Sydney, 24 November 2016: Australian companies
are slowly embracing a turnaround culture, but board and management
attitudes still need to change for more successful restructurings
to occur, according to a Clayton Utz report
From Red to Black on critical developments in the Australian
restructuring market in FY16 and predictions for the coming
Clayton Utz partner
Karen O'Flynn, who heads the firm's national
Restructuring and Insolvency practice, said while the last 12
months had seen an upswing in the engagement of turnaround
specialists, many boards and management teams in Australia were
still reluctant to embrace the benefits of early intervention when
a company was in trouble.
"An example of a board that successfully rose to this
challenge was Atlas Iron. The Atlas board engaged restructuring
specialists who together were able to draw on their decades of
experience to implement a successful turnaround plan that
ultimately delivered a better outcome for both creditors and
shareholders than had the board sat back and let the company be
placed into administration or fallen into liquidation," said
Karen said the Federal government's long-awaited proposal to
introduce a "safe harbour" defence for directors as part
of its National Innovation and Science Agenda may go some way to
encouraging boards to engage advisory teams early on to devise and
implement turnaround plans. However legislative reform alone was
not the answer to create a true business rescue culture in
"While we welcome the Federal government's promotion of
a "safe harbour" defence for directors to strike a better
balance between encouraging entrepreneurship and protecting
creditors, legislative reform merely provides a process for change.
We also need to change cultural attitudes to restructuring so
boards see it not as a sign of failure but as a valuable tool in
successfully turning around the company when it falls into
distress," said Karen.
Clayton Utz partner and a co-author of From Red to
Cameron Belyea, said current market conditions pointed to more
corporate restructurings over the next 12 months.
"There are a number of factors at play, including a looming
debt wall for FY17, bubbles within segments of the property and
construction markets, and higher banking capital to cover risk.
Triggers such as industrial action, litigation, market disruption,
debt overburdens, or just bad management can all tip a company into
"A good board will have systems in place that pick up the
early warning signals and have a turnaround plan ready that
responds to the distressed event triggers. As we saw with Atlas
Iron, the future bode well for boards willing to engage advisory
teams early to devise and implement turnaround plans."
Among other findings, From Red to Black notes that
while the secondary debt market is now firmly placed as a viable
enforcement option in distressed situations, conditions continue to
hold back market growth. Commenting on this trend, Clayton Utz
partner and report co-author
Nick Poole said: "While there has been limited activity in
the public space, recent high-profile matters including Bis
Industries and Arrium have resulted in renewed interest from
investors. Private sector trades continue to advance given
traditional lenders' increased lending hurdles, the continued
slowdown in the mining and mining services sectors, and traditional
lenders' preference to avoid the costs, risks and potential
reputational damage associated with formal enforcement
From Red to Black contains market insights and analysis
relevant to anyone involved in the turnaround process: including
lenders, funders, debt traders, insolvency practitioners and boards
of financially challenged companies.
Clayton Utz communications are intended to provide
commentary and general information. They should not be relied upon
as legal advice. Formal legal advice should be sought in particular
transactions or on matters of interest arising from this bulletin.
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The reforms, known as 'safe-harbour' provisions propose changes to directors' personal liability for insolvent trading.
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