27 October 2020: The current economic environment presents an opportunity for Australian businesses to transform their operations through strategic restructures and emerge even stronger, say Clayton Utz Restructuring and Insolvency (R&I) specialists in the fresh-look 2020 edition of the firm's market-leading From Red to Black publication.
From Red to Black explores hot-button R&I issues and their wider industry impacts, as well as important technical developments off the back of recent court decisions.
The Federal Government's COVID-19 temporary relief measures and how they are influencing R&I trends is the key theme of this year's publication, which also examines the R&I opportunities in key sectors such as aged care and energy and resources.
Scott Sharry (partner, Brisbane) and co-authors write that while the Government's reforms are arguably interfering with the natural and unavoidable process of "creative destruction", they also present a "unique opportunity for businesses to take stock and, with appropriate support, effect a successful restructure". This is particularly the case, they argue, given that private equity firms are scouting acquisition opportunities following steady growth and low interest rates. However, they also call for the relief measures to be lifted "as soon as reasonably possible in order to allow the natural economic process of creative destruction to occur".
On the question of whether there will be a "flood" of formal insolvency appointments once the Government's support measures are wound back, Jennifer Ball (partner, Sydney) suggests that it's too early tell despite conventional wisdom pointing to that outcome as inevitable.
While the Government's small business insolvency reforms (due to take effect on 1 January 2021 after the temporary relief measures end) may help some businesses to stay afloat, others may simply be in too late a stage of financial distress to take advantage of the new legislation.
The reforms enable businesses with debts under A$1 million to develop a restructuring plan with a specialist adviser within 20 days which, if approved by creditors, means the business can continue trading.
Alistair Fleming (partner, Perth) shines the spotlight on the aged care industry, a sector he says is "ready for new thinking and innovative approaches" in the face of smaller profit margins and market consolidation. He predicts an increased reliance on highly skilled insolvency practitioners to utilise insolvency regimes such as voluntary administration to help facilitate restructures and business sales.
In other insights, Cameron Belyea (partner, Perth) looks at special situations funding in the energy and resources sector, Nick Poole (partner, Melbourne) examines the issues surrounding priority creditors and circulating interests, while Orla McCoy (partner, Sydney) explores the important question of who the true legal employer is when a corporate group becomes insolvent.
Clayton Utz R&I national practice group leader Timothy Sackar - who is leading the Clayton Utz team advising Virgin's administrators, Deloitte - said 2020 would be remembered as an "extraordinary year" and a "confronting and sobering lesson for some on how to manage a company with zero revenue".
In Australia and abroad, markets and sectors in 2020 have waded through a pandemic, political pressures and economic volatility on a global scale. But that doesn't mean we cannot see some general trends (and opportunities) emerging in restructuring and insolvency.
Of what's in store for the future, he observes:
At some point relief packages will end and companies will be forced to face their own true profitability – or mortality.