(2))

The provision has been rarely considered. There has been little case law providing any judicial interpretation of the subsection.

That is, until the Personal Property Securities Act 2009 (PPSA) commenced.