Submissions to the Productivity Commission's Business
Set-up, Transfer and Closure draft
report have now closed, with the final report due in August
2015. DibbsBarker made a
submission on those aspects concerning corporate restructuring
processes, a copy of which is available on the Productivity
The draft report raises a number of interesting business
restructuring recommendations, canvassing topics being considered
also by Treasury in the context of the Financial System
Inquiry's final report. In the coming weeks, we will issue a
series of brief alerts to shine a spotlight on what we think are
the most important restructuring issues for the Productivity
Commission to consider.
We begin this week with the first of those issues, which relates
to the breadth of section 436A of the Corporations Act 2001
(Cth). Future alerts will comment on the proposal for a safe
harbour, pre-packs and pre-positioning, the enforceability of ipso
facto clauses, and finally, the role that culture plays in
delivering more effective restructurings.
Draft recommendation 15.1, voluntary administration available
to solvent companies only
Section 436A of the Corporations Act 2001 (Cth)
provides that a company may appoint an administrator if the board
has resolved that, in the opinion of the directors voting for the
resolution, the company is insolvent, or is likely to become
insolvent at some future time.
Draft report recommendation 15.1 proposes that the option to
appoint an administrator to restructure via voluntary
administration when the company is insolvent should be
removed. Voluntary administration would only be available to
solvent companies which may become insolvent at some future
The Productivity Commission suggests that the amendment will
create a clear delineation between a restructuring process
(available to solvent companies via voluntary administration) and
liquidation (a regime to deal with insolvent companies). This
amendment will also prompt directors to take action sooner, when
the company has greater restructuring options available. The
Productivity Commission notes however, that in practice, insolvency
can be difficult and imprecise to ascertain.
This draft recommendation does not appear to
have broad support. A number of submissions, including
ours, raise concerns with this recommendation. See also the
submissions of the AICD, ARITA, Chartered Accountants
(Australia & NZ) and PPB Advisory. Broadly, reasons given in
opposition to this recommendation include:
Voluntary administration provides a beneficial restructuring
option to companies that should not be limited
Insolvency is difficult to determine
An insolvent company may have a restructuring plan that is best
implemented via a deed of company arrangement, for example where it
is desirable to take advantage of a share transfer under section
444GA of the Corporations Act 2001 (Cth) or to implement
an aspect of a broader pre-pack (or pre-positioned) sale
An insolvent company may have a proposal to sell assets or
otherwise achieve a better outcome for creditors via a deed of
company arrangement than would be available if the company were
DibbsBarker does accept that where there is no plan for the
future of an insolvent company, voluntary administration can result
in a delayed liquidation and increased costs of administration, to
the detriment of the company's creditors.
Given the concerns raised, we would be surprised if the
Productivity Commission did not reconsider this recommendation in
its final report.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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