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:
- The Explanatory Memorandum
- Corporations Amendment (Corporate Insolvency Reforms) Act 2020
- Corporations Amendment (Corporate Insolvency Reforms) Regulations 2020
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.
- The company has 20 business days (the ‘proposal period’) to prepare and execute a restructuring plan with an accompanying restructuring proposal statement.
- The proposal period may be extended by the restructuring practitioner by a further 10 business days, or later with the approval of a court.
- The restructuring practitioner must give a copy of the restructuring plan to creditors:
- as soon as practicable after execution of the restructuring plan;
- to as many creditors as is reasonable practicable; and
- the restructuring plan’s standard terms;
- a restructuring proposal statement (including a schedule of debts and claims); and
- the practitioner’s declaration (that he or she believes on reasonable grounds that the company is likely to be able to discharge its obligations under the restructuring plan).
- Creditors have 5 days, from receipt of the restructuring plan, to give a notice that they dispute the restructuring practitioner’s list of creditors and admitted debts.
- The restructuring practitioner can request information of the creditors and/or the company and must make a recommendation to the parties, and the company must update the schedule of creditor debts accordingly.
- Creditors have 15 days (the ‘acceptance period’), from receipt of the restructuring plan, to give a written statement stating whether or not the restructuring plan should be accepted;
- The acceptance period is extended if there was a dispute regarding the creditor’s debt, to 5 days after the restructuring practitioner issues his or her recommendation (per point 5 above).
- Creditors can change their vote prior to the expiry of the acceptance period;
- The restructuring plan is accepted if a majority of creditors in value accepted the restructuring plan (from those who gave an statement, or in other words, who voted).
- If the restructuring plan is accepted, it has the force as though it were a deed executed by all creditors with an admissible debt (save for carve-outs for secured and partly secured creditors).
- The restructuring plan terminates when either:
- All obligations are fulfilled and all admissible debts are dealt with; or
- If a party defaults under the plan, which is not rectified within 30 business days from the date of the default.
If creditors reject the restructuring plan, it will be for the company’s directors to decide what the do with the company next. The explanatory memorandum explains that directors may wish to either place the company in voluntary administration or liquidation. However, directors should be make a decision quickly, as they will lose the benefit of the safe harbour from insolvent trading.
The above is a brief overview only as the complete Regulations are much more complicated. Creditors, directors and insolvency practitioners involved in the debt restructuring process should seek legal advice specific to their situation.
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.