A key consideration for investors in securities of bankrupt issuers is the extent to which the securities received upon consummation of a Chapter 11 plan will be freely transferable. While the trading restrictions may not change an investor’s determination to, for instance, participate in a backstop arrangement, or to receive an amount of securities that would result in potential affiliate status, the investor’s compliance and back-office functions will be responsible for monitoring reporting and implementing trades, and the potential slip-ups are many and varied.

Market participants invest billions of dollars each year in debt, secured and unsecured. The credit support for the debt would be illusory without carefully crafted covenants that prevent the company from selling or transferring its assets outside the reach of creditors. Reliance on these covenants is critical for investors.

The Bottom Line

The restructuring, distressed and debt market in Australia continues to evolve. We have a competitive debt market that constantly seeks out that next transaction. We have an environment of innovation with restructuring professionals seeking to push the boundaries of what may be possible within the current legislative framework, and we have changes to that framework with the introduction of Safe Harbour as a defence to insolvent trading and ipso facto reform which seeks to lock in contracts post-insolvency.

The Bottom Line:

Municipal restructurings pose many challenges distinct from those encountered in a typical corporate bankruptcy. One challenge frequently encountered in the context of a municipal restructuring is how to restructure municipal bonds insured by a monoline insurance company.

Introduction

The Bottom Line

An important part of last year's package of amendments to the Corporations Act 2001 (Cth) were the ipso facto reforms which will stay the exercise of certain contractual rights relating to a counterparty's insolvency or financial position. What, if any, contracts would be exempt from the stay has been a major question, not least for the construction industry.

This has now been answered, with the release of exposure drafts for public comment by May 11 2018 of the:

A recent NSW Supreme Court decision has decided that an insolvent contractor can claim under Security of Payment legislation, rejecting Victorian Court of Appeal precedent as "plainly wrong". It might have significant ramifications for participants in the building and construction industry across Australia.

In Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (in liq) [2018] NSWSC 412, the NSW Supreme Court considered the extent to which Security of Payment (SOP) legislation can be relied upon by an insolvent contractor.