Mr Cameron Belyea
Partner

Cameron Belyea specialises in complex tax and counsel work in respect of corporate reorganisations (schemes), contested debt and capital restructuring, workouts, special situations assignments, safe harbour planning, banking and finance recoveries and litigation, complex insolvencies and alternative dispute resolution. Based in Western Australia, with a primary focus on commodities businesses, Cameron advises enterprises operating businesses within the agribusiness (including managed investment schemes) and energy and resources sectors – including pipelines, electricity, nickel, gold, platinum, tantalum, mineral sands, earth moving, mining and civil contracting & engineering. Cameron is described by a client as one of the “go-to practitioners in Perth.” (Chambers Asia Pacific). Cameron is the former Chair of the Turnaround Management Association Australia and is recognised as a leading or preeminent litigator and restructuring lawyer across a range of directories.

Ms Katie Higgins
Partner

Katie Higgins has over 20 years’ experience advising financial institutions, companies, funds, investors, directors, and insolvency practitioners on complex restructuring, distressed investing, and insolvency matters, with a particular focus on cross-border issues. She has played a key role in high-profile administrations of major retail and energy companies and regularly advises on debt and structured capital markets transactions across the resources, health, and fintech sectors. Recognised as a leading restructuring lawyer by legal directories, Katie has been described by clients as “highly commercial, highly competent and exceedingly dedicated to ensuring that the best outcomes are achieved” (Chambers Asia-Pacific). She is a member of INSOL International and the Turnaround Management Association.

Ms Rebecca Hanrahan
Special Counsel

Rebecca Hanrahan specialises in restructuring and insolvency and has developed a significant track record as a litigator. Rebecca’s practice focuses on high-profile debt and capital market engagements with complex legal and commercial issues, particularly restructuring, corporate takeover and complex insolvencies. In addition to disputes arising from receiverships, voluntary administrations and deeds of company arrangement, Rebecca develops and executes strategies for fraud recoveries and PPSA disputes. Rebecca is a member of the Turnaround Management Association’s Western Australia Committee and the Deputy Co-Chair of the Western Australian Insolvency and Restructuring Committee, part of the Law Council of Australia.

NAVIGATING NEW HORIZONS: THE EVOLVING LANDSCAPE OF AUSTRALIAN RESTRUCTURING AND INSOLVENCY

Introduction

Successful restructurings ideally combine business operational turnaround, contract workout and balance sheet restructure strategies, larger situations advised by teams of legal, financial, capital advisory and technical specialists in relevant fields.

Over the past decade, the Australian restructuring landscape, at least insofar as concerns larger enterprises, has evolved. The historical focus on debt enforcement being an asset sale tool has increasingly given over to strategies that focus on deleveraging by way of debt for equity swaps. In part this change comes from the growth of “private capital” investors in the market. Alternative capital, while still largely unregulated has many additional tools and techniques available to deal with distressed credits, including in the super-priming of rescue capital in appropriate situations. At the same time, Safe Harbour reforms and relative abolition of ipso facto triggers refocuses directors and management on developing and then executing on the turnaround plan as opposed to forcing a company into early insolvency proceedings.

Australia remains a very attractive source for new opportunistic capital, sovereign risk being lower than alternate investment destinations, the rule of law being relatively uniform throughout the country. We will see some further changes in the restructuring landscape, some of which we outline below.

Changing nature of the restructuring landscape in Australia – a snapshot

• Due to the withdrawal of larger banking institutions and replacement of private equity and private credit funds, more sophisticated credit funds require syndicated finance agreements increasingly akin to US-form documents. LSTA instruments have very different ‘chain of responsibility’, cleansing, indemnity, terms and processes than LMA and APLMA instruments.
• Many distressed, special situations and opportunistic funds in the leveraged loan market focus on sacred provisions, distressed disposal regimes and lender liability issues. Uptier priming, “drop downs”, “exit planning” and other “positioning enhancement techniques” or “lender violence” techniques, can come into play when dealing with some forms of financing instruments, especially within structurally disaggregated enterprises.
• The last year has seen lenders taking a sharper focus on amendment provisions (some of which require only 50% majority) to make significant amendments to the loan documentation.
• The distressed disposal clause, properly drafted, may also enable a dragging of the dissenting minority lenders. For example, it may provide for a market testing process to determine market value, and if there is insufficient interest, a credit bid may be presented through the lenders SPV and the Security Trustee directed by majority lenders to accept non-cash consideration to facilitate an debt/equity swap transaction.
• Some restructures, especially those with incumbent private equity Funds, can be pragmatically resolved with a “keys back” approach to negotiations (though care should be exercised when considering, for example, GenesisCare, Camp Australia and other high profile “debt for equity” precedents).

ASIC provides new guidance on ‘safe harbour’ protections

In contrast to the increasing dynamism and lack of predictability accompanying the rise of private debt participation in Australian workout situations, Australia’s “safe harbour” laws have in many situations had a stabilising effect, giving much-needed breathing space for companies to explore consensual restructuring

solutions.

Safe harbour protection in respect of insolvent trading claims, introduced in 2017, was a welcome (and long called-for) reform in Australia. Liability for insolvent trading is personal for directors – making Australia’s insolvent trading laws some of the most onerous in the world, and a major hurdle for consensual restructurings in the past. We are now seeing safe harbour protections being relied upon by directors for (in some cases) significant periods of time in complex restructuring situations – providing additional runway that directors were reluctant to take before the introduction of the reforms.

Judicial decisions on the application – and limits – of the protections are still relatively sparse. The Australian Securities and Investments Commission (ASIC), Australia’s corporate regulator, has recently stepped into the breach with its revised Regulatory Guide 217 on insolvent trading laws, updated so that it now deals specifically with safe harbour protections.

The Regulatory Guide usefully provides practical examples illustrating what ASIC considers to be “best practice” for a safe harbour process.

ASIC’s key messages are:

• Directors need to adopt a rigorous and well-documented approach in pursuing restructuring plans adopted as part of the safe harbour process.
• It is not enough for directors to simply minute a “mere statement” (ASIC’s words) that the directors are in safe harbour and take no further action.
• Directors are expected to be in the weeds of the safe harbour process. They need to turn their minds regularly to whether a safe harbour restructuring plan meets the ‘better outcome’ test stipulated in the legislation; regularly revisit financial forecasts; scrutinise whether debts incurred during the safe harbour period are consistent with the restructuring plan; and be able to point to a contemporaneously documented course of action supporting that approach.

The role of the director’s safe harbour adviser is also important. Although the safe harbour regime does not mandate the appointment of a safe harbour adviser, ASIC has said that the appointment of an appropriately qualified safe harbour adviser (and, as importantly, whether or not they have been listened to by the directors) are important factors in determining whether safe harbour protections are available for directors.

A safe harbour adviser can be a registered liquidator, lawyer or accountant – the key is that the adviser is appropriately briefed and regularly updated by the directors.

Australia’s insolvent trading laws and when safe harbour will be available

• Directors have a positive duty to prevent their company incurring debts while insolvent. If directors breach this duty they face personal liability. This duty sits alongside directors’ other general duties to act in the best interests of their company.
• If directors are at risk of breaching their duty to prevent insolvent trading, they can avail themselves of safe harbour protection under the Australian Corporations Act.
• Subject to satisfying threshold requirements in relation to employee entitlements and tax, to avail themselves of safe harbour protection directors must implement a restructuring plan that is reasonably likely to lead to a “better outcome” for the company than an immediate insolvency process. Insolvent trading laws will not apply in respect of debts that are incurred in connection with the restructuring plan, or in the ordinary course of business, for so long as the restructuring plan is pursued, and it continues to satisfy the “better outcome” test.

Deeds of Company Arrangement – recent judicial trends

One of the key restructuring tools in Australia is a deed of company arrangement (DOCA). A DOCA is a binding arrangement between a company and its creditors, which sets out how the company’s affairs will be dealt with to maximise the chances of the company continuing in existence or to provide a better return for creditors than an immediate winding up. A DOCA is entered into after the period of voluntary administration, following the vote of the majority creditors.

The key benefit of a DOCA is to provide an efficient way to effect a restructure, which can be tailored to the specific circumstances. The idea is that, unlike schemes of arrangement, there is little court supervision or review of the arrangements between the company and its creditors.

If, however, a creditor is dissatisfied with the DOCA once voted in place by the majority, the only real option available to the creditor is to seek to terminate the DOCA under one of seven specific grounds, including unfair prejudice or discrimination, or “some other reason”.

Canstruct Pty Ltd v Project Sea Dragon Pty Ltd (Subject to a Deed of Company Arrangement) (No 4) [2024] FCA 112

• In Canstruct, the aggrieved creditor (Canstruct) sought to set aside the DOCA of a “special purpose vehicle” (SPV) within a larger corporate group structure, which had relied heavily on the support of the parent company. Canstruct was one of the creditors of the SPV, and an adjudication determination was made in its favour.
• After the determination, the parent company no longer financially supported the SPV. The SPV appointed voluntary administrators.
• The parent company proposed a DOCA under which it would contribute a substantial sum to the deed fund, and all employees of the SPV and “small claim creditors” would receive 100 cents in the dollar. Canstruct would receive a return of circa 10 cents in the dollar.
• Canstruct successfully applied to the Court to set aside the DOCA.
• The Court held that the predominant purpose of the administration process and the DOCA was to avoid the SPV paying Canstruct pursuant to the adjudication determination.
• The Court found the DOCA was an abuse of Pt 5.3A of the Act, was unfairly prejudicial and was entered into after false or misleading information was given to creditors.1

Academy Construction & Development Pty Ltd (Subject to Deed of Company Arrangement) [2024] NSWSC 808

• The Owners’ Corporation, an aggrieved creditor, had a potential claim against the company (a builder) for $7,800,000.
• The directors of the company resolved to place the company in voluntary administration while litigation was on foot with the Owner’s Corporation.
• A DOCA was entered into, which provided that all unsecured creditors were to be paid in full, except the Owner’s Corporation, which was to receive a maximum of $200,000.
• The Court considered that there was a lack of rational basis for the different treatment of the Owners Corporation and other unsecured creditors. The DOCA liable to be set aside.
• Interestingly, this is despite the fact that the DOCA may have provided a better return to unsecured creditors under the DOCA than a liquidation.

Revenue authorities

A sub-set of the trend is the involvement of Australian revenue authorities, as active creditors, in seeking to set aside DOCAs.

Commissioner of State Revenue v McCabe (No 2) [2024] FCA 662

• The Queensland Revenue Authority (QRO) argued that the DOCA should be set aside on the basis that it was detrimental to the interests of the public generally and to commercial morality as QRO alleged the company had engaged in deliberate tax evasion.
• The Court rejected the contention that the public interest in terminating the DOCA was enlivened by the combination of the extent of the debt and systematic failure to account for payroll tax.
• The DOCA would not prevent the QRO from continuing to investigate and prosecute individuals or third parties. In this case, the Commissioner was continuing to investigate. This DOCA was not set aside.

Chief Commissioner of State Revenue v Gleeson (as administrators of Dalma Form Specialist Pty Ltd (subject to deed of company arrangement) [2024] FCA 908

• Dalma was alleged to be part of a group of over 30 companies that had unpaid taxes of $150 million.
• After the administration of Dalma, the director put forward a DOCA proposal. The Administrators recommended against it. However, the resolution to enter the DOCA was approved by creditors.
• The Court found that the interests of the public which can be taken into account include public policy. Public policy includes the policy against: (1) allowing an insolvent company to be able to continue to trade; and (2) for director to avoid public examination and the possibility of clawback litigation available in a winding up.
• The Court found that the DOCA was liable to be set aside.

Summary

The key take aways from the recent cases regarding termination of DOCAs are:

1) It will not be sufficient to say that creditors are “better off” by dollar value in a DOCA than a liquidation.

2) If there are differences in the returns to different creditors under a DOCA, these differences must have a rational basis.

3) A DOCA should not be used as a vehicle to avoid the payment of judgment or other debts following a litigation process – the court will consider whether the predominant purpose aligns with the objects of Part 5.3A of the Corporations Act (being the voluntary administration process).

4) While not always applicable, the court may consider the public policy, including potential allegations of fraudulent activity.

Australian Regulator Grappling with Cryptocurrency

Like many jurisdictions, the Australian corporate regulator (ASIC), is grappling with the regulation of cryptocurrency. There are two recent examples of businesses where ASIC has stepped in to appoint receivers over Australian entities, to attempt to protect the interests of investors.

In one case,2 ASIC had appointed receivers to the property of a company, which dealt with cryptocurrency, on the basis of suspected illegal activity. In the original decision, the Court highlighted the difficulty for ASIC is that, by its nature, cryptocurrency is easily transferred.3 After several years, the receivers were unable to recover any substantial amount of the cryptocurrency, and in August 2024, ASIC urgently applied to obtain orders to wind up the company.

In another case,4 several companies operated a business which claimed to sell blockchain mining investments in Australia:

• ASIC commenced an investigation into due to concerns about unlicensed conduct and misrepresentations to investors. ASIC then obtained a court order to appoint a receiver.
• The Court found that the appointment of a receiver was justified due to the large number of investors, substantial amounts invested, comingling and misuse of investor funds, and difficulty in tracing assets like cryptocurrency.

The cases demonstrate the difficulties with the decentralised nature of cryptocurrency assets and the ease of transferring them anonymously increases the potential for fraud and also makes it very difficult to recover for the benefit of creditors.

Australia’s evolving restructuring landscape – key take aways

• The Australian restructuring landscape has undergone significant change in the past decade. That is expected to continue, with the increasing participation of alternate debt providers as sources of both new and rescue liquidity. These participants behave differently to traditional Australian banks and have often had experience with creative liability management techniques used in restructuring transactions in the US and Europe. Though the jury is still out on the extent to which these can or will be used in Australian law governed debt documents, these funds introduce new levels of unpredictability and dynamism which will increasingly impact Australia workout situations.
• On the other side of the coin, safe harbour reforms have had a stabilising impact, giving directors space to focus on achieving a consensual restructuring (and avoiding the value-destruction associated with a formal insolvency process) rather than be distracted by the spectre of personal liability. ASIC’s recent practical guidance on what a “best practice” safe harbour process looks like in practical terms is a welcome development in this regard.
• Deeds of Company Arrangement are attractive tools in Australian restructuring contexts owing to their flexibility and adaptability. Recent judicial decisions indicate that Australian courts are scrutinising DOCAs more rigorously, particularly where they appear to sidestep legitimate creditor claims. Meanwhile, regulatory challenges surrounding cryptocurrency demonstrate the complexities of asset recovery in an increasingly digital financial environment – an issue not unique to Australia but one which has our regulator’s attention.