AUSTRALIA Law and Practice Contributed by: Alastair Gourlay, Lewis Grimm, Joanne Dwyer and Kathryn Sutherland-Smith, Jones Day
from weeks to more than a year if the liquidator seeks to pursue litigation to recover assets for the benefit of creditors. Liquidation is typically a value-destructive process as all operations are discontinued and assets are sold on a “fire sale” basis. 7.4 Rescue or Reorganisation Procedures Other Than Insolvency Australian directors have personal liability for insolvent trading, which has historically resulted in a conservative approach to informal workouts. However, recent reforms reduce the risk to direc - tors where they are actively pursuing a course of action that is reasonably likely to result in a better outcome than an immediate insolvency process. As a result, Australian companies are increasingly receptive to a range of informal turnaround solutions, including those that can be delivered by private capital. While Australia is yet to see an influx of US-style liability management transactions, the capital structures of Australian companies are becom - ing increasingly complex due to the range of financing solutions that are available on a non- senior secured basis (including unitranche, TLB, subordinated debt instruments and preferred equity or warrants). Equity deals such as cor - porate carve-outs and take-private transactions are also regularly seen in the Australian market. 7.5 Risk Areas for Lenders The rights of secured creditors in Australian insolvency processes are robust. Secured lend - ers’ rights are not stayed in an administration, and their claims cannot typically be compro - mised (nor can their collateral be sold) without their consent. However, while usually reserved for complex, high-value casts, secured lenders may be exposed to a court-ordered stay and
a non-consensual restructuring if a company elects to pursue a scheme of arrangement. 7.6 Transactions Voidable Upon Insolvency If a company enters liquidation, a liquidator may seek to void certain transactions if it is funded to do so. These include: i) insolvent transac - tions, such as preferential payments to certain creditors, uncommercial transactions and unfair loans; ii) unreasonable director-related transac - tions; and iii) transactions entered into for the purpose of defeating, delaying, or interfering Set-off is recognised on insolvency where there have been mutual dealings between the com - pany and a creditor without the creditor’s knowl - edge of the impending insolvency. 7.8 Out-of-Court v In-Court Enforcement Both receivership and administration are pre - dominantly out-of-court processes that are reg - ularly used in restructurings and insolvencies led by private credit. They can operate separately or in combination, depending on the objectives of the lender and the circumstances of the case. The key advantage of receivership is that it pro - vides the secured lender with control. Unlike an administrator, who owes duties to all creditors, the receiver acts solely for the benefit of the secured creditor. A receiver typically does not require material input from other stakeholders in order to realise the collateral for the benefit of its appointor. with creditors’ rights. 7.7 Set-Off Rights However, receivership is not accompanied by a stay, and a receiver cannot compromise other creditors’ claims against the company. Instead, administration offers these benefits. Thus, where
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