An extract from The Insolvency Review, 9th Edition

Plenary insolvency proceedings

Significant proceedings in the Australian market include the following restructures:

  1. Toys R Us Australia (Toys), by way of a voluntary administration and subsequent liquidation of the Australian business. The winding up of Toys followed the collapse of its US parent (which filed for bankruptcy protection under Chapter 11 of the US Bankruptcy Code in 2017) and reflects the particular challenges faced by the retail industry.
  2. Slater and Gordon Limited (S&G) (arguably the highest-profile restructure for a publicly listed company in the Australian market in recent times) was achieved by way of two inter-conditional schemes of arrangement resulting in S&G's senior lenders taking control of the S&G Group via a debt-for-equity swap involving the exchange of 95 per cent of S&G's equity for a reduction of A$636.6 million in senior secured debt owed by S&G. Significantly, this transaction involved the resolution of shareholder class actions (both brought and threatened) against S&G and, unusually, using a scheme to achieve this outcome in a manner that ensured that there are no future adverse financial consequences for S&G or its directors.
  3. Paladin Energy Limited (Paladin) by way of a voluntary administration followed by a DOCA (approved by Paladin's creditors) involving an extinguishment of certain claims in exchange for the transfer of 98 per cent of the equity from existing shareholders by way of a court application under Section 444GA of the Corporations Act (and without the need for existing shareholder approval – note our comments regarding Section 444GA in footnote 26, above). The successful outcome demonstrates the flexibility of DOCAs to effect restructures and recapitalisations and should encourage creditors of listed companies to pursue value-preserving debt-for-equity transactions without the need for shareholder approval, or the need for the threshold of 75 per cent in value to be met for each class of creditors as required under a creditors' scheme.
  4. Ten Network Holdings Limited (Ten Network) by way of a voluntary administration resulting in a contested bidding process with competing DOCA proposals put forward. A DOCA proposal involving the use of a creditors' trust mechanism (whereby the DOCA completes and converts into a creditors' trust enabling the company to come out of insolvency quickly and the creditors release their claims against the company in exchange for a claim as a beneficiary against the trust) and a court application for orders under Section 444GA of the Corporations Act were accepted by creditors.
  5. Wollongong Coal (ASX: WLC) and Jindal Steel by way of joint creditors' schemes of arrangement to effect a US$347 million restructuring of the Australian mining businesses' debt. Prior to implementation, the schemes terminated automatically by their terms as certain payments had not been made by the required date. The parties were successful in applying to court for an order to retrospectively amend the terms of the schemes to extend the due date for payment. The transaction is significant as it confirms that courts in Australia have the ability to retrospectively amend an approved scheme, rather than requiring parties to resort to the costly and lengthy process of implementing a second overriding scheme of arrangement.
  6. Sargon Group (Sargon) by way of a voluntary administration, which resulted in a sale of its business and assets to the Cloverhill Group. The sale was complicated by the state of the market during the covid-19 pandemic and various unsecured parties, at the eleventh hour, claiming ownership and security interests in the assets the subject of the sale. This required an urgent court application where the court sanctioned the disposition of those assets under Section 442C of the Corporations Act.44

The Paladin and Ten Network restructures demonstrate the flexibility of DOCAs and the ability of a deed administrator, under Section 444GA of the Corporations Act, to transfer shares in a company with leave of the court when this is opposed by the shareholders. The court will only grant orders under this Section if 'it is satisfied that the transfer would not unfairly prejudice the interests of members of the company'. These shareholders would not be prejudiced, based on the existing case law, if their shares have no 'economic value'. This provision ensures that existing shareholders are afforded a level of protection and consideration, through the court process, while allowing creditors, or others, to acquire the equity interests through a DOCA when it is fair to do so.

Ancillary insolvency proceedings

Examples of plenary insolvency proceedings for foreign-registered companies in Australia during the past 12 months are as follows:

  1. in Hydrodec Group Plc [2021] NSWSC 755, the New South Wales Supreme Court dismissed an application by a UK company's moratorium restructuring practitioners for recognition of a UK moratorium under both the Model Law and Section 581 of the Corporations Act (see Section I.vii) and a stay of the Australian winding up proceedings;
  2. in Frege (in his Capacity as Foreign Representative of Greensill Bank AG) v. Greensill Bank AG (No. 2) [2021] FCA 510, the Federal Court of Australia recognised the appointment of an insolvency administrator pursuant to German law as a foreign proceeding and a foreign main proceeding, and permitted the applicant to invoke the power to examine witnesses, take evidence and require delivery of information concerning the respondent's affairs as if the applicant were a liquidator appointed under Part 5.4B of the Corporations Act; and
  3. in Didyasarin v Thai Airways International Public Co Ltd [2020] FCA 1154, the Federal Court of Australia granted an application by the national airline of Thailand to have business reorganisation proceedings commenced in the Central Bankruptcy Court of Thailand recognised as a foreign main proceeding under Australian law.