In Arab v Pan, in the matter of Pan (No 3) [2024] FCA 563, the Federal Court of Australia addressed critical issues concerning the scope and compliance of summonses for production in bankruptcy, which will also impact corporate insolvency proceedings and such proceedings in other common law jurisdictions.

Communicating with Scheme Creditors: Beware of Zealous Advocacy

A-Cap Energy Limited [2023] FCA 1356 ("A-Cap") and Symbio Holdings Limited [2024] FCA 40 ("Symbio")

The main communication with scheme creditors is the explanatory statement approved at the first court hearing.

However, there can be other communications which are proposed to be sent to creditors.

In the case of other communications which are known at the time of the first hearing, they can include:

A creditors' scheme of arrangement ("Scheme") can be a powerful restructuring tool implemented to achieve a variety of outcomes for a business, ranging from deleveraging or a debt-to-equity conversion to a merger and/or issue of new debt/equity instruments. When managed appropriately, a Scheme can reshape a business' debt and equity profile, setting it up for an improved go-forward operating platform. Below we set out an outline of the Scheme process in Australia and consider some key features that are unique to Australian schemes.

The voidable transaction regime under Part 5.7B of the Corporations Act 2001 (Cth) (the Act) provides a framework for liquidators to pursue recovery action against parties who have received property or some form of benefit from an insolvent company.  In turn, the mechanisms and processes under the regime often provide uncertainty in commercial dealings and other transactions of a company and provides a further layer of anxiety when navigating through cashflow problems.

Section 90-15(1) of the Insolvency Practice Schedule (Corporations) (Cth) (IPSC) provides that the court may make such orders as it thinks fit in relation to the external administration of a company. It’s well recognised the broad power under that section extends to the making of judicial directions on the application of insolvency practitioners under section 90-20(1)(d) of the IPSC.

When to seek a judicial direction

In 2023, we saw an increase in both voluntary administration and receivership appointments in Australia. In the context of Australia's economic climate this was unsurprising — debtor companies were grappling with volatile markets, supply chain disruptions and uncertain economic conditions, and secured lenders were invoking either or both of these regimes as a means of protecting their investments.

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

In today's globalised economy, local recognition of foreign insolvency proceedings can be essential for the successful implementation of cross-border restructurings. This is particularly relevant in Australia — a popular host for foreign investment and global corporate groups with local assets.

Under sections 90-15 and 90–20 of Schedule 2 of the Insolvency Practice Schedule (Corporations) (Practice Schedule) of the Corporations Act 2001 (Cth) (the Act), a liquidator may apply to the court for directions and judicial advice in winding up.

Purpose of Judicial Advice

The purpose of judicial advice was to give the liquidator advice as to the proper course of action to take in the liquidation, as noted by Goldberg J in Re Ansett Australia Ltd and Korda [2002] FCA 90 (Ansett).

The Supreme Court of Western Australia has recently delivered judgment in the case of Kitay v Frigger [No 2] [2024] WASC 113. The Court held that some, but not all, long-term costs agreements and retainers entered into by a liquidator required court approval.

Key Takeaways