Small business restructurings (SBR), which allow companies with less than $1 million in liabilities (other than employee entitlements) to restructure their unsecured debts, are increasing in popularity. SBRs now amount to about 25 per cent of all monthly company insolvencies, and outnumber voluntary administrations.

In this article, from knowledge gained in advising small business restructuring practitioners, and from wider industry commentary, we discuss some of the good, and not so good, aspects of the SBR regime.

The good

After a couple of years where uptake was slow, the small business restructuring (SBR) regime, which came into effect 1 January 2021, has well and truly cemented itself as the favoured debt restructuring process for companies with less than $1 million in liabilities (other than employee entitlements). There are now more SBRs per month than voluntary administrations, and represent around 25 per cent of all new corporate insolvencies.

Terminating DoCA's (Part 3) – Administrators' Casting Vote

Commissioner of State Revenue v McCabe (No. 2) [2024] FCA 662 ("McCabe")

IMO Academy Construction & Development Pty Limited [2024] NSWSC 808 ("Academy Construction")

Summary

Where there is a deadlock between the majority in value of creditors and those creditors with a majority in number on the vote for a DoCA, the administrator has a casting vote.

The decision in York, in the matter of Exactech, Inc [2024] FCA 1522 reaffirms the scope to recognise a US chapter 11 bankruptcy in Australia as a foreign main proceeding ^[1] and demonstrates the importance of interim stay orders in protecting the assets of debtors and the interests of creditors until the final determination of the recognition application.

Discriminating DOCAs: when the courts will terminate a deed of company arrangement that seeks to discriminate against particular creditors.

With rising levels of corporate insolvencies, it is no surprise that the use of the voluntary administration regime for the purposes of putting forward a deed of company arrangement (DOCA) has increased. DOCAs have proven to be a time and cost-effective tool to recapitalise or restructure a distressed business.

The Federal Court of Australia has recently delivered judgment in the case of Deputy Commissioner of Taxation v ACN 152 259 839 Pty Ltd [2024] FCA 1489. The Court held that in some circumstances, a statutory demand can be validly served on a perceived temporarily empty company office.

On 20 May 2024, an ATO officer purported to serve ACN 152 259 839 Pty Ltd (the Company) with a statutory demand and an accompanying affidavit by leaving the documents at the Company’s registered office.

Terminating DoCA's (Part 2) – Unfair Prejudice or Injustice

Canstruct Pty Limited v Project Sea Dragon Pty Limited (No. 4) [2024] FCA 112 ("Canstruct")¹

Commissioner of State Revenue v McCabe (No. 2) [2024] FCA 662 ("McCabe")

Academy Construction & Development Pty Limited [2024] NSWSC 808 ("Academy Construction")

IE CA 3 Holdings Ltd and IE CA 4 Holdings Ltd (Companies) were two Canadian registered companies whose directors were located outside of Canada. The Companies’ parent company, Iris Energy Limited (Iris), was listed on NASDAQ and had its registered office in Melbourne and principal place of business in Sydney, with three of its six directors located in New South Wales.

Deeds of Company Arrangement – Insured Claims

Destination Brisbane Consortium Integrated Resort Operations Pty Ltd as Trustee v PCA (Qld) Pty Ltd (subject to a Deed of Company Arrangement) [2024] QSC 178 ("Destination Brisbane")

In Destination Brisbane two questions, which concerned the entitlements of insured creditors under a DoCA, arose for consideration in the context of an application for judicial advice:

It is not uncommon for contractors, in several industry sectors, to contract with a special purpose vehicle (SPV), whose day-to-day management is effectively controlled by a parent company, and the SPV has with little to no assets beyond cash flow provided by its parent. In this article we look at what a claimant could do outside of the traditional insolvency process in circumstances where the SPV goes into a form of external administration such as administration or liquidation and there are no assets available to the external administrators.