OVERVIEW OF AUSTRALIAN CORPORATE INSOLVENCY REGIMES

Restructuring & Insolvency

Restructuring & Insolvency | i

Overview of Australian Corporate Insolvency Regimes

This document provides a summary of the most common Australian formal corporate insolvency regimes, namely:

voluntary administration;

receivership; and winding up.

It also covers creditors' schemes of arrangement which are increasingly being used in larger restructurings.

This week’s TGIF considers In the matter of MJM(WA) Enterprises Pty Ltd (in liq) [2018] NSWSC 944, where the Court approved a liquidator’s remuneration but deferred decisions about trust distributions until after the Re Amerind litigation finishes.

What happened?

The company operated two barbershops in Perth as trustee for a family trust before liquidators were appointed in May 2017.

Foreign judgments may be enforced in Australia under the Foreign Judgments Act 1991 or, if that Act does not apply, pursuant to common law principles.

Registration and enforcement pursuant to the Foreign Judgments Act 1991

Several decisions handed down in the Personal Property Securities Act 2009 (Cth) (PPSA) space have emphasised the importance of registering security interests within the legislative timeframes and also examined the discretionary factors courts will consider in their deliberations over whether extensions of time for registration of security interests should be granted.

It was first published by the Governance Institute of Australia.

If you have guaranteed the debts of a person or entity that is in financial distress, you should take legal advice as soon as possible. Whatever you do, do not panic and make a rash decision such as declaring bankruptcy, winding up your business or selling your family home. The creditor seeking to enforce the guarantee may be more amenable to compromise than you think, particularly given the risks that creditors often face when they seek to enforce guarantees.

This week’s TGIF considers In the matter of Arrium Limited [2018] NSWSC 747 in which the Court granted creditors access to documents produced in public examinations.

What happened?

Phoenixing involves stripping and transferring the assets out of a company, leaing it to perish in a blaze to avoid paying its liabilities. A new company is then reborn from the ashes of the old company, starting anew and liability free, however usually with the same assets and business as the old company.

From a public policy standpoint, phoenixing activity is harmful to the economy as a whole. Creditors are often left with nothing and employees are left short-changed.

What are the reforms?

For many suppliers, creditors and landlords, the threat of their counterparty’s insolvency is mitigated by a right to terminate or vary their contracts if there is an “insolvency event”. From July 1 2018 changes to the Corporation Act 2001 (Cth) may, however, limit those rights.

For company directors, the threat of personal liability for debts incurred in periods of actual or potential insolvency looms large. The creation of the ‘safe harbour’ provisions in the Corporation Act 2001 (Cth) that took effect in September 2017 may provide some welcome relief to company directors in periods of financial distress.