To those familiar with both U.S. and Australian insolvency regimes, Australia's creditors' scheme of arrangement (Scheme) may appear, at first glance, to resemble a Chapter 11 restructuring in disguise. This is because both regimes facilitate creditor compromise, allow incumbent management to remain in control, involve court supervision and rely on class-based voting structures to approve a restructuring outcome.

Investors in the Australian market are more sophisticated than ever and – unsurprisingly – so too are the restructuring transactions being promoted by these investors. One such transaction is the credit bid. While not a transaction structure that is formally recognised in Australia, a credit bid is a valuable tool in a financier's playbook that can be implemented to achieve a return where the original financing is unable to be repaid in accordance with its terms.

Credit Bidding