First Australian receiver-led creditors' scheme of arrangement approved

Insolvency practitioners have another tool in their toolbox, with the first Australian receiver-led creditors' scheme of arrangement approved by the Federal Court of Australia on 10 March 2026.

The creditors scheme approved in In the matter of Twinza Oil Limited (Receivers and Managers Appointed) (New Scheme) (No 2) [2026] FCA 255 is due to be implemented on 17 March 2026; Clayton Utz acted for the senior secured lenders.

Although the procedural history in Twinza is a little complex, it's worth examining the twists and turns to see the innovative fashion in which the various challenges were met, including logistical problems with expert evidence, and how these challenges reveal possible opportunities for improving credit deleveraging transactions in the future.

The Twinza receivership and the deleveraging of Twinza by way of debt for equity swap

Twinza is an Australian public company which has been pursuing an offshore gas project in Papua New Guinea for several years. The front-end engineering and design (FEED) phase of the Project is substantially advanced.

Once this phase completes, the Final Investment Decision (FID) will follow. Twinza requires further funding to complete FEED and to progress to FID, and has been in default under a senior secured syndicated facility agreement since December 2024, owing approximately US$387 million as at 21 January 2026 to its senior lenders.

The majority senior secured lenders appointed Receivers to Twinza on 19 February 2025. On the day of this appointment, the company entered into a standstill agreement and signed the initial scheme proposal. Among other key features, the scheme proposed a compromise of approximately 92% of the company's senior debt in exchange for shares in the company – a classic deleveraging by debt for equity swap.

The scheme's objective was to provide a sustainable framework for Twinza's continued operations and the repayment of the senior debt, as well as to enable Twinza to continue as a going concern and to advance the Project.

Although the scheme creditors approved the initial scheme at the creditors scheme meeting, with 100% by value and by number present and voting (either in person or by proxy) voting in favour of the scheme, the scheme's approval by the Court was contested by a group of objectors who claimed to have an interest in the scheme as shareholders or holders of convertible redeemable preference shares (CRPS). Twinza bore the onus of establishing that its financial position meant its shareholders had no economic interest in the scheme that would entitle them to vote in relation to the scheme or otherwise participate in its approval.

Despite close consideration of the expert evidence relied upon by Twinza, the Court was not satisfied at the approval hearing that Twinza had met its onus, and declined to approve the scheme.

Was the expert evidence properly formed?

Yes – the Court observed "that the [expert] report was prepared for a specific purpose (and in accordance with identified guidelines), being to include in the scheme booklet so as to assist the scheme creditors in assessing how they should vote in relation to the proposed scheme".

The Court further observed "that [it] [did] not find (and [did] not need to find) that there was any failure on the part of BDO to comply with those standards and guidelines. On the contrary, on the face of the report considerable care and expertise was deployed".

Put another way, the independent expert had properly formed opinions in accordance with the standard required by ASIC in Regulatory Guide 111. The guide promotes the compilation of concise reports, setting out assumptions, methodologies and justifications, but not detailed financial information to an audit standard (RG 111.110) nor to provide working papers used to form opinions in the report.

Having another crack at the expert evidence

The Court considered that once objections to the information relied upon by the expert to draw value-opinions raised, further evidence needed to be led to show the underlying information was correct.

In many aspects this is an unremarkable approach given it is a practical application of the Briginshaw principle; that is, once the underlying factual matrix is challenged, the evidential onus shifts to the proponent relying on the valuation to establish that the factual matrix is correct. As a proposition of law, or evidence, this is undoubtedly correct.

That said, late challenges self-evidently occur after inclusion of the expert evidence in scheme materials, after approval of despatch of that evidence at the first court hearing and after creditors have cast votes in relation to the scheme on the basis of that evidence. A logistical nightmare can ensue, as was the case in Boart Longyear and now Twinza as independent experts are asked to audit material and to reevaluate opinions.

When this happens in the highly charged case of a financially failing company, the reader can readily appreciate the chaos that presents itself to the Court. In the case of Twinza, that chaos could not be resolved in the relevant time period, hence the result in relation to the first scheme.

Twinza and its lenders make a big decision

Plainly, Twinza and its lenders were at a crossroad. One option would have been to end the standstill, with voluntary administration and some form of controlled equity transfer an inevitable next step. For various reasons, this was not the course pursued by Twinza and its lenders. Instead, those parties embarked on negotiations, including with the objectors. A deal was done such that a new creditors' scheme was proposed which was either supported or not opposed by the former objectors.

So what did this new scheme include? There were six key elements:

1. the senior debt owed by Twinza to the senior lenders under the syndicated facility agreement was reduced from approximately US$387 million to US$30 million (the same financial structure proposed in the first scheme);

2. in exchange for the partial release of the debt, new ordinary shares will be issued in Twinza so that senior lenders will hold 83% of the post restructured capital base (as opposed to 85% contemplated by the first scheme);

3. the conversion of CRPS outside the scheme process, essentially so the CRPS holders would become holders of an aggregate of 10% of the post-restructured capital (the percentage holding unchanged from the first scheme). Existing shareholders will retain the remaining 7% of the shares on issue (as opposed to 5% contemplated by the first scheme) following implementation of the scheme;

4. reduced interest rates and an extended maturity date provided for in the syndicated facility agreement in relation to the remaining debt (similar to the first scheme);

5. provisions to ensure that the scheme will have no effect on employees, or on List A Creditors. There were some minor modifications here between the first and second schemes, the concept of preserved rights for identified (known) creditors remaining unchanged; and

6. preservation of certain director fees and subordinated payments, with payments to occur three months post-FID.

The scheme provides for third party releases to the extent permitted by law, by and in favour of the scheme creditors, the directors and officers of Twinza and the Obligors (as defined). This is consistent with recent creditor scheme cases which confirm that creditors schemes can provide releases in favour of third parties, so as long as there is a sufficient nexus between a release by the creditor of the claims against the third party and the relationship between the creditor and the scheme company; and there must be some element of give and take such that the creditors receive something in return for the benefit conferred on the third party.

ASIC provided a definitive letter confirming that the scheme did not raise Chapter 6 avoidance issues, because the scheme as proposed, being a debt for equity swap, could not have been effected under the provisions of Chapter 6 of the Corporations Act.

The Court, exercising the general powers under section 1319, abridged the usual 10 business days' notice period required for notice of a creditors' meeting under the Insolvency Practice Rules, but more particularly exercising the power under r 2.15 of the Federal Court (Corporations) Rules 2000 (Cth) to direct that, relevantly, Div 75 of the Insolvency Practice Rules does not apply to the convening of the scheme meeting in this case. Relevantly, all scheme creditors had consented to a shorter notice period between the first Court hearing and the scheme meeting.

Yet to be resolved: treatment of convertible redeemable preference shareholders in the statutory framework

Another novel aspect of the first scheme would have enabled CRPS holders to be treated as subordinate claimholders, relying on section 411(5A) and the broad definition of subordinate claim in section 563A(2) of the Corporations Act 2001 (Cth).

In judgment in relation to the first scheme, the Court observed a "prima facie attraction to Twinza's submission that, having regard to the breadth of the definition of 'subordinated claim', all claims of the CRPS holders, including any that might be identified, isolated and considered rights that arise purely as a member, are capable of falling within its terms". The Court added that

"the cancellation of the CRPS envisaged by the scheme involves… a confiscation, taking or extinguishment of property. It is not merely a dilution or subordination. Great care must be taken when considering the scope of the statutory provisions to ensure that such a step was contemplated or would otherwise fall within the meaning and operation of section 411(5A) and section 563A. These are issues that proponents of a creditors' scheme may need to take into account in considering the elements of a scheme, until an occasion arises for the court to determine as a decisive issue the question of cancellation of preference share holder rights."

By the new scheme, CRPS holders' rights were to be converted to ordinary shares in Twinza simultaneously with implementation of the Scheme, by way of an out-of-court process whereby the CRPS holders agreed to vary their rights under the CRPS instruments themselves to give effect to this outcome. These questions no longer required consideration by the Court.