AUSTRALIA Law and Practice Contributed by: Alastair Gourlay, Lewis Grimm, Joanne Dwyer and Kathryn Sutherland-Smith, Jones Day
company by its directors. The administrator dis - places existing management and is responsible for investigating and reporting on the affairs of the company, exploring restructuring options, and making a recommendation to creditors as to how they should vote to determine the com - pany’s future. Unsecured creditors’ rights are stayed for the duration of the administration. However, secured creditors with security over substantially all of the company’s assets may enforce their security for a period of time after the administration commences. Australian companies may also restructure through a scheme of arrangement, which is a court–based process requiring court approval for the convening of meetings and the scheme. The debtor is in control of this process. While there is no automatic stay, the court may approve a stay of creditor enforcement action to facilitate the scheme process. A company that cannot be restructured is typi - cally liquidated by a registered liquidator. During liquidation, there is commonly a stay on the com - mencement or continuation of legal proceedings by unsecured creditors. However, secured credi - tors generally retain their enforcement rights. 7.2 Waterfall of Payments Subject to certain exceptions, a company’s assets are generally realised and distributed in the following order: • for the benefit of the relevant secured creditor in respect of its collateral; • costs incurred by the administrator or liquida - tor in realising the assets of the company and in carrying on the company’s business; • priority unsecured creditors, including employee entitlements and certain tax liabili - ties;
• ordinary unsecured creditors on a pari passu basis; and • to the extent there remains any surplus, to the shareholders of the company. One notable exception to this priority order is that where a security interest is over circulating assets (ie, a floating charge over assets such as inventory and accounts receivable), certain employee entitlements will have over priority over secured claims in respect of those assets. Notwithstanding the statutory priority order, where it is value-maximising for an administrator to trade-on the business, certain critical vendors may seek payment of stayed pre-appointment claims in order to continue to supply essential goods and services. It may be necessary for the administrator to engage with those suppliers on this issue (particularly if they have retention of title or security interests) or seek a court order enforcing the stay. 7.3 Length of Insolvency Process and Recoveries When used appropriately, both schemes and administrations are flexible tools that efficiently and reliably de–leverage a company’s balance sheet and maximise value for creditors. Voluntary administration is intended to be a fast process that takes approximately six weeks. However, in complex cases, the statutory dead - lines are often extended by court order and the process can take several months. A scheme typically takes at least 12 weeks to be approved by creditors and the court, but the process can take longer if there are extensive negotiations or contested issues. The duration of a liquidation depends on the nature of the claims and assets involved, ranging
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