Media Release: R&I activity strong as stormy seas tip companies from Black to Red

05 Apr 2023
Time to read: 1 minutes

Current economic conditions and market instability are likely to see more Australian companies fall into distress in 2023 — creating both opportunities for proactive restructuring as well as distressed asset sales.

That's one of the predictions in this year's edition of From Red to Black, Clayton Utz's annual review of the dynamics of Australia's Restructuring and Insolvency (R&I) market.

After a slow start to the year, a combination of rampant inflation, constrained liquidity, under-pressure management and critically squeezed margins is contributing to an increase in R&I activity in a number of sectors, including construction, transport and logistics, retail, gig-economy delivery providers and the buy-now-pay-later sectors.

R&I National Practice Group Leader, Timothy Sackar, said although the last 12 to 18 months had seen a resiliency to formal insolvency appointments, the current market instability may lead to an increase in the number of voluntary administrations.   

He said it would ultimately depend on the attitudes of a company's debtors and creditors as to whether restructuring was a viable option. "A successful corporate restructure needs support from key stakeholders and pro-active debtors. Where that doesn't exist, a formal insolvency appointment is likely to follow."

Among other topics explored in this year's edition of From Red to Black:

The increased risks for insolvency practitioners in relation to disclaiming property and contaminated land: In what is a "very real ESG issue", our authors point to a change in the law in Victoria that significantly curbs liquidators' rights of disclaimer for remediating contaminated land.

Insolvency law innovations impacting commercial landlords: With R&I professionals showing "real ingenuity" in restructuring insolvent businesses, including seeking extensions of the “rent-free” period while restructuring options are explored, our authors say landlords that want to adequately protect their rights need to pay closer attention to tenant insolvencies.

Challenges to s.444GA transfers in a voluntary administration: Deeds of company arrangement (DOCAs) which involve a "section 444GA" share transfer are increasingly popular but are also subject to challenge, including by disgruntled stakeholders. Timothy says with the potential for an increase in the number of voluntary administrations, "control of the process and ultimate outcome will be critical to investors".

Reflecting on the evolution of the R&I sector, Timothy said he continued to be impressed with the level of innovation that existed within Australia's existing insolvency framework. "Despite calls over the years for various reforms to our regime, for the most part it operates very efficiently and achieves effective outcomes."

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.