Tuesday, 5 October 2021: The circumstances of the COVID-19 pandemic have tested the limits of Australia's restructuring and insolvency regimes and led to new creative approaches that have highlighted the way future innovations in restructurings could take place.
That's one of the themes of From Red to Black, Clayton Utz's annual review of the dynamics of the Australian restructuring and insolvency market launched today, the authors of which are partners and lawyers in our national Restructuring and Insolvency (R&I) practice.
The national practice group leader, Timothy Sackar, said the "extreme occurrence" of COVID-19 had paved the way for a series of "creative and sometimes ground-breaking responses" to restructuring and insolvency matters.
What our review demonstrates is the innovation and reshaping taking place of the restructuring and insolvency landscape, with our clients and advisers testing the fabric of what was regarded as pre-existing norms.
One high-profile example of this innovation was the successful restructure and sale of Virgin Australia to Bain - on which Timothy led the Clayton Utz team that advised Deloitte as Administrators - which he heralds as "a great example of how effective our domestic insolvency procedures are in efficiently restructuring companies in the interests of creditors".
"The fact that we were able to utilise an existing regime to successfully complete the Virgin transaction shows that there is a lot that can be achieved with our existing insolvency regimes," he said, adding that "while enhancements are always worth considering, wholesale change may simply be a step too far".
Among other findings and observations contained in this year's edition of From Red to Black:
- there has been a 45% reduction in the number of formal insolvency appointments in Australia since the pandemic started, due to a mix of legislative protections, stimulus measures, and access to cheap capital (including from foreign investment), which has allowed businesses to refinance and restructure.
- loan-to-own is gaining momentum in the Australian debt restructuring market, with primary financiers and corporate creditors increasingly visible in the market, alongside alternative capital providers and secondary debt market participants.
- the rescue financing market in Australia is still maturing, with empirical analysis revealing 36 rescue financing cases in the last 20 years. An independent rescue financing market in Australia, the authors write, would be a "welcome development, which could ultimately save many businesses from closure".
- there is increased interest from overseas players in funding, investing in and acquiring distressed positions and assets in Australia, which in turn is prompting greater scrutiny by FIRB of restructuring transactions involving foreign funders.
The review also looks at topics of particular relevance to insolvency and restructuring practitioners, such as "Do I need to run a sale process" (most probably, the authors conclude), and the developing law around "peak indebtedness".