A paradigm shift is underway in Australian corporate restructuring.
Bold reforms are already in force which have changed the landscape for companies, their directors, creditors and other stakeholders.
From 1 July 2018, termination and other rights against companies in administration and other restructuring-related procedures will be unenforceable under the ipso facto reform.
Regulations are expected to have significant effect on the scope of the stay – these regulations are yet to be published.
In the event of a contractual counterparty going into liquidation, whether or not a trade counterparty may claim set-off against debts owed to the insolvent counterparty can dramatically affect the commercial position of the account debtor. This was recently highlighted in the decision of Hamersley Iron Pty Ltd v Forge Group Power Pty Ltd (In Liquidation) (Receivers and Managers appointed) [2017] WASC (2 June 2017).
What does this mean for you?
On 28 March 2017, the Turnbull Government released draft legislation which would implement wide-ranging reforms to Australia’s corporate restructuring laws. The draft legislation focuses on reforms to the insolvent trading prohibition (Safe Harbour) and introducing a new stay on enforcing “ipso facto” clauses during certain restructuring procedures (Ipso Facto).
Introduction
Released in April 2016 the Turnbull Government proposed significant reforms to Australia’s insolvency laws, as part of its National Innovation Science Agenda - designed to strike a balance between encouraging entrepreneurship and protecting creditors, and to reduce the stigma associated with business failure.
On May 16, 2016, the Supreme Court of the United States handed down its opinion in Husky International Electronics, Inc. v. Ritz, Case No. 15-145.
In In re Zair, 2016 U.S. Dist. LEXIS 49032 (E.D.N.Y. Apr. 12, 2016), the U.S. District Court for the Eastern District of New York became the latest to take sides on the emerging issue of “forced vesting” through a chapter 13 plan. After analyzing Bankruptcy Code §§ 1322(b)(9) and 1325(a)(5), the court concluded that a chapter 13 debtor could not, through a chapter 13 plan, force a mortgagee to take title to the mortgage collateral.
Background
Today, by a majority of 3-2, the High Court of Australia in Commissioner of Taxation v Australian Building Systems Pty Ltd (in liq) [2015] HCA 48 confirmed that s 254(1)(d) of the Income Tax Assessment Act 1936 (Cth) (ITAA 1936) does not impose an obligation on trustees (including administrators, receivers and liquidators) to retain sufficient moneys from the trust fund to pay tax unless a relevant assessment has been issued.
The unanimous decision by the Full Court of the Federal Court in Templeton v Australian and Securities Investments Commission [2015] FCAFC 137 confirms that the concept of proportionality is a well-recognised factor in considering the question of reasonable remuneration for an insolvency practitioner, and that, in assessing a remuneration claim, the Court can take into account the quality and complexity of the work as well as the value and nature of any property dealt with and the time reasonably spent.
The world may end in fire and ice but, at least for now, it will not end in the bankruptcy court.[1]