01 June 2006
Sydney, 1 June 2006: Creditors of failed companies have been thrown a lifeline by the NSW Supreme Court.
The Court has endorsed a business process that can significantly boost the amount of money available to creditors in a liquidation.
Clayton Utz insolvency partners Cameron Belyea and Rob McKenzie were among the practitioners who pioneered the use of creditors' trusts. They have welcomed the NSW judicial support as a sign the process is gaining wider recognition for its role in helping to secure a better return for creditors.
The pair say the NSW Supreme Court's recent endorsement of creditors' trusts in the winding-up of copper and gold miner Chameleon Mining is encouraging and will hopefully lead to such trusts being more widely used.
Creditors' trusts are a relatively new business process that can significantly boost the amount of money liquidators are able to pay creditors. While they have been in use in Western Australia for some time, insolvency practitioners in the eastern states have not been as quick to embrace them.
"They have tended to be regarded as a bit 'newfangled' by many insolvency practitioners," Mr McKenzie says.
"This is despite the fact that, where they have been used, they have tended to produce better outcomes for both insolvent companies and their creditors."
In the case of Chameleon Mining, Chameleon's debts were hived off to a creditors' trust. The creditors' trust was funded by a cash injection from investor Centrebright. That allowed Centrebright to acquire a majority shareholding in what was now a debt-free Chameleon.
"This is a win-win situation for creditors and investors," says Mr Belyea.
"Moving the debts to a separate trust means that the company can quickly come back onto the market. This avoids the long, drawn-out process of insolvency which can destroy any goodwill in the company, as well as its stock market listing.
"That, of course, makes the company a more attractive proposition for would-be investors. The money they invest in the company can then be used to pay its creditors."
Mr McKenzie and Mr Belyea add that although creditors' trusts are not a cure-all for creditors' woes, the NSW Supreme Court's endorsement will hopefully encourage more insolvency practitioners to consider using them.
