This week’s TGIF considers a recent Federal Court of Australia decision (Connelly (liquidator) v Papadopoulos, in the matter of TSK QLD Pty Ltd (in liq) [2024] FCA 888). In the case, it was determined that a restructuring adviser who engineered an asset-stripping scheme may be found liable for the full value of the loss arising out of the scheme.

Key Takeaways

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.

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.

This week’s TGIF summarises the Federal Court of Australia’s recent decision granting leave to proceed against a company despite the appointment of a small business restructuring (SBR) practitioner under Pt 5.3B of the Corporations Act 2001 (Cth) (Corporations Act).

Key takeaways

Welcome to the 2023 edition of "From Red to Black", our annual review of significant developments and topical issues in the Australian restructuring and insolvency market.

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.

The High Court today gave the first decision, globally, of a Court of ultimate appeal on the question of the construction of Article XI(2) of the Cape Town Convention's protocol on Matters Specific to Aircraft Equipment (Aircraft Protocol), which is of seminal importance for financiers and lessors of aircraft property, insolvency administrators globally.