On the 2 August 2021 Treasury released a consultation paper titled ‘Helping Companies Restructure by Improving Schemes of Arrangement. The consultation is aimed at reforming Australia’s scheme of arrangement procedure.

Over the past year, the Covid-19 pandemic upended many industries. While the construction industry has largely been able to operate throughout the pandemic, albeit with increased and ever-changing restrictions on jobsites, one consequence of these disruptions may be an increase in construction-related bankruptcy filings. Already in 2021, there have been over 70 construction-related bankruptcy filings across the country. For many property owners and real estate developers, these filings create a nightmare scenario where work may slow or even stop entirely.

Insolvency relief extended to 31 December 2020

On Sunday, the Federal Government announced that it will extend until the end of the year insolvency relief measures which were put in place from March 2020 as part of its response to the COVID-19 pandemic which were due to expire on 25 September 2020.[1]

For some time now, there has been uncertainty in Australian insolvency law about whether or not insolvency practitioners should apply the statutory priority regimes established by sections 433, 566 and 561 of the Corporations Act 2001 (Cth) when distributing the assets of a “trading trust”. The decision of the New South Wales Supreme Court in Re Independent Contractor Services (Aust) Pty Ltd (In liq) [No 2] (2016) 305 FLR 222, and the myriad of cases that followed it, suggested that the answer was “no”.

The special purpose liquidators of Queensland Nickel Pty Ltd (in liq) have been successful in their application in the Supreme Court of Queensland for freezing orders against Mr Clive Palmer and several companies which he controls.[1]

Background

On 28 March 2017, the Turnbull Government released draft legislation which would implement wide-ranging reforms to Australia’s corporate restructuring laws. The draft legislation focuses on reforms to the insolvent trading prohibition (Safe Harbour) and introducing a new stay on enforcing “ipso facto” clauses during certain restructuring procedures (Ipso Facto).

The High Court of Australia in CGU Insurance Ltd v Blakeley & Ors [2016] HCA 2 unanimously confirmed that a third party can join a defendant’s insurer to a proceeding and seek a declaration of rights under the insurance agreement, provided that third party has a ‘real interest’ in the performance of the agreement and that there is practical utility in the court providing that declaration.

The Turnbull Government’s much-heralded ‘Innovation Statement’ was released yesterday. It contained wide-ranging statements on reforms aimed at fostering innovation across a number of sectors in the Australian economy.

One important reform area is in Australian corporate insolvency law.

Corporate insolvency law reform timetable

The Innovation Statement includes important content for the reform of Australia’s corporate insolvency laws. It is part of an ongoing reform exercise which has followed this timetable to date:

In general, a company has two bankruptcy alternatives: liquidation under Chapter 7 and reorganization under Chapter 11.

Under Chapter 7, upon the filing of a bankruptcy petition, a trustee is appointed to gather and sell all of the debtor’s assets as quickly as possible. Once the trustee liquidates all of the assets, it must pay creditors in accordance with the priority scheme mandated by the Bankruptcy Code:

In today’s economy, we continue to see bankruptcies occurring in the construction sector. An owner, contractor, or subcontractor in financial distress can easily delay a project — or worse, jeopardize the project in its entirety. Contractors need to understand their rights in order to minimize their exposure in bankruptcy-related situations.

Protecting Contractors — Frequently Asked Questions