This article first appeared in Accountancy Daily on 20 January 2023.

With supply chain problems, war in Europe and other issues leading to higher inflation and an increasingly uncertain economic outlook, this article explores the options available to companies experiencing financial distress.

The active trading of loans made to a borrower that has become unable to repay in full (known as non-performing loans or distressed debt) has been a feature of the North American and European loan markets for a number of years.

On 4 November 2021, the High Court of Australia heard the arguments put forward by Wells Fargo Trust Company, National Association and Willis Lease Finance Corporation, together Wells Fargo, and the administrators (the Administrators) of the Virgin Australia Airlines group, which entered into administration on 20 April 2020. The dispute primarily concerned who should pay for the redelivery of four aircraft engines capable of being used on B737s (the Engines) to the lease redelivery location in Florida.

In what could prove to be a landmark judgment, a Dubai court ruled earlier this month that the directors of a company in bankruptcy should be personally liable for the company’s debts, to the sum of almost AED 450,000,000 (around US$ 122,000,000).

Article 144 of Federal Law No.9 of 2016 (the “Bankruptcy Law”) allows a court to order directors to pay a bankrupt company’s debts where:

The statutory exemption can be refreshed each time a person signs a new contract, even if he/she continues to hold the same position.

Receivers of a failed company have been unable to convince the Federal Court that statutory restrictions on termination payments reduced the payout entitlement of a senior executive (White v Norman; In the Matter of Forest Enterprises Australia Limited (Receivers and Managers Appointed) (in Administration) [2012] FCA 33).

Background

Key Points: An administrator of a deed of company arrangement has been allowed to sell the company over a shareholder's objections.

The GFC has seen a significant rise in the number of corporate insolvencies.[1]

Many of those insolvencies have been the result of tighter credit, rather than a collapse of the company's business. It's no surprise, therefore, that there is a major appetite for the acquisition of distressed businesses and companies.