Get your 5 Minute Fix of major projects and construction news. This issue: significant security of payment reform on the agenda in WA, review of the BCIIP Act tabled, Infrastructure Victoria's report on the investment required to support automated and zero emissions vehicles, more on cladding and the High Court grants special leave to consider the availability of a quantum meruit claim as an alternative to contract damages upon repudiation of a building contract.

Review of security of payment reform for WA subcontractors released

Stakeholders have until 11 May 2018 to comment on a key part of the new ipso facto regime – the exceptions to the statutory stay on ipso facto clauses in certain categories of contracts and rights.

The new insolvency legislation commencing 1 July 2018 (Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Act 2017) introduces a statutory stay on the exercise of contractual rights arising by reason of certain insolvency trigger events.

The limitations of set-off in a liquidation scenario and the nature and effect of a security interest under the Personal Property Securities Act 2009 (Cth) (PPSA) have been clarified, with significant ramifications for principals and financiers, who should now review their rights, following the WA Supreme Court's decision in Hamersley Iron Pty Ltd v Forge Group Power Pty Ltd (In Liquidation) (Receivers and Managers Appointed) [2017] WASC 152 (Clayton Utz acted for the successful receivers).

Key Points:

Complex cross-border issues can be dealt with relatively easily under the Cross-Border Insolvency Act as long as flexibility is built into the relevant orders.

Key Points:

A Senate Committee has said amendments to Australia's corporate insolvency laws should be considered to encourage and facilitate corporate turnarounds.

The Senate Economics References Committee called for a review of Australia's corporate insolvency laws to ensure they facilitate corporate turnarounds. One suggestion was for the implementation of certain features of the US' Chapter 11 regime into Australia's insolvency laws.

The arguments for changing the insolvency regime

Australian banks have historically relied on formal liquidation, voluntary administration and receivership processes available under the under the Corporations Act 2001 (Cth) and under general law where informal restructurings have failed. There has been little appetite for exploring alternative methods to exit distressed situations by debt trading.

In the recent case of Dwyer & Ors and Davies & Ors v Chicago Boot Co Pty Ltd [2011] SASC 27, Chicago Boot claimed that certain payments made to it by two insolvent companies were not unfair preference payments, because of, amongst other defences, the purported application of a retention of title clause in relation to the supply of goods by Chicago Boot.

The Virgin sale shows the flexibility of Australia's restructuring regime and sets a significant judicial precedent for future control transactions.

Virgin Airlines restructured through voluntary administration

On 20 April 2020, Virgin Australia and a number of its subsidiaries were placed into voluntary administration owing $7 billion of debt to around 12,000 creditors with partners at Deloitte Australia being appointed as joint and several voluntary administrators of Virgin. Clayton Utz was appointed to act for the Administrators.

This decision puts to rest some of the uncertainty which arose due to the NZCA's approach in Timberworld and helps to solidify liquidators' prospects of recovering maximum preferential payments. 

Preferential payments can be an important source of funding for liquidators – and the recent decision in Bryant in the matter of Gunns Limited v Bluewood Industries Pty Ltd [2020] FCA 714 is a source of some relief for liquidators.

Timberworld – uncertainty over the impact on Australian liquidators

Last Thursday's decision in the WA Supreme Court to allow a sale to insiders of a company subject to a deed of company arrangement will make the restructuring process smoother for administrators, who can now negotiate with a wider pool of potential purchasers, as Chapter 2E of the Corporations Act 2001 (Cth), which deals with related party transactions, will not apply (Mighty River International v Bryan Hughes and Daniel Bredenkamp as Deed Administrators of Mesa Minerals Ltd (Subject to Deed of Company Arrangement) [No 2] [2018] WASC 368; Clayton Utz acted for the deed administrators of Mes