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 Explanatory Memorandum
- Corporations Amendment (Corporate Insolvency Reforms) Act 2020
- Corporations Amendment (Corporate Insolvency Reforms) Regulations 2020
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.
As with voluntary administration, companies can enter the restructuring process if the board of the company resolves that the company is, or is likely to become, insolvent. However, specific to the restructuring process, the company must meet the ‘eligibility criteria’. The eligibility criteria is currently set in the Regulations as:
- The total liabilities of the company must not exceed $1 million;
- The company must not have been under a restructuring process or simplified liquidation in the previous 7 years;
- The directors must not have been directors of another company that was under a restructuring process or simplified liquidation in the previous 7 years.
There is a carve-out of to point 3 above (if the appointment occurred within 20 business days), effectively allowing a group of companies to enter restructuring processes at around the same time. Point 3 does however apply to former directors who resigned within the previous 12 months.
The restructuring practitioner
Section 453E of the Act will set out the function and duties of a restructuring practitioner, which primarily include:
- To advise the company on the restructure and assist with preparing a restructuring plan;
- To make a declaration to creditors on the proposed restructuring plan.
Directors are obligated to assist the restructuring practitioner by providing documents and financial information (s 453F). Third parties holding the company’s books are also obligated to provide copies of the company’s books to the restructuring practitioner (s 453G).
It is also the responsibility of the restructuring practitioner to consider whether the restructure should be terminated (s 453J), because:
- The company does not meet the eligibility criteria;
- A restructuring plan would not be in the interests of creditors;
- It would be in the interests of creditors for the restructuring to end, or for the company to be wound up.
In Part 2 of this blog series, which will be released shortly, we will discuss the effects of entering the debt restructuring process on the company and its creditors.
If you would like to know more about the debt restructuring process, or have any concerns you would like to discuss with an expert, please do not hesitate to contact us. Our Insolvency and Restructuring Team will be back in the office from 11 January 2021. In the meantime, should you wish to speak to someone urgently, you can contact Jeffrey Brown at firstname.lastname@example.org. Jeffrey will be checking his emails regularly over the Christmas and New Years break.