AUSTRALIA Law and Practice Contributed by: Alastair Gourlay, Lewis Grimm, Joanne Dwyer and Kathryn Sutherland-Smith, Jones Day
7.10 Expedited Restructurings Legislation does not specifically facilitate pre- packaged or pre-arranged reorganisation in Australia. However, where compatible with their duties and applicable law, an administrator or receiver may be able to effectuate a transaction that has been negotiated to the point that it is substantially agreed among relevant stakehold - ers prior to the insolvency appointment. 8. Case Studies and Practical Insights 8.1 Notable Case Studies The slow pace of M&A in Australia has left many private equity funds with ageing portfolios. Pri - vate credit has become an attractive solution for distressed companies due to its flexibility in structuring debt, offering PIK interest, and eas - ing financial covenants. However, like all lend - ing, private credit carries the risk of borrower default, and in recent months, several lenders took action against struggling borrowers. For example, instances have been seen of pri - vate credit lenders willing to take ownership (debt to equity) as well as withdrawing from refinancings and appointing administrators and receivers. These cases highlight a growing trend of lenders stepping in where PE sponsors can - not or will not. In contrast, there have been equity capital injec - tions from sponsors to stabilise businesses. Instead of surrendering control to lenders, the company used fresh capital to navigate financial challenges. These cases illustrate the shifting power dynam - ics in private credit and distressed investing and how lenders, PE sponsors and corporate share -
a secured lender seeks to restructure the busi - ness (rather than merely sell its collateral), it can be advantageous for receivership and adminis - tration to operate in tandem. In these circum - stances, the receiver usually takes control of the collateral, and the administrator performs statutory, investigatory and reporting functions. Through administration, the secured lender may advance the terms of its proposed restructur - ing in a deed of company arrangement (DOCA). The secured lender may require support from other constituents to meet the voting require - ments needed to approve its DOCA proposal (described in 7.9 Dissenting Lenders and Non-Consensual Restructurings ), but cannot be bound to any competing DOCA without its consent. Typically, support from employees or trade creditors is needed to meet the numerosity requirement. 7.9 Dissenting Lenders and Non- Consensual Restructurings Unsecured creditors may be bound to a DOCA without their consent if a simple majority of cred - itors present and voting by value and number as a single class approves the DOCA. However, since a DOCA does not bind secured creditors unless they consent, administrators will typically engage with secured lenders regarding restruc - turing proposals before making a recommenda - tion to creditors as to how they should vote. Schemes of arrangement can compromise both secured and unsecured claims if they are approved by 75% by value and 50% by number of creditors present and voting in a class. Cross- class cram down is not provided for by statute, however, Australian courts have demonstrated a willingness to approve schemes that group claims in a single class where, among other things, creditors may reasonably be found to have a common interest.
30
CHAMBERS.COM
Powered by FlippingBook