Vol 12 (2015) - Issue 2

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Promoting a Culture of Corporate Restructuring in Australia: Some Suggestions for Reform

Introduction
Billionaire mining magnate and Member of the Australian Parliament, Clive Palmer, appears set to campaign for reform of Australia's insolvency and restructuring regime. But while many industry commentators may laud Mr Palmer's initiative, they are unlikely to agree in principle with his chosen method.
Mr Palmer has alluded to the adoption of a system similar to that of Chapter 11 of the United States Bankruptcy Code. Precisely what this change would look like is unclear at this stage, but it is likely to involve the introduction of a paradigm-shifting ‘debtor in possession' restructuring regime in Australia.
Mr Palmer is not alone. As recently as June of this year, the Australian Senate, in a report released by its Economics Reference Committee, has recommended that the government consider implementing features of the Chapter 11 regime in Australia. Suffice to say, the question of the state of Australia's corporate insolvency laws and how they might be made more efficient is a vexed one and is due for proper consideration.
The Chapter 11 system is in many ways fundamentally at odds with Australia's creditor-focused corporate insolvency regime. Indeed, adoption of a system based on the US model has been tabled a number of times in Australia, but steadfastly rejected by key industry players on various grounds, including:
(a) that the rehabilitation of a financially distressed company should be assessed and controlled by an independent and suitably qualified professional;
(b) that creditors are likely to perceive the process as lacking independence and, accordingly, without regard to their interests; and
(c) the Australian judicial system does not have the resources to administer and control a debtor in possession restructuring system.

However, it is widely recognised that Australia's corporate insolvency regime is draconian in certain respects and fails to promote a ‘restructuring culture' among company controllers. As a result, practitioners and industry experts have previously pushed for a number of changes to the Australian system, including creating a 'safe harbour' for company directors attempting to explore and implement options for restructuring a company before a formal insolvency appointment is required.