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.

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.

One difficulty encountered by creditors and trustees in bankruptcy is the use of one or more aliases by a bankrupt. Whether it is an innocent use of a nickname or an attempt to conceal one's identity, the use of an alias can often create problems for creditors seeking to pursue debts and for trustees seeking to recover assets held by a bankrupt.

How does it happen?

As concerns about illegal phoenix activity continue to mount, it is worth remembering that the Corporations Act gives liquidators and provisional liquidators a powerful remedy to search and seize property or books of the company if it appears to the Court that the conduct of the liquidation is being prevented or delayed.

When a person is declared a bankrupt, certain liberties are taken away from that person. One restriction includes a prohibition against travelling overseas unless the approval has been given by the bankrupt's trustee in bankruptcy. This issue was recently considered by the Federal Court in Moltoni v Macks as Trustee of the Bankrupt Estate of Moltoni (No 2) [2020] FCA 792, which involved the Federal Court's review of the trustee's initial refusal of an application by a bankrupt, Mr Moltoni, to travel to and reside in the United Kingdom.

What makes a contract an unprofitable contract which can be disclaimed by a trustee in bankruptcy without the leave of the Court under section 133(5A) of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act)? Can a litigation funding agreement be considered an unprofitable contract when the agreement provides for a significant funder's premium or charge of 80% (85% in the case of an appeal)?

In a recent decision, the Federal Court of Australia declined to annul a bankruptcy in circumstances where the bankrupt claimed the proceedings should have been adjourned given his incarceration and solvency at the time the order was made: Mehajer v Weston in his Capacity as Trustee of the Bankrupt Estate of Salim Mehajer [2019] FCA 1713. The judgment is useful in reiterating what factors the Court will consider when deciding whether to order an annulment under section 153B(1) of the Bankruptcy Act 1966 (Cth) (the Act).

Generally, once a company enters into liquidation, litigation against that company cannot be commenced or be continued without the leave of the Court (Corporations Act 2001, s 471B). However, occasionally a liquidator may cause a company to commence or defend litigation after the commencement of the winding up. What happens if the company in liquidation is unsuccessful in that litigation and is subject to an adverse cost order? How will such an adverse cost order rank amongst other competing creditors?

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