Welcome to the 2024 edition of "From Red to Black", our annual review of significant developments and topical issues in the Australian restructuring and insolvency market.

Regulator intervention and government stimulus packages in response to market shocks often mask underlying systemic distress and disrupt economic cycles. With companies now largely weaned off COVID-19 support packages, insolvencies have significantly increased.

By following certain steps and focusing on relevant courses of action, directors of startups can leverage the Safe Harbour provisions to increase their chances of navigating financial difficulties and achieving a better outcome for their company.

If a debt arises from a contract that contains an exclusive jurisdiction clause (EJC) in favour of a foreign court, how will the Hong Kong court deal with a bankruptcy petition based on that debt? A highly anticipated judgment from Hong Kong’s highest court suggests that the bankruptcy petition will likely be dismissed, and that the foreign EJC will be given effect. But, as we will discuss below, the Court seems to leave other possibilities open, depending on the facts in a particular case.

Liquidators accepting a new appointment will have to think carefully if there's a possibility of disclaiming onerous property as part of that appointment.

Insolvency practitioners and creditors facing voidable transaction claims will need to reassess the value of any potential or threatened unfair preference claims or other voidable transaction claims, following two important insolvency decisions in the High Court yesterday (Metal Manufactures Pty Limited v Morton [2023] HCA 1 (Metal Manufactures); Bryant v Badenoch Integrated Logging Pty Ltd [2023] HCA 2 (Badenoch).

It held that:

A comprehensive review has begun into the effectiveness of Australia’s corporate insolvency laws in protecting and maximising value for the benefit of all interested parties and the economy. Undertaken by the Federal Government’s Parliamentary Joint Committee on Corporations and Financial Services, the review is seeking submissions by 30 November 2022.

A recent Hong Kong Court of Appeal decision examined a creditor’s right to commence bankruptcy/insolvency proceedings where the petition debt arises from an agreement containing an exclusive jurisdiction clause in favour of a foreign court: Guy Kwok-Hung Lam v Tor Asia Credit Master Fund LP [2022] HKCA 1297.

Historically, the Hong Kong courts have generally recognised foreign insolvency proceedings commenced in the jurisdiction in which the company is incorporated. This may no longer be the case in Hong Kong following the recent decision of Provisional Liquidator of Global Brands Group Holding Ltd v Computershare Hong Kong Trustees Ltd [2022] HKCFI 1789 (Global Brands).

Historically, the common law has only recognised foreign insolvency proceedings commenced in the jurisdiction in which the company is incorporated. This may no longer be the case in Hong Kong. Going forward, a Hong Kong court will now recognise foreign insolvency proceedings in the jurisdiction of the company’s “centre of main interests” (COMI). Indeed, it will not be sufficient, nor will it be necessary, that the foreign insolvency process is conducted in a company’s place of incorporation.

On 6 June 2022, Mr Justice Harris sanctioned a Hong Kong scheme of arrangement for Rare Earth Magnesium Technology Group (the Company) in re Rare Earth Magnesium Technology Limited [2022] HKFCI 1686 (Rare Earth).