Protecting your business from exposure to supplier and customer insolvency

The risk of unforeseen counterparty customer or supplier financial distress and failure amidst the on-going challenges for businesses from COVID-19 means that pre-emptive legal and operational protections against the risk of heavy financial loss or business disruption from customer/supplier failure are more valuable than ever.

Treasurer Josh Frydenberg announced on 24 September 2020 (view announcement here) the introduction from 1 January 2021 of an innovative new restructuring process for Australian small incorporated businesses with liabilities less than AUD1 million, which adopts key aspects of the US Chapter 11 bankruptcy process.

On 22 May 2020, Justice Black of the Supreme Court of NSW issued judgment In the matter of Wollongong Coal Limited and In the matter of Jindal Steel & Power (Australia) Pty Ltd [2020] NSWSC 614. The judgment sets out his Honour’s reasoning for granting the orders sought in a largely unprecedented application to effectively ‘re-enliven’ two schemes of arrangement which automatically terminated prior to being completed.

The Australian Government has passed the "Coronavirus Economic Response Package Omnibus Bill 2020". The new legislation was announced on Sunday 22 March 2020 and was fast tracked through parliament as part of the Australian Government's response to the economic impact of COVID-19.

As the name suggests, the UNCITRAL Model Law on Cross-Border Insolvency 1997 (Model Law) seeks to address complexities caused where insolvencies cross borders, while leaving substantive insolvency laws of each country largely unaltered. However, as jurisdictions continue to adopt and interpret the Model Law, inconsistencies in its application are coming to light.

The High Court decision in Re All Star Leisure (Group) Limited (2019), which confirmed the validity of an administration appointment by a qualified floating charge holder (QFCH) out of court hours by CE-Filing, will be welcomed.

The decision accepted that the rules did not currently provide for such an out of hours appointment to take place but it confirmed it was a defect capable of being cured and, perhaps more importantly, the court also stressed the need for an urgent review of the rules so that there is no doubt such an appointment could be made.

In brief...

The use of creditors’ schemes of arrangement is on the rise in Australia. Along the way the Australian courts have made valuable contributions to international scheme jurisprudence. In this article we look at some of these contributions and then explore how Australian law might be further developed to remain a leading jurisdiction for creditors’ schemes.

Advantages of schemes as a restructuring tool

In certain circumstances, if a claim is proven, the defendant will be able to offset monies that are due to it from the claimant - this is known as set off.

Here, we cover the basics of set off, including the different types of set off and key points you need to know.

What is set off?

Where the right of set off arises, it can act as a defence to part or the whole of a claim.

A key part of the international scheme landscape

The use of creditors' schemes of arrangement is on the rise in Australia (as we discussed in our previous article - Update on Creditors Schemes of Arrangement in Australia). Along the way the Australian courts have made valuable contributions to international scheme jurisprudence. In this article we look at some of these contributions and then explore how Australian law might be further developed to remain a leading jurisdiction for creditors' schemes.

In our update this month we take a look at some recent decisions that will be of interest to those involved in insolvency litigation. These include: