In a recent decision, the Swiss Federal Supreme Court has clarified equitable subordination risks in connection with shareholder loans. The key takeaways are as follows:

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

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.

In addition to amendments to the Debt Enforcement and Bankruptcy Act (DEBA) and the Criminal Code (SCC), the Federal Act on Combating Abusive Bankruptcy also brings important changes to the Code of Obligations (CO) and the Commercial Register Ordinance (CRO). The new Act aims at increasing the hurdles for a company to release its debts to the detriment of its creditors. The amendments to the law and ordinances are expected to enter into force in January 2024. 

Background

Das Bundesgesetz über die Bekämpfung des missbräuchlichen Konkurses bringt neben Anpassungen im Schuldbetreibungs- und Konkursgesetz (SchKG) sowie dem Strafgesetzbuch (StGB) auch wichtige Änderungen im Obligationenrecht (OR) und in der Handelsregisterverordnung (HRegV). Dadurch sollen die Hürden für die Befreiung von Schulden zum Nachteil der Gläubiger künftig erhöht werden. Die Gesetzes- und Verordnungsänderungen werden voraussichtlich im Januar 2024 in Kraft treten.

Ausgangslage

À côté des adaptations à la Loi fédérale sur la poursuite pour dettes et faillite (LP) et au Code pénal (CP), la Loi fédérale sur la lutte contre l'usage abusif de la faillite entraîne d'importantes modifications du Code des obligations (CO) et de l'Ordonnance sur le registre du commerce (ORC). Elle vise ainsi à augmenter les obstacles à la libération des dettes au préjudice des créanciers. Les modifications de la loi et des ordonnances devraient entrer en vigueur en janvier 2024.

Situation actuelle

In Lawrence, Ozifin Tech Pty Ltd (in liq) v AGM Markets Pty Ltd (in liq)[2022] FCA 1478, liquidators of multiple companies were successful in obtaining the declarations and directions they sought regarding the distribution of statutory trust funds, and obtaining payment of their fees from trust assets.

As participants in the Australian debt restructuring market continue to innovate we expect to see an increase in these control transactions, testing further again the Australian statutory regimes.

This week’s TGIF considers a recent case where the Supreme Court of Queensland rejected a director’s application to access an executory contract of sale entered into by receivers and managers on the basis it was not a ‘financial record’

Key Takeaways