Appendix I - The Australian Approach to Business Rehabilitation
The Australian voluntary administration procedure applies to any insolvent company registered under the Corporations Act 2001. The procedure was designed to encourage greater use of company re-organisation as opposed to winding-up. One of the reasons it had been suggested that companies were not using the previous re-organisation procedures was because they were seen as being expensive, inflexible and cumbersome. This made re-organisation inefficient, particularly for smaller companies. The current Australian procedure was designed with the aim that it would be:
- Capable of swift implementation;
- As uncomplicated and inexpensive as possible; and
- Flexible, providing alternative forms of dealing with the financial affairs of the company.31
The Australian voluntary administration regime has been in operation since mid 1993. Voluntary administration is initiated by appointment of an administrator in one of three ways:
- By a resolution of the board of a company (s 436A);
- By a chargee over all or substantially all of the property where the charge is enforceable (s 436C); or
- By a liquidator (s 436B).
Once appointed, the administrator has control of the company's business, property and affairs and acts as the company's agent (s 437B). During that period, its officers cannot exercise any function, except with the administrator's written approval (s 437D).
The administrator must notify a chargee whose charge relates to all or substantially all of the property of a company of their appointment. The chargee is then permitted to enforce the charge within 10 business days of the administrator's appointment (s 441A).
When a company is under administration, there is a stay on actions against the company and its property. This applies to:
- Secured creditors (with limited exceptions) (s 440B);
- Owners or lessors of property possessed, used or occupied by the company with limited exceptions (s 440C); and
- Unsecured creditors (s 440D).
The stay prevents:
- The company from being wound up voluntarily (s 440A);
- Charges from being enforced (s 440B) (except charges over all or substantially all the property of a company that are enforced within the 10 day decision period (s 441A), charges where the enforcement action had begun before the administrator was appointed (s 441B), and charges over perishable property (s 441C);
- An owner or lessor from recovering property which is being used by the company (s 440C) (except where rights of repossession had already begun to be exercised (s 441F), or where the property is perishable (s 441G)); and
- Proceedings against the company and any enforcement action in relation to proceedings already taken (s 440D, 440F).
The administrator must hold a meeting of creditors within 5 days of appointment (s 436E). At this meeting the creditors decide whether to appoint a committee of creditors and also have the opportunity to replace the administrator with their own appointee (s 436E).
Within 21 days of the appointment of the administrator, the administrator must convene a meeting of creditors to decide the company's future (s 439A). With the notice of the meeting, the administrator must give the creditors a report about the company's business, property, affairs and financial circumstances. The administrator must also provide a statement setting out his or her opinion with reasons on whether it would be in the creditors' interests for (s 439A):
- The company to execute a deed of company arrangement;
- The administration to end; or
- The company to be wound up.
If a deed of company arrangement is proposed, the report must also include a statement setting out details of the proposed deed (s 439A).
If the creditors resolve to accept the deed, it must be executed by the company and the deed administrator (s 444B). The administration ends once the company becomes subject to the deed. Deeds are administered by the deed administrator or the company's directors (s 435C).
A deed is binding on:
- All unsecured creditors of the company (s 444D);
- Secured creditors who have voted for the deed (s 444D);
- Owners or lessors of property possessed, used or occupied by the company who have voted for the deed (s 444D);
- The company (s 444G);
- The company's officers and members (s 444G); and
- The deed's administrator (s 444G).
The Court may also order that the deed is binding on secured creditors and owners or lessors of property who did not vote in favour of the deed. It can only do so when it is satisfied that for the creditor to realise or otherwise deal with the security would have a material adverse effect on achieving the purposes of the deed, and that the creditor's interests will be adequately protected (s 444D, 444F).
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