Significant insolvency legislative reforms were introduced in 2017. One year on, we assess what changes, if any, these reforms have had on the insolvency market in Australia.
The most significant insolvency law reforms in 20 years were introduced in 2017 to improve efficiency, communication, engagement and competition in external administration processes. The reforms were implemented in two tranches pursuant to the Insolvency Law Reform Act 2016 (Cth) (ILRA).
On 28 September 2018, the NSW Supreme Court in Greenwood Futures v DSD Builders (No. 2) [2018] NSWSC extended a stay of a judgment in favour of a contractor based upon a Security of Payment Act NSW (SOPA) adjudication on the basis that the contractor was at risk of insolvency. This is consistent with previous decisions of the court in similar circumstances.
Following recent changes to the Corporations Act 2001 (Cth), parties to a contract may be unable to rely on a contractual right to terminate or modify the operation of a contract on the occurrence of certain insolvency-related events of a counterparty to the contract (commonly known as an “ipso facto” provision).
Foreign representatives may be required to pay security into court for their recognition applications under the Model Law on Cross Border Insolvency (Model Law). The measure is proposed to correct irregularities between proceedings conducted in multiple jurisdictions.
A decision by the Victorian Court of Appeal (Cant (as liquidator of Eliana) & Anor. v Mad Brothers Earthmoving Pty Ltd [2020] VSCA 198) on 5 August 2020 provides guidance to creditors and liquidators on when payments from a third party to a creditor can be considered a payment ‘from the company’ and be potentially voidable as a preference payment under part 5.7B of the Corporations Act (2001) (Cth) (Act).
The key facts
Litigation funders in Australia are now subject to increased regulation following the passing of the Corporations Amendment (Litigation Funding) Regulations 2020 (Cth). The amendments apply to schemes or arrangements entered into on or after 22 August 2020.
A 20 June 2020 decision of Justice O’Callaghan in the Federal Court confirms that rent incurred during the ‘no liability’ period will be payable as a priority expense in the liquidation of an insolvent tenant. This is regardless of whether or not the no liability period has been extended by the Court on application by the administrators.
The key facts
In an economic climate where the risk of insolvency is high, it is paramount to that creditors are prepared for debtors going into administration. Participation as a creditor does not have to be passive. The ability to understand and protect your own interests, can be enhanced with knowledge and early action.
In this article, we pinpoint eight key considerations landlords should be mindful of when dealing with the administration process, and outline key action items from day one.
Key considerations
In two recent decisions, the Federal Court has allowed administrators to continue to occupy leased premises rent-free for an extra month. Should landlords be worried that this trend will continue? Whilst the decisions were undoubtedly made in the extraordinary circumstances of COVID-19, it is not difficult to see a precedent being established with similar orders being made more frequently in the future.
The usual deal: Five free days
On 10 December 2020, the Corporations Amendment (Corporate Insolvency Reforms) Bill 2020 (Cth) passed both houses of parliament (Insolvency ReformAct). The substantive provisions of the Bill commence from 1 January 2021, coinciding with the end of the current temporary insolvency protections which were put in place by the federal parliament in March 2020 to protect businesses facing financial distress caused by COVID-19.
Insolvency protections expiring on 31 December 2020