In previous commentary, we have looked at how COVID-19 has sparked a unique - and unexpected - opportunity to introduce greater flexibility in
As we discussed, the specific legalities for doing so are by making an application under section 447A of the Corporations Act and section 90-15 of the Insolvency Practice Schedule, which permits the court, if the circumstances so require, to modify any aspect of the voluntary administration process that would ordinarily apply.
The scope of the court's discretion is immense. And with so many businesses across every sector of the economy under severe financial pressure due to COVID-19 and desperate to batten down the hatches to have a hope of trading on when the peak of the crisis is over, we have the 'perfect storm' of community sentiment and public policy that may drive the courts to use this discretion to reshape the corporate rescue process in
This month saw the first tentative indication of what we can expect as the financial pressure on companies intensifies in coming months, with the Federal Court in Re
In our original post, we foreshadowed a likely influx of subsequent court applications looking to push the boundaries even further. For all the talk of easing social distancing measures in the next few months, it would be a mistake to think that this will mean the pressure on businesses will instantly lift in lock-step. Indeed, once the Australian Government's fiscal and support measures come to an end, the fight to continue trade for many businesses will become even more profound. It is sobering to think that the peak insolvency period in
In just three days, the influx of section 447A/section 90-15 applications has already begun to manifest.
Yesterday, the Federal Court published its reasons for decision in Re
And today, the administrators appointed to
Let's not forget that this is just the first week of Virgin's administration. As the administrators continue their investigations and look at options for a restructure - with the states not having yet ruled out a last-minute contribution to new financing - additional court applications which may have an even greater impact on the immediate enforcement rights of landlords and existing secured creditors (with a view to ensuring an ultimate outcome in the interests of all parties) to give administrators time to solidify a rescue plan seems inevitable.
Those are the kinds of 'cram downs' on the rights of owners and secured creditors that automatically apply under the United States Chapter 11 process.
For over a decade, there have been calls in
And in Virgin's case, at stake is another important public interest - a second airline competitor in
If the anticipated further modifications to the voluntary administration process in Virgin come to fruition - and this trend continues as other companies, from large enterprises to SMEs across multiple sectors are tipped over the edge into administration in coming months - the time will come when, in a post COVID-19 world, the Australian Government will face calls for permanent changes to make our corporate rescue laws more flexible and move away from the traditionally strong creditor-dominated, anti-debtor culture so familiar to us.
And that is just the kick-start the Australian economy will need as we seek to indeed come out the other side of this better and stronger.
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Mr
Level 18
NSW
2000
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