31 May 2007
Sydney, 31 May 2007: The Federal Government's release today of reforms to corporate insolvency laws has been cautiously welcomed by leading insolvency lawyer and commentator, David Cowling.
Mr Cowling, a partner with Clayton Utz, says that the bulk of the reforms are commonsense changes which will be welcomed by both liquidators and creditors.
But the reforms show that there are still problems with the issue of pooling in insolvent corporate groups. Pooling allows all the assets and debts of a group of companies to be rolled together, making it easier and cheaper to wind up the group.
"When the reforms were originally mooted last year, pooling was one of the centrepieces," says Mr Cowling.
"However, many insolvency practitioners complained that the original proposals were largely unworkable."
The response, he says, has been a scaling-back of the proposals.
"In one sense, what we've been left with is 'Pooling Lite': today's reforms will not allow pooling in a voluntary administration, which is one of the most common types of corporate insolvency.
"And, even in a winding up, the procedures for pooling will now be so onerous that I wonder how many liquidators will bother to use it."
According to Mr Cowling, this is an unfortunate result as pooling can greatly improve the efficiency of winding up a company.
"The key problem is that pooling benefits many creditors, but can disadvantage some others. Ever since the Government committed to allowing pooling, it has been looking at how to balance those competing interests.
"The original proposal would have allowed a single dissident creditor to derail a pooling proposal. The new Bill proposes something different. Pooling will have to be approved by special creditor meetings. However, high voting thresholds will still threaten to give dissident creditors an effective veto over a pooling proposal."
The Bill does give liquidators the alternative option of getting Court approval for a pooling arrangement, but Mr Cowling cautions that the cost and unpredictability of litigation will make that an unattractive option in all but the biggest corporate collapses.
"That has certainly been the experience in New Zealand, where Courts have long had the power to make pooling orders," he says.
"The reality there has been that you could count the number of NZ pooling orders on the fingers of two hands - and still have a few digits left over."
Mr Cowling called on the Government to institute a special investigation into pooling, with a view to producing an outcome that will avoid the pitfalls of the current proposals.
