2. Introduction
• On 24 September 2020, the Government announced insolvency reforms to
introduce an intended new restructuring regime for small businesses post
COVID. This follows from previous temporary amendments to insolvency
laws in relation to insolvent trading and statutory demands.
• The regime is a hybrid of voluntary administration and debtor-in-
possession adopted from US Chapter 11.
• The reforms are due to commence on 1 January 2021, when the current
insolvency relief and other support ends (e.g. Jobkeeper, SA lease
provisions).
• This presentation is based on the Bill that was put before parliament on 12
November 2020 and the draft regulations published on 17 November 2020.
All remains subject to change and ASIC forms are not yet available.
2
3. Recap – Existing COVID temporary measures
Insolvent trading relief – s.588GAAA, r.5.7B.01
1. Relief from s.588G(2) that would otherwise render director liable for
incurring a debt while grounds for suspecting insolvency.
2. Not insolvent trading if debt incurred (a) in ordinary course of the
company’s business; (b) during relief period (currently until 31 December
2020); and (c) before any appointment during that period of an
administrator or liquidator. (my emphasis).
3
4. Recap – Existing COVID temporary measures
(cont.)
Insolvent trading relief – s.588GAAA, r.5.7B.01
Also note:
1. To qualify for relief from insolvent trading, does the company have to
appoint and administrator or go into liquidation by 31 December 2020
because of s.588GAAA(1)(c)? Uncertainty means if insolvent, should
appoint by 31 December 2020 and not wait to 2021 if the company does
not qualify for restructuring (especially as an insolvent company should
appoint an administrator on 1 January in any event.
2. The relief does not extend to s.588G(3) which applies where a debt is
incurred dishonestly. Failure to have regard to the interests of creditors
may be dishonest – see Powell v Fryer [2001] SASC 59
4
5. Recap – Existing COVID temporary measures
(cont.)
Statutory demands – r.5.4.01AA
1. Statutory minimum debt increased from $2,000 to $20,000
2. Statutory period to comply extended from 21 days to 6 months.
3. Expires on 31 December 2020.
5
6. Recap – Existing COVID temporary measures
(cont.)
Effect of the temporary measures?
Quarterly national external appointments (administrator, liquidator,
receiver) per ASIC:
Quarter Appointments
September 2019 2,309
December 2019 2,103
March 2020 1,747
June 2020 1,203
September 2020 946
6
7. Overview of the New Restructuring Process
1. Eligible company (debts <$1m) resolves that it is insolvent and appoints a “Small
Business Restructuring Practitioner”.
2. Moritorium arises on enforcement (with exceptions for secured creditors) and relief
from insolvent trading continues. Company remains in control of directors subject to
supervision of SBRP and can conduct transactions in the ordinary course of business.
3. Company has 20 business days to prepare and propose a restructuring plan to
creditors. SBRP certifies belief that company is eligible and likely to discharge
obligations created by plan.
4. Plan is sent to creditors by SBRP. Creditors have 15 business days to reply whether
they accept or reject the plan.
5. If majority in value of responding creditors (ex. related creditors) accept the plan, it
becomes binding, debts are restructured.
6. If not accepted, restructuring moratorium ends. Company is insolvent, so directors
need to either appoint an administrator or enter CVL (with simplified liquidation
option).
7
8. Topics to be addressed
1. Eligibility.
2. Starting the Process
3. Effect of entering restructuring on third parties.
4. Control of the company during restructuring.
5. The SBRP
6. The Plan
7. The Plan is approved.
8. The Plan is not approved (or restructuring terminated before plan
completed).
9. Administration / winding up after failed restructuring, simplified
liquidation.
8
9. 1. Eligibility
• Debts of <$1 million (includes secured debt but excluding contingent debts
(s.453C(1)(a), r.5.3B.03(1)). (Contingent debts not defined).
• Not already subject to restructuring, an ongoing restructuring plan,
administration, DOCA or liquidation / provisional liquidation (s.453B(2)).
• Directors (inc. former directors in previous 12 months) have not been
director of company that underwent restructuring or simplified liquidation
in last 7 years. Exception if other co. is related and entered restructuring /
simplified liquidation within 20 business days prior. (s.453C(1)(b),
r.5.3B.03(2),(4)).
• Company has not been in restructuring or simplified liquidation in last 7
years (s.453C(1)(c), r.5.3B.03(3)).
9
10. 1. Eligibility (cont.)
If company is not eligible but is insolvent directors must take steps
before 31 December 2020.
Directors may be liable for insolvent trading during 2020 if they do not
appoint administrator or liquidator during the period of relief. Not
certain, but if insolvent, why risk waiting until after 1 January?
At minimum, if the company is viable, must have a plan in place to be
able to rely on the existing safe harbour regime in s.588GA (but risky
given that the safe harbour provisions are largely untested).
10
11. 1. Eligibility (cont.)
If eligible - Administration or Restructuring?
• Uncertainty re the extent of insolvent trading relief – may be better just to
appoint administrator before 31 December 2020, particularly if limited
prospects for successful restructuring.
• If insolvent, eligible and want to pursue restructuring, either (a) appoint on 1
January; or (b) seek temporary restructuring relief on 1 January.
• Do not wait to act.
• An eligible company will need cash to restructure to (a) trade through
restructuring period (likely on COD terms); (b) pay restructuring practitioner;
(c) pay all employee entitlements due; and (d) be up to date on tax filings.
• Restructuring cannot be used to address contingent claims.
• No point restructuring if a secured creditor with full security is not supportive.
11
12. 2. Starting the Process
• Directors of eligible company resolve:
1. Company is insolvent or likely to become insolvent at some future time.
2. A restructuring practitioner should be appointed.
• SBRP can then be appointed in writing. (s.453B(1)).
• SBRP must consent to appointment (s.456A).
• If the SBRP wants to be remunerated for their work, the amount of remuneration needs
to have been declared by the board on or before the appointment is made (Insolvency
Practice Rules 60-1B(1), 60-1C) – ie. fixed fee in advance, no capacity to revise.
• Uncertainty about referral payments – r.5.3B.16(2)(d) talks about SBRP disclosing
relationships with referrers and payments received, but cf. s.595(1)(ca) and (cb) that
prohibit inducements.
• Company must in public documents state after company’s name “restructuring
practitioner appointed” (s.457B).
12
13. 2. Starting the Process (cont.)
“Temporary Restructuring Relief”
• Concern that SBRPs may not be ready to go on 1 January, so eligible
companies would not have benefit of moratorium and relief from
insolvent trading.
• Schedule 2 of the Bill provides for a regime of “temporary
restructuring relief” that runs until 31 March 2021.
13
14. 2. Starting the Process (cont.)
“Temporary Restructuring Relief” (cont.)
• To be “eligible for temporary restructuring relief”, during the restructuring
relief period (ie. before 31 March 2021 – s.458D), directors must:
1. Make a declaration that (a) company is insolvent; (b) company would be eligible for
restructuring if a SBRP could be appointed; (c) board has resolved to appoint a
SBRP; (d) there is no restructuring practitioner appointed.
2. Publish notice in the prescribed manner.
3. Give a copy of the declaration to ASIC within 5 business days
(s.458E(1), (4)).
• ASIC can prescribe forms for the declaration and notification –
hopefully will do so to make the process straightforward.
14
15. 2. Starting the Process (cont.)
“Temporary Restructuring Relief” (cont.)
• Period of relief runs for up to 3 months from publication of declaration,
ends with appointment of SBRP, administrator, liquidator.
• Can be extended for a further one month by similar process. The directors
are required to have taken all reasonable steps to appoint a restructuring
practitioner, and to set out in the declaration the steps that have been
taken, and the steps to be taken in the next month.
• Again, ASIC will be able to prescribe a form for this.
• So if apply on last day (31 March 2021) and get 1 month extension, last day
is 31 July 2021.
(s.458E(2),(3), (5)).
15
16. 2. Starting the Process (cont.)
“Temporary Restructuring Relief” (cont.)
• Directors must notify ASIC if the company ceases to be eligible
for temporary restructuring relief during period relying on relief
(eg. liabilities go over $1m). Civil penalty provision (s.458F).
• Court can declare that the company is not eligible for temporary
restructuring relief on application of a creditor or ASIC (s.458G).
• A subsequent SBRP / administrator / liquidator must notify ASIC
within 5 business days if they form the view that the company
was not eligible for temporary restructuring relief. Failure to
comply is an offence (s.458H).
16
17. 2. Starting the Process (cont.)
“Temporary Restructuring Relief” (cont.)
• Why all this fuss?
• Extension of insolvent trading relief – s.588GAAC.
• Not insolvent trading if (a) company is eligible for temporary restructuring relief (ie. have
made declaration etc); (b) debt incurred in ordinary course of business; and (c) company
has taken all reasonable steps to appoint a SBRP before debt incurred.
• Extension of statutory demand relief until 31 July 2021 for companies eligible for
temporary restructuring relief (r.5.4.01AAA). (Only applicable during the 3 or 4 month
period of eligibility).
• Hopefully will be possible to ascertain if company has taken steps to be eligible for
temporary restructuring relief.
• What is issue a normal statutory demand on 4 Jan and company then becomes eligible
for temporary restructuring relief? Unclear.
17
18. 2. Starting the Process (cont.)
Notifications and filings at the outset of restructuring:
• Within 1 business day:
1. SBRP to notify ASIC of appointment (r.5.3B.45(1)).
2. SBRP to inform as many creditors as possible of appointment and give
basic information (r.5.3B.45(2)).
• Within 5 business days, directors to give the SBRP a signed
declaration that (r.5.3B.44):
1. States whether the company has entered into any transactions that
would be voidable under s.588FE, other than an unfair preference, if
the company were wound up (e.g. uncommercial transaction, unfair
loan or unreasonable director-related transaction).
2. There are reasonable grounds to believe that company is eligible for
restructuring, and the reasons for that opinion.
18
19. 3. Effect of entering restructuring on third
parties
Moratorium arises (similar to administration):
• Winding up application to be adjourned and no PL appointed “if Court is
satisfied that it is in the interests of the company’s creditors for the
company to continue under restructuring rather than be wound up”
(s.453Q).
• Security interests generally unenforceable (but separate rules where fixed
and floating charge over all property). Lessor cannot exercise distraint for
rent or take possession (s.453R)
• Stay of proceedings absent leave of Court or SBRP (s.453S).
• No execution of judgments or other enforcement process over property
absent leave of the Court (s.453T, 453U).
19
20. 3. Effect of entering restructuring on third
parties
Moratorium (cont.):
• Winding up application taken to be pending for purpose of lis
pendens (s.453V).
• Personal guarantees of directors and relatives unenforceable, but
creditor can seek freezing orders under s.1323 (s.453W).
• Rights cannot be enforced against company (e.g. right to terminate a
contract) because the company is under restructuring for contracts
entered into post 1 July 2018 – ie. ipso facto regime applies. Also
means though that company cannot enforce a right to further
advances of money (s.454N – 454S). No exemptions yet by regulation
or declaration.
20
21. 3. Effect of entering restructuring on third
parties (cont.)
Exceptions to moratorium:
• Bankers liens over cash, negotiable instruments and securities are enforceable
(s.453X).
• Secured creditor with security over whole or substantially whole of the company
can exercise security during the decision period – up to end of 13 business days
after restructuring commenced (s.9, s.454C). Court has power to limit
enforcement on application of SBRP if secured creditor otherwise adequately
protected (s.454M, r.5.3B.55).
• If enforcement of security has commenced before restructuring starts (s.454D).
• Actions in relation to perishable property (s.454E, 454L).
• Court can make orders to restrict realisation of security during restructuring or
while subject to a plan, and re-entry by lessor while subject to a plan (r.5.3B.55).
21
22. 4. Control of the company during
restructuring.
• Company remains under the control of its directors (s.453K).
• Directors must attend on and assist SBRP, give the SBRP information about the
company and access to books and records (s.453F).
• Limitations on transactions during restructuring:
1. All transactions affecting the property of the company are prohibited and breach of the
section is an offence (s.453L(1)).
2. The prohibition does not apply if the transaction (a) was in the ordinary course of
business; or (b) approved with the written consent of the SBRP; or (c) pursuant to Court
order (s.453L(2). r.5.3B.05).
3. Transactions in the ordinary course of business is defined only be exclusion, to not include
(a) payment of pre-restructuring debts (except employee entitlements); (b) sale of whole
or part of the company’s business; (c) payment of a dividend (r.5.3B.04).
4. The SBRP can only consent if they believe on reasonable grounds that it would be in the
interests of creditors that the company enter into the transaction (s.453L(6)). The consent
can be subject to conditions (s.453L(7)).
5. A prohibited transaction is void unless otherwise ordered by the Court (s.453L(5)).
22
23. 4. Control of the company during
restructuring (cont.)
• Transactions by SBRP, by company with consent of SBRP, or pursuant to
order of Court not liable to be set aside in subsequent winding up (s.453N).
What about transactions in ordinary course?
• A director that breaches the prohibition on transactions affecting company
property commits and offence and may be ordered to pay compensation to
the company for any loss (s.453M).
• Transactions during the restructuring that are in the ordinary course or
business or approved by the SBRP are not subject to insolvent trading
under s.588G(2) (ie. insolvent trading relief continues) (s.588GAAB).
• Shares may only be transferred and rights attached to shares changed with
the consent of the SBRP or Court approval if SBRP does not consent
(s.453P).
23
24. 4. Control of the company during
restructuring (cont.)
Why would suppliers continue to advance credit during restructuring
period?
1. Company is insolvent.
2. Likely significant outstanding debt that is not going to be repaid in full or
any time soon.
3. No personal liability for new debts (cf. administration – s.443A).
4. If end up in administration or winding up, then any new debt will rank
equally with old debt.
5. Risk that payment is void in a future Court winding up.
24
25. 5. The SBRP
• Qualifications:
1. Must be a registered liquidator (s.456B).
2. Possibility to obtain registration as a liquidator limited to acting as a SBRP (Rules
20-2).
3. Cannot act if connected to the company (s.456C).
• Must give a declaration of relevant relationships (same as administration /
liquidation) as soon as practicable after appointment, distribute to
creditors and lodge with ASIC (s.453D)
• Appointment cannot be revoked, new SBRP can be appointed if resign,
dies, disqualified (s.456E).
• Can be multiple SBRP appointed (s.456M, s.456N).
25
26. 5. The SBRP (cont.)
Functions (s.453E, r5.3B.08):
1. Advise company on restructuring.
2. Assist company to prepare restructuring plan.
3. Make declaration about restructuring plan.
4. Has power to investigate the affairs of the company for purpose of (a)
certifying restructuring plan; (b) deciding whether to terminate
restructuring; (c) resolving disputes about debts owing to creditors; (d) any
other function as SBRP.
26
27. 5. The SBRP (cont.)
SBRP may terminate restructuring if believes on reasonable grounds
(s.453J):
1. company not eligible for restructuring; or
2. would not be in interests of creditors to make a restructuring plan; or
3. would be in interests of creditors for restructuring to end; or
4. would be in interests of creditors for company to be wound up.
27
28. 5. The SBRP (cont.)
• Personal exposure:
1. Not liable for debts in restructuring period (cf. administration)
2. Right of indemnity, with priority and lien for fees (s.456J, 456K, 456L).
3. No liability for decision whether or not to terminate restructuring or in relation to
any approvals or consents (s.456H).
4. SBRP has qualified privilege in relation defamation claims (r.5.3B.09)
5. No liability for anything done “in good faith and without negligence” in exercise of
functions, powers or duties (r.5.3B.10)
• Risk of an offence in relation to certification of plan (r.5.3B.16(4)).
• Significant uncertainty as to extent of inquiry /investigation required of
SBRP to discharge duties.
28
29. 6. The Plan
• Plan to be “proposed” within “proposal period” or 20 business days of
commencement of restructuring. SBRP can extend for 10 business days,
for 30 business days total. Court may extend further. (r.5.3B.15)
• To propose plan requires (r.5.3B.12):
1. Preparation of restructuring plan (r.5.3B.13).
2. Preparation of restructuring proposal statement (r.5.3B.14).
3. Company to execute restructuring plan.
4. SBRP to certify restructuring plan (r.5.3B.16).
5. SBRP to give restructuring plan, proposal statement and certificate to creditors
(r.5.3B.19).
6. Immediately before distribution of materials to creditors, company must have paid
employee entitlements and be up to date with tax filings (r5.3B.22).
29
30. 6. The Plan (cont.)
Contents of Restructuring Plan (r.5.3B.13)
• Must be in an approved form that is not yet available.
• Must specify (a) company’s property to be dealt with; (b) how property will be
dealt with; (c) remuneration of SBRP for the plan; and (d) date plan executed.
• May be conditional, but condition must be fulfilled within 10 days of acceptance
(e.g. director will contribute $ if plan approved).
• Must not provide for (a) transfer of property other than money to creditors; (b)
payments after 5 years.
SBRP’s remuneration for work in relation to administering the plan must be
specified in the plan and can only be a specified percentage of payments made to
creditors in accordance with the plan (Rules 60-1D).
30
31. 6. The Plan (cont.)
Standard Terms of a restructuring plan (r.5.3B.25):
• Admissible claims rank pari passu
• Value of claim to be ascertained as at time immediately before
restructuring commenced
• Secured creditor admissible on plan only to the extent of shortfall in
security (but not specified how security is to be valued if it is not
realised).
31
32. 6. The Plan (cont.)
Admissible claims?
• Defined in r.5.3B.01
• Debts admissible under s.553(1) if wound up, but excluding (a)
contingent debt or claim; (b) debt admissible under s.553(1A) (debt
arising from pre-winding up circumstances).
• No definition of “contingent debt or claim”. Plan does not help if a
contingent debt crystallises.
32
33. 6. The Plan (cont.)
Restructuring Proposal Statement (r.5.3B.14)
• An as yet unspecified form.
• Must “include a schedule of debts and claims”.
• Presumably includes contingent debts, even though not provable.
• Regulations do not require disclosure of company’s assets, projected
cash flows, trading prospects etc. May be required by the form.
Difficult to see how creditors can assess the restructuring proposal
without this.
33
34. 6. The Plan (cont.)
SBRP Certification (r.5.3B.16)
• Must state if SBRP believes on reasonable grounds that (a) company
eligible for restructuring; (b) company is likely to be able to meet
obligations under the plan; (c) restructuring proposal statement
contains all required information.
• If SBRP does not believe, then must say why.
• SBRP must disclose any referral relationship and any payments from a
broker (query legality of referral payments – s.595(1)(ca) and (cb))
• Disclose if any related entity an affected creditor of company (ie.
subject to restructuring)
34
35. 6. The Plan (cont.)
SBRP Certification (r.5.3B.16, r.5.3B.17)
• SBRP commits an offence if:
1. At any time before they prepare a certificate, they become aware that information
in a plan or restructuring proposal statement is incomplete or inaccurate and that
matter would affect the viability of the plan, and do not notify the company of the
issue and give an opportunity for the company to address the issue (ie. advance
warning of possible adverse opinion).
2. They prepare a certificate and do not (a) make reasonable inquiries into the
company’s business, property, affairs and financial circumstances; and (b) take
reasonable steps to verify the company’s business, property, affairs and financial
circumstances.
• Key issue for SBRP – what constitutes reasonable inquiries and reasonable
steps?
35
36. 6. The Plan (cont.)
Creditor approval process (r.5.3B.19):
• SBRP provides materials to creditors.
• Creditors have 15 business days (acceptance period) to respond in
writing whether to accept or reject plan (no meeting).
36
37. 6. The Plan (cont.)
Disputes about debts? (r.5.3B.20, r.5.3B.21, r.5.3B.51)
• Creditors have 5 business days from receipt of plan (or becoming aware of
plan) to dispute the schedule of debts in the restructuring proposal
statement and provide details to the SBRP.
• SBRP then has 5 business days to resolve the dispute.
• If the schedule of debts is changed as a result, SBRP is to inform creditors,
and creditors can change their position on the plan. Triggers a 5 business
day extension of the acceptance period.
• Creditor can apply to Court if not satisfied with the SBRP’s
recommendation. Court resolution notified to creditors and acceptance
period is extended for 5 business days.
37
38. 7. The Plan is approved
• Plan is approved if majority of affected creditors by value who reply
before the end of the acceptance period approve the plan.
• Value of debt is claim as at the time restructuring began.
• If claim has been purchased, value for voting is the purchase price.
• Insolvency set-off applies in calculating the value of claims.
• Claims by the SBRP and related entities excluded from vote.
(r.5.3B.23)
38
39. 7. The Plan is approved (cont.)
• Plan binds (r.5.3B.27):
1. Creditors with admissible claims.
2. Secured creditor to the extent of shortfall in security or if no shortfall, if
secured creditor consents.
3. Company
4. SBRP
• Person bound by the plan (r.5.3B.28):
1. Cannot apply to windup or continue with petition on the basis of an
admissible claim.
2. Pursue proceedings in relation to company property or enforcement
process in relation to company property in respect of an admissible claim
without leave of Court.
39
40. 7. The Plan is approved (cont.)
• Omitted creditors (r.5.3B.29)
1. If creditor finds out that they are an affected creditor after plan has been
approved, they must notify the SBRP and give details of claim.
2. SBRP can request further information.
3. SBRP must admit or reject the new claim within 5 business days of being
notified by creditor.
4. If claim is admitted, SBRP must:
• Inform creditors.
• Deal with the debt in accordance with the terms of the restructuring plan.
5. Restructuring plan can continue even if the inclusion of the omitted creditor
means that the company would not otherwise be eligible for restructuring
(ie. debts over $1m).
40
41. 7. The Plan is approved (cont.)
• Role of SBRP
1. Originally appointed SBRP assumes role as SBRP for plan unless another
SBRP is appointed by company (r.5.3B.32).
2. Function of SBRP for plan is to implement plan, eg receive funds from
company, realise any company property to be sold, distribute funds to
creditors (r.5.3B.33).
3. SBRP not liable for acts in performance of duties in good faith and without
negligence (r.5.3B.37)
4. SBRP has right of indemnity and lien for remuneration and any other debts
or liabilities incurred in acting as SBRP for plan (r.5.3B.38-40)
41
42. 7. The Plan is approved (cont.)
• Variation of Plan?
1. Only with Court approval on application of company, affected creditor, SBRP
or ASIC – r.5.3B.52
• Completion of Plan
1. Plan terminates when all obligations under the plan fulfilled and all
admissible debts dealt with in accordance with the plan (r.5.3B.30(1)(a)).
2. Company entitled to return of any property subject to the plan that was not
needed (r.5.3B.30(2)(a)).
3. Company released from all admissible debts and claims (r.5.3B.30(2)(b))
42
43. 7. The Plan is approved (cont.)
• The plan is terminated early, generally with effect from next business day:
1. If Court orders termination (r.5.3B.30(1)(b)).
2. If a precondition to the plan is not satisfied within specified period of no longer
than 10 business days (r.5.3B.30(1)(c)).
3. Contravention by person bound by the plan not remedied within 30 days
(r.5.3B.30(1)(d)).
4. Administrator, liquidator or PL appointed (r.5.3B.30(1)(e),(f)).
• If plan is terminated, then any admissible debt or claim that has not been
dealt with in accordance with the plan is due and payable on the business
day after termination occurs (5.3B.30(3)(b).
• Administration, CVL or winding up is inevitable.
43
44. 7. The Plan is approved (cont.)
• Powers of Court:
1. Can void plan if non-compliant or breach by the SBRP (r.5.3B.53(1)).
2. Can validate plan notwithstanding non-compliance if satisfied substantial
compliance and no injustice (r.5.3B.53(2)).
3. Can terminate plan if (r.5.3B.54):
• Material false or misleading information was contained in the restructuring proposal
statement.
• Material omission from plan or statement.
• Material contravention of plan.
• Effect cannot be given to plan without injustice or undue delay.
• Plan contrary to interests of creditors of company as a whole.
• Any other reason.
4. Application can be made by company, affected creditor, SBRP or ASIC.
44
45. 7. The Plan is approved (cont.)
• Notifications:
1. SBRP to give notice of making of plan to creditors and ASIC within 5 business days
(r.5.3B.47).
2. Directors must notify SBRP within 5 business days (r.5.3B.42)
• If become aware that company is not likely to be able to discharge obligations under the plan.
• Appointment of administrator, liquidator or PL.
• Completion of plan.
3. Directors must notify SBRP of any contravention of the plan as soon as practicable
on becoming aware of contravention. SBRP must give notice of contravention to
creditors and ASIC as soon as reasonably practicable (r.5.3B.48).
4. If plan terminates SBRP must give written notice of termination to company,
creditors and ASIC within 5 business days. If plan terminates incomplete, SBRP
must inform creditors of the reason for termination (r.5.3B.49).
45
46. 8. The plan is not approved or no plan at all
• The restructuring of a company ends if (r.5.3B.02):
1. Company resolves to end restructuring.
2. No plan is proposed within proposal period (20 business days or extended).
3. Proposal to make restructuring plan lapses under r.5.3B.18:
1. plan not approved by creditors
2. SBRP cancels proposed plan because (a) plan incomplete or inaccurate and affects
ability of company to meet obligations; (b) affected creditors not disclosed in plan; (c)
restructuring proposal statement has material omission or inaccuracy; (d) material
change in company’s circumstances.
4. SBRP terminates restructuring under s.453J.
5. Administrator, liquidator or PL appointed.
46
47. 8. The plan is not approved or no plan at all
• Consequence?
1. All restructuring protections end on termination of restructuring.
2. Administration, CVL or winding up inevitable.
• Notifications:
1. If directors resolve to terminate restructuring before plan, must give notice
to SBRP, creditors and ASIC before termination effective (r.5.3B.02(2)).
2. SBRP to notify creditors and ASIC within 5 business days if restructuring plan
lapses (r.5.3B.46).
3. SBRP to notify creditors if restructuring terminated pursuant to s.453J. No
time limit specified and ASIC seems omitted.
4. Gap if restructuring terminates because no plan put forward.
47
48. 9. Administration / winding up after failed
restructuring
• Relation back date and commencement of winding up will generally
be date when restructuring commenced, unless there was a winding
up application underway before restructuring commenced when date
will be date of the application (s.91, s.513CA).
• If administrator appointed and then CVL, s.513C day will be date
restructuring commenced (s.513C).
• Possible gap open to abuse if restructuring ends without a plan,
administration or CVL and a winding up order is needed from the
Court.
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49. 9. Administration / winding up after failed
restructuring (cont.)
• If there is a Court ordered winding up, section 468 (void dispositions) will
only be amended to include as exempt dispositions made in good faith by,
or with the consent of the SBRP, and dispositions pursuant to plan.
• Other dispositions in ordinary course of business during restructuring or
while a plan is operative are therefore void unless validation order made.
(This could be a very long time – recall that a plan can run for up to 5
years.)
• The voidable transaction regime under s.588FE will not apply to
transactions in during the restructuring or the course of restructuring plan
that are in the ordinary course of business, or by or with the consent of the
SBRP.
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50. 9. Administration / winding up after failed
restructuring (cont.)
Simplified liquidation
• Company votes to go into CVL or transitions to CVL after
administration.
• Within 5 business days (a) directors report to Liq under s.497(4)
(existing requirement); (b) directors declare company eligible for
simplified liquidation under s.498.
• Declaration must state (a) if any voidable transactions under s.588FE
(other than preferences); and (b) grounds for opinion that company is
eligible (r.5.5.02).
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51. 9. Administration / winding up after failed
restructuring (cont.)
Simplified liquidation (cont.)
• Eligibility?
• Substantially same as for restructuring – ie. debts less than $1m (ex.
contingent), directors not used process for another company in last 7 years
(excluding related companies being liquidated at the same time) (s.500AA,
r.5.5.03).
• Note though – resolution to wind up may crystallise contingent debts (e.g.
accrued leave entitlements), so will calculation will not necessarily be the
same.
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52. 9. Administration / winding up after failed
restructuring (cont.)
Simplified liquidation (cont.)
After liquidator receives declaration from directors:
• Liquidator may adopt simplified liquidation (not must) (s.500A(1)).
• Must not adopt simplified liquidation if (a) more than 20 business days after CVL; (b)
have not given notice to all creditors; (c) 25% or more by value of creditors (excluding
related creditors) request liquidator not to follow simplified liquidation (s.500A(2),
r.5.5.09).
• Liquidator must notify all creditors at least 10 business days before adopting process (so
latest 10 business days after CVL, 5 business days after director declaration) (s.500A(3)).
• Creditors may give notice to liquidator not to follow simplified liquidation within 20
business days of CVL (ie. 10 business days from notice) (s500AB).
• Liquidator to notify ASIC in 5 business days if simplified liquidation adopted (r.5.5.06)
• Liquidator must stop simplified liquidation if eligibility no longer satisfied, or forms view
directors have engaged in conduct involving fraud or dishonesty (s.500AC, r.5.5.07).
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53. 9. Administration / winding up after failed
restructuring (cont.)
Simplified liquidation (cont.)
What’s different?
• Changed preference provisions – not a preference if more than 3 months
before relation back day, not related entity, and less than $30,000
(r.5.5.04).
• Changed reporting requirements for liquidators. S.533 does not apply re
reports to ASIC on directors (ie negligent, dividend <50c). Instead r.5.5.05
limits reporting to where liquidator identifies an offence.
• No creditors meetings or committee of inspection (s.500AE(2)).
• Proofs of debt due on one single day (r.5.6.39(1A), (1B)) and only one
dividend to be declared (r.5.6.67A).
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54. Conclusion
• Companies in distress must address the situation now and have a plan:
• Appoint administrator before 31 December.
• Enter restructuring / seek temporary restructuring relief on 1 January.
• Do not risk a gap and losing cover from insolvent trading relief.
• Restructuring is likely to only be an option for a limited number of companies.
Requires that company is insolvent with debts less than $1m, but:
• up to date with employee entitlements and tax filings
• has sufficient cash flow to survive likely having to trade COD
• has support of any secured creditor with fixed and floating charge to not appoint a receiver.
• Who would want to be a SBRP? Fixed fee for uncertain work and risk, followed by
percentage of distribution only on plan.
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