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Bankruptcy reform: a vaccine for the economy?

By Andrew Hack, Solicitor, and Stephen Mullette, Principal, of Matthews Folbigg Lawyers, in our Insolvency, Restructuring and Debt Recovery Group.

Countries around the world have commenced their vaccine programs, with Australia’s vaccine is expected to commence imminently once the TGA completes its approval process. As to the economic impacts of COVID-19, the Australian Government has been testing its own form of vaccine through legislative changes to corporate insolvency and bankruptcy laws.

In March 2020, the Australian Government enacted a number of changes to corporate insolvency and bankruptcy laws, seeking to address the economic impact of the coronavirus. The significant changes to bankruptcy laws included:

  1. An increase in the cap on issuing bankruptcy notices from $5,000 to $20,000; and
  2. An increase in the period for compliance with a bankruptcy notice from 21 days to 6 months.

Both of these changes were made by providing definitions determined through Regulations, which means that they are able to be adjusted from time to time by the Executive. Previously those amounts were hard-coded in the Bankruptcy Act and could only be changed through Parliament.
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Debt Restructuring Part 3 – Restructuring plans

This is the third part in a blog series discussing the new debt restructuring regime, which commences on 1 January 2021. This blog discusses the the process of putting forward a restructuring plan to creditors.

The regime will be implemented through substantial amendments to the Corporations Act 2001 (Cth) (“the Act”) and the Corporations Regulations 2001 (Cth) (“the Regulations“). Relevant links are:

How a restructuring plan is to be proposed is guided by the Regulations (Division 3, Subdivision B). The process is again somewhat similar to a voluntary administration, but instead it avoids the need to call creditors meetings. A regime for the restructuring practitioner to resolve disputes about creditors’ debts is tied into the process. A brief overview of the process follows.

  1. The company has 20 business days (the ‘proposal period’) to prepare and execute a restructuring plan with an accompanying restructuring proposal statement.
  2. Continue reading…

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Debt Restructuring Part 2 – affects on a company under restructuring

This is the second part in a blog series discussing the new debt restructuring regime, which commences on 1 January 2021. This blog discusses the effects on a company entering debt restructuring, and its creditors.

The regime will be implemented through substantial amendments to the Corporations Act 2001 (Cth) (“the Act”) and the Corporations Regulations 2001 (Cth). Relevant links are:

Conduct of the company’s business

Section 453L of the Act will prohibit the directors from entering the company into any transactions dealing with the company’s property, unless one of the following applies:

  1. The transaction was in the ordinary course of business;
  2. The restructuring practitioner consents to the transaction (which can only be given if the restructuring practitioner believes it would be in the interests of creditors);
  3. The transaction was entered into by order of the Court;
  4. The transaction was with a bank, and was made in good faith and in the ordinary course of the bank’s business.
  5. Continue reading…

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Debt Restructuring Part 1 – Introduction, Eligibility & the Restructuring Practitioner

This is the first part in a series of blogs discussing the new debt restructuring regime, which commences on 1 January 2021. The regime will be implemented through substantial amendments to the Corporations Act 2001 (Cth) (“the Act”) and the Corporations Regulations 2001 (Cth). Relevant links are:

The amendments will include a new Part to the Act – Part 5.3B, titled “Restructuring of a company”. The Part sets out the regime (referred to as a ‘restructuring’) for directors of insolvent companies to propose and enter into a ‘restructuring plan’ with creditors. The process is overseen by a ‘restructuring practitioner’, who must be a registered liquidator (s 456B of the Act). The focus on this process is that it allows directors to retain some control of the company, reducing the costs of having an insolvency practitioner involved in day-to-day operations.
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Don’t Go Chasing Waterfalls – COVID-19 Safe Harbour is (still) not Safe

The temporary safe harbour protection from director liability for insolvent trading expires on 31 December 2020. However the Government has not corrected a critical timing issue which exists in the COVD-19 safe harbour legislation. This means directors must appoint an external administrator to their company on or before 31 December 2020, if they wish to take advantage of the COVID-19 safe harbour protection from insolvent trading .

The temporary protection is found in section 588GAAA of the Corporations Act 2001 (Cth). There has been some recent debate about whether the words “before any appointment during that period” of an external administrator, mean what they appear to say, namely that any appointment must take place “during that period” of the temporary safe harbour expires.

Our Stephen Mullette has recently responded to the alternative view – that an appointment can be delayed until the new year. Unfortunately, the conclusion is that the better view is still that to take advantage of  the safe harbour defence, the directors must have appointed an external administrator before 1 January 2021. You can read the further consideration here, and make up your own mind.
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Draft Bankruptcy Regulations 2021

By Ellen Ferris, a Solicitor in Matthews Folbigg’s Insolvency, Restructuring and Debt Recovery Group.

On 3 December 2020, the Exposure Draft of the Bankruptcy Regulations 2021 was released for consultation.  These regulations are an updated version of the Bankruptcy Regulations 1996, and the draft copy can be found here.

The consultation period expires on 10 January 2021, and the Bankruptcy Regulations 1996 are due to sunset on 1 April 2021. Submissions can be submitted by email to Bankruptcy@ag.gov.au

Main changes

As the existing Regulations were drafted in 1996, the Attorney-General’s Department have proposed a number of drafting changes to bring the Regulations up to date. This includes minor technical amendments to remove redundant or outdated references to legislative schemes which have been repealed, and modifying references to “the Official receiver” to consistently refer to “an Official receiver”.  Some interesting changes and additions are as follows:

  • The addition of a definition which clarifies the expenses a trustee can be paid for carrying on business under a section 50 order. The definition outlines what can be paid for work done and for expenses incurred.
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SME Debt Restructuring Legislation Passed

By Andrew Hack, Solicitor, and Stephen Mullette, Principal, of Matthews Folbigg Lawyers, in our Insolvency, Restructuring and Debt Recovery Group.

The Corporations Amendment (Corporate Insolvency Reforms) Bill 2020 has been passed in the Senate as of yesterday. The legislation will take effect from 1 January 2021.

The centrepiece of the legislation is the introduction of a new restructuring mechanism for SME’s, called ‘Debt Restructuring’. The process allows insolvent SME’s to put forward a proposal to creditors to resolve unsecured debts and allow the company to continue trading. The process is similar to Part IX debt agreements available to insolvent individuals under the bankruptcy legislation.

Other amendments included in the legislation are:

  1. A temporary safe harbour period for directors’ liability for insolvent trading whilst they are attempting to appoint an external administrator – this operates from 1 January 2021 and ends on 31 March 2021.
  2. A ‘Simplified Liquidation’ regime for small businesses, which is designed to reduce the time and cost involved with liquidating a corporate small business.
  3. Continue reading…

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Winding Up Applications and the Extension of Time

By Darrin Mitchell, Senior Associate at Matthews Folbigg in the Insolvency, Restructuring and Debt Recovery Group

Section 459R(1) of the Corporations Act 2001 (Cth) (“the Act”) requires that an application be filed to wind up a company, and for it to be determined within six months of filing. Should that six month period expire, the application can be dismissed without the orders sought being made.

However, there is provision for the six month period to be extended under section 459R(2) of the Act, if the applicant can satisfy the Court that special circumstances exist.

These time limits compare unfavourably with the Bankruptcy Act 1966 (Cth), which allows 12 months for an application for a sequestration order to be determined and the ability to extend the application for up to a further 12 months.

In the New South Wales Supreme Court, His Honour Justice Hamilton has said in relation to an application to extend time under section 459R of the Act:
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