AUSTRALIA Law and Practice Contributed by: Alastair Gourlay, Lewis Grimm, Joanne Dwyer and Kathryn Sutherland-Smith, Jones Day
• whether the sale of collateral requires any regulatory approvals; • the extent of any pre-receivership marketing process conducted by the company; and • whether any aspects of the enforcement or sale processes are challenged by other stake - holders. Where a secured creditor’s objectives can be achieved solely by relying on its rights under a voluntary administration commenced by the company’s board (described in 7. Bankruptcy and Insolvency , below), it may elect not to appoint a receiver and thereby reduce enforce - ment costs. 6.6 Practical Considerations/Limitations on Enforcement Due to the size and relationship-based nature of the Australian finance market, Australian lenders have typically afforded stressed or non- performing borrowers significant runway before considering enforcement action. However, due to market conditions and the increased availabil - ity of private capital, attitudes are shifting and receivership is becoming more common. Private credit lenders should also be aware that loan-to-own strategies, debt-for-equity swaps, and credit bidding require careful advanced planning to ensure that these strategies com - ply with Australian law. For example, it is often necessary for a robust market test to be under - taken by the company in respect of its busi - ness or assets prior to the appointment of a receiver if the lender seeks to credit bid for its collateral. This is because receivers are subject to certain statutory duties that require them to ensure assets are sold for market price or the best price reasonably attainable and may not be able to effectuate a credit bid in the absence of an antecedent market test. Where a market
bid is not possible, it may be preferable for the secured creditor to appoint an administrator (or allow the borrower’s board to do so) and pursue the acquisition through a voluntary administra - tion process. 6.7 Claims Against Secured Lenders Post-Enforcement Australia upholds principles of corporate sepa - rateness and lenders will not typically be respon - sible for the borrower’s liabilities upon taking enforcement action unless they acquire the business. However, where environmental liabilities are con - cerned, a secured lender may, through indemni - fication of its receiver, be exposed to liability for any environmental problems that are perpetu - ated if the receiver continues to trade-on the business or operates the asset that has caused the damage. Engagement with the environmen - tal regulator is prudent and remediation may be required in connection with a sale. Lenders should ensure that they do not seek to control or direct the affairs of the borrower prior to enforcement. Lenders who do so may be considered “shadow directors,” which carries exposure to insolvent trading and other direc - tors’ duties claims. 7. Bankruptcy and Insolvency 7.1 Impact of Insolvency Processes There are a range of formal insolvency and restructuring processes in Australia, which are predominantly conducted out of court. The most common restructuring process is voluntary administration, which involves the appointment of an external administrator to the
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