Australian voluntary administration proceedings
In Australia, voluntary administration via Part 5.3A of the Corporations Act 2001 (Cth) is a tool for debtor companies to restructure their affairs. It's also the closest analogous regime to Chapter 11.
An important distinction between the two regimes is that, under Chapter 11, a debtor company's existing management will remain in control of the debtor. Under voluntary administration, on the other hand, the administrator assumes exclusive control of the company's business, property and affairs (and the powers of the board of a debtor company are immediately suspended).
The two regimes are similar in that, as with Chapter 11:
- administration is intended to be an interim or temporary regime - if a rescue plan isn't possible, the debtor company is placed in liquidation (which can continue for lengthy periods in complex administrations); and
- administrators of a trading business in administration need cashflow, and often bridge financing, to continue trading and/or restructure the business.
DIP financing packages have been an important part of the success of Chapter 11. They are a feature of all large US retail bankruptcies, allowing the debtor company to continue trading while at the same time pursuing a plan of reorganisation which facilitates the restructure of the business, including, for example by rejecting or renegotiating onerous leases and executory contracts. As special situation finance, the terms of any DIP finance will be bespoke to the particular circumstances of the debtor company and a matter of negotiation between the parties. The same applies to loan agreements entered into by an administrator of an Australian debtor company.
Australia has the statutory and legal framework to facilitate funding of companies in administration, albeit without the full suite of protections afforded to DIP lenders in the US (and, to some extent, the flexibility offered by that regime). Even without those protections, however, recent examples like:
- the CBS Networks' funding of Ten Network Holdings during its administration (to refinance existing secured creditors and to fund a DOCA as part of an ultimate (and successful) loan-to-own strategy); and
- Gordon Brothers' financing of Surfstitch to enable it to trade during the peak retail (Christmas) period while a DOCA was explored,
demonstrate the (largely untapped) opportunities available under Part 5.3A of our Corporations Act for distressed entities and their financiers.
The tiles below outline some key considerations for rescue financing in the US under Chapter 11 and in Australia through the voluntary administration regime.