Answer ... Australia is a federation of states and both federal and state legislation applies to restructuring and insolvency matters, and related secured and unsecured creditor rights. Australia is also a common law jurisdiction.
The term ‘insolvency’ in Australia generally refers to companies in financial distress, while the term ‘bankruptcy’ generally refers to natural persons in financial distress. The personal bankruptcy system in Australia is governed by the Bankruptcy Act 1966 (Cth) and the Bankruptcy Regulations 1996 (Cth) made under the Bankruptcy Act. The personal bankruptcy regime is not further considered as part of this chapter.
The incorporation, governance, insolvency and restructuring of companies are principally governed by the Corporations Act 2001 (Cth) and the Corporations Regulations 2001 (Cth). The Corporations Act contains a ‘cash-flow’ test for solvency, which provides that a company is insolvent if it is unable to pay its debts as and when they become due and payable.
Chapter 5 of the Corporations Act contains the legislative framework for schemes of arrangement, receivership, voluntary administration and deeds of company arrangements (DOCAs), and voluntary and compulsory liquidation. Other parts of the Corporations Act contain the statutory rules that govern the conduct of directors and officers, and the rights of shareholders in certain circumstances.
Another important federal piece of legislation to consider – particularly when restructuring and insolvency matters involve a creditor’s secured interest in personal property (ie, property that is not real property) – is the Personal Property Securities Act 2009 (Cth). Real property and associated secured interests, such as mortgages and charges, are not governed by national legislation; rather, each state has its own legislation which is broadly similar in nature.
Answer ... As a common law jurisdiction, Australia inherited the English concept of a letter of request, incorporating it into Section 581 of the Corporations Act, which permits courts to act in aid of each other. Under Section 581, if a foreign court issues a letter of request to an Australian court, the Australian court may exercise such powers as it could exercise if the matter had originally arisen in the Australian court’s jurisdiction. Similarly, an Australian court may request a foreign court that has jurisdiction in external administration matters to act in aid of and be auxiliary to it in an external administration matter.
In addition, Australia has enacted the Cross-Border Insolvency Act 2008 (Cth) which implements the United Nations Commission on International Trade Law Model Law on Cross-Border Insolvency. The Model Law provides a process for representatives of foreign restructuring and insolvency proceedings to request and receive assistance so they can essentially exercise the rights and powers available under Australian law. The Model Law applies only to jurisdictions that have ratified it (including the United States, the United Kingdom, Canada, Singapore and New Zealand), however it is not based on reciprocity. Australian courts must assist liquidators and administrators appointed by foreign courts, even if those foreign courts would not assist liquidators and administrators appointed by Australian courts.
Answer ... No. Specific sectors – whether that be financial services, superannuation or insurance – are all regulated through the same corporate insolvency regime.
Answer ... Australia’s restructuring and insolvency regime is largely perceived as protecting the rights and interests of creditors over debtors, and particularly those creditors with security over the whole or substantially the whole of a debtor’s property. For instance, this is reflected in the robust rights and priority generally afforded to secured creditors regarding the enforcement and distribution of assets (with some exceptions regarding circulating assets, which give priority to certain remuneration and expenses of voluntary administrators and certain employee entitlements, discussed further in questions 2.2, 3.7(d), 4.6(d) and 4.8). Secured creditors are generally not subject to the stays on enforcement contained in the voluntary administration and liquidation regimes and broadly speaking are not bound by formal insolvency processes. Ordinary unsecured creditors also have an active role in formal restructuring and insolvency processes, and are afforded extensive rights to receive information and participate at meetings that can determine the future of the debtor.
However, small shifts in favour of the debtor have recently been made with the introduction of the ‘safe harbour’ regime and the prohibition on the exercise of ‘ipso facto’ rights (discussed further in question 1.5) which provide greater protection to a debtor and its directors in situations of financial distress.
Answer ... Australia has a very well-established legal regime and infrastructure relevant to insolvency and restructuring, which has broadly been in operation for more than 100 years, with the most recent wholesale legislative changes made over 30 years ago. An extensive body of judge-made or common law supports the comprehensive legislative framework set out in Chapter 5 of the Corporations Act.
The relevant law in Australia is administered by both federal and state courts, who largely have specialist corporations law divisions, although there is no exclusive court system dedicated to insolvency and restructuring matters.
Recent amendments include the Insolvency Law Reform Act 2016 (Cth) which was introduced in February 2016 and had the effect of harmonising the procedures for corporate insolvency and personal bankruptcy in Australia. Importantly, the Treasury Laws Amendment (2017 Enterprise Incentives No 2) Act 2017 (Cth) introduced a ‘safe harbour’ regime which provides directors of financially distressed companies with greater protection from laws that impose personal liability on the director for the debts incurred by the company while insolvent. It also introduced a moratorium on the ability to rely on ‘ipso-facto’ provisions in agreements which give counterparties certain rights (eg, termination rights) where a company is undertaking a formal restructure or is in receivership.