As deleveraging to control transactions continue to be part of the legal landscape in Australia, we anticipate seeing further examples, particularly where the distressed company is a listed entity.
With the enactment of the ipso factoreform in September this year (which commences operation on 1 July 2018), it is the genuine hope of many insolvency practitioners and others in the market that voluntary administration will become a less value-destructive and, therefore, a more useful tool for company restructures.
The Government has released a consultation paper as part of their commitment to ongoing reform of Australia’s corporate insolvency regime. Phoenix activity refers to both legitimate business rescue activities and serial insolvency to avoid debts.
The Boart Longyear decisions confirm that class constitution remains a critical issue for review when pursuing creditors' schemes of arrangement.
The New South Wales Court of Appeal has recently confirmed the circumstances in which companies seeking approval of schemes of arrangement will be required to convene separate meetings for different classes of creditors.
Class constitution: key principles
The reforms proposed to combat illegal phoenix activity range from light-touch through to more significant changes to the Corporations Act.
On 12 September 2017, the Hon Kelly O'Dwyer MP, Minister for Revenue and Financial Services, announced the Government's plans to crack down on illegal phoenixing activity (ie, the stripping and transferring of assets from one company to another to avoid paying liabilities) and ensure that those involved face tougher penalties.
The Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Act 2017 (Cth), which introduces a safe harbour for directors of insolvent companies and a stay on the operation of ‘ipso facto’ clauses during and after certain formal insolvency processes, received Royal Assent on 18 September 2017.
Director safe harbour
New offences in the Corporations Act, a cab rank system for liquidators, and changes to tax laws have been put forward by the Australian Government in its consultation package of anti-phoenixing reforms released yesterday. Consultation closes on 27 October 2017.
Agencies need to get ready for ipso facto reform by making changes to their contracts, funding agreements and contract administration practices.
Australian Government Agencies face constraints on their ability to terminate agreements where a contractor has entered into voluntary administration or certain other forms of insolvency procedure. The Treasury Laws Amendment (2017 Enterprise Incentives No 2) Act, which amends the Corporations Act 2001 (Cth):
On 11 September 2017, major reforms to Australia's insolvency laws including an insolvent trading safe harbour and a restriction on the enforcement of ipso facto rights in certain circumstances passed through the Senate. These insolvency reforms amend relevant provisions of the Corporations Act.
The safe harbour provisions commenced on 19 September 2017.