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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.

1. State of the Restructuring Market

1.1 Market Trends and Changes

State of the Restructuring and Insolvency Market

There were 27,359 insolvencies in France as of the end of September 2021, down 25.1% from the same period in 2020, and down 47.9% from September 2019. Such reduction is relatively stable across all sectors, including those most severely affected by the health-related restrictions, such as accommodation and food services (down 44.2% year-on-year) and trade (down 28.1% year on year).

Fewer Insolvencies for More Opportunities

At the end of 2021, corporate bankruptcies (for most company sizes and in most sectors) were at their lowest level compared to the pre-COVID-19 figures from 2019, with a 50% drop in insolvency proceedings and a 10% decrease in pre-insolvency situations. This was largely due to the temporary impact of government emergency measures and support, including:

Victoria's Court of Appeal has reaffirmed the risk that a disclaimer of property may be set aside where the liquidators are indemnified, and the need for liquidators to be mindful where the company holds contaminated property.

Before embarking on any litigation, or continuing any litigation that is on foot at the time of the liquidator's appointment, a liquidator should carefully weigh up the benefits and risks of pursuing a particular course of action.

A liquidator can be exposed personally in litigation. We discuss the risks to a liquidator associated with litigation by examining some recent cases where liquidators have been ordered to pay costs personally. We provide guidance on ways to mitigate this risk.

Balancing risk – weighing up competing priorities

Liquidators need to be mindful that a disclaimer of property may be challenged. The Supreme Court of Victoria underscored a key issue in establishing "prejudice" to creditors in a liquidation, holding that a disclaimer of property may be set aside where the liquidators are indemnified.

The reforms proposed to combat illegal phoenix activity range from light-touch through to more significant changes to the Corporations Act.

We are seeing attempts by the Chinese Government to provide the market with more sophisticated tools for dealing with unprofitable companies.

China is attempting to align its insolvency regime to international standards and introduce additional tools for dealing with the country's rising debt load.

Australian lenders with exposures to these debts (particularly in the coal, steel, manufacturing, cement, shipbuilding, solar, heavy machinery, mining and property sectors) should reassess insolvency risk and understand their options.