Australia needs to rein in ipso facto clauses in order to develop a turnaround culture for financially troubled companies.

Within hours of Kodak's move into Chapter 11 bankruptcy, the internet was alive with bad jokes:

"Kodak's business didn't develop the way they expected."

"Kodak was overexposed to the GFC."

"Kodak's Chapter 11 hearing was held in camera."

Australian businesses and liquidators might be forgiven for thinking that the bigger joke is Australia's lack of a Chapter 11 turnaround culture.

Air Australia has hit the news recently due to the appointment of voluntary administrators to the airline and the consequences this has had on the business, its customers, suppliers and staff.

Whilst Air Australia is not a franchise, it still offers a good case study for examining financial distress in the operation of a business and considering options that may be available.

This update considers what are indicators of financial distress and offers tips both for franchisors and franchisees in assessing developing situations and options for moving forward.

The statutory exemption can be refreshed each time a person signs a new contract, even if he/she continues to hold the same position.

Receivers of a failed company have been unable to convince the Federal Court that statutory restrictions on termination payments reduced the payout entitlement of a senior executive (White v Norman; In the Matter of Forest Enterprises Australia Limited (Receivers and Managers Appointed) (in Administration) [2012] FCA 33).

Background

On 5 October 2011, the NSW Supreme Court upheld an application pursuant to s 440D(1) of the Corporations Act 2001 (Cth) (the Corporations Act) for leave to bring and continue proceedings against a defendant under voluntary administration.

With REDgroup administrators, Ferrier Hodgson, desperately searching for a buyer for REDgroup's Australian book business, the consequences for franchisees remains uncertain.  Whilst the nine remaining Borders bookstores are set to close, no decision has yet been made on the future of Angus & Robertson (A&R).

Following the 2011/2012 Federal Budget announcement that directors will be made personally liable for any unpaid superannuation guarantee contributions, Treasury has released the Tax Laws Amendment (2011 Measures No. 7) Bill 2011 (Bill).

The legislation extends the current director penalty regime for unpaid PAYG. Whilst the announcement from Bill Shorten MP on 5 July 2011 highlights the need to prevent companies engaging in phoenix activities, the legislation will have a much broader impact.

Where a creditor of an insolvent company set conditions for its merger and advised its board of directors on its post-merger operations and finances, held that this was not sufficient to render it a shadow director of the company:

- Buzzle Operations Pty Ltd (in liq) v Apply Computer Australia Pty Ltd [2011] NSWCA 109 (Australia, New South Wales Court of Appeal, 9 May 2011)

Introduction

New Zealand liquidators have had their powers recognised in Australia in a series of recent ground-breaking judgments.

These decisions in respect of Northern Crest Investments Limited, a New Zealand registered company listed on the ASX, demonstrate the broad powers which the courts are willing to provide to foreign representatives under the Cross-Border Insolvency Act 2008 (Cth) (the CBIA).

Obtaining powers of Australian liquidators

Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher [2011] FACFC 89 concerned the powers of liquidators in Australia.  In 2009, joint liquidators were appointed to Octaviar Limited (Octaviar) and Octaviar Administration (Funder).  Fortress claimed to be a secured creditor of Octaviar under a charge, and was owed approximately $71 million.  The liquidators arranged for Octaviar and the Funder to enter into funding agreements that provided for the Funder to fund an investigation into the actions of Fortress and to commence litigation against Fortress.

In Saker, in the matter of Great Southern Managers Australia Ltd (Receivers and Managers Appointed) (in liquidation), the plaintiffs were the liquidators of Great Southern Managers of Australia Limited (GSMAL).