Written by Robert Kite in August, 2008

The dust is now settled, and we are well and truly under way in the year 2008. The beginning of the year heralded new changes in the operations of the Corporations Act as regards to insolvent entities.

It is one of the biggest reforms the Corporations Act has seen for Insolvency Law in 15 years.

Many aspects of Insolvency Law have been amended as a result of the changes which commenced at the start of the year. In this two part article, I will be discussing the impacts of such changes with respect to Voluntary Administrations, and Creditor’s Voluntary Liquidations.

The purpose of this article is to discuss such changes with respect to Voluntary Administrations.

One of the major concerns under the previous legislation was the stringent time frames, and the inability of the appointed Administrators, to obtain all the necessary information, to enable detailed reports to be forwarded to Creditors, and the time frame in which such notices are received.

As a result of the new provisions, the time frames in which to hold both of the Meetings of Creditors during the course of the Voluntary Administration have now been extended.

The purpose of the first Meeting of Creditors was to consider the appointment of a Committee of Creditors and to appoint an alternate Administrator should Creditors wish to do so. As this meeting was originally held 5 business days after the appointment of the Administrator, there was little time in which Creditors were able to receive the notice of the meeting, and to seek an alternate Administrator for the Company.

This has been alleviated by the new amendment such that the same meeting is now held 8 business days after the start of the Administration. This extra time allows for additional notice to be provided to Creditors in order that they may seek the necessary advice from their advisors.

At the second Meeting of Creditors, amongst other things, Creditors were able to decide the future of the Company, ie, the continuation of the Voluntary Administration by way of adjourning the meeting, placing the Company into Liquidation, resolving the Company execute a Deed of Company Arrangement, and/or resolve that the Administration end.

Under the previous requirements, this meeting was to be held, at an absolute maximum of 27 days following the appointment of the Administrator (excluding periods in December and proximate to Easter) unless an extension was granted by the Court.

In addition to that restrictive timeframe, the Administrator was required to issue a detailed Report to Creditors advising of his/her belief as to the best options of Creditors in order that such a meeting could be convened which was to be dispatched to Creditors 7 days prior to the Meeting. That is, by the 20th day, the Report had to be sent out.

Accordingly, the Administrator, only had 20 days in which to get on top of the trading of the Company, conduct all necessary investigations and issue a very detailed report to Creditors regarding their options regarding the Company. Such time constraints in some examples, have left Administrators with insufficient time to enable to them to sufficiently consider what may be in the best interest of Creditors with respect to accepting any proposed Deed of Company Arrangement, or the Liquidation of the Company.

Accordingly, in these instances, the recommendation of the Administrator may well have been that the Meeting of Creditors be adjourned, to enable him or her to conduct further investigations to determine the best interest of Creditors.

The recent amendments of the Corporations Act requires that the second meeting of Creditors is now held within approximately 41 days of the appointment of the Administrator (with exceptions for appointments in December and proximate to Easter).

As can be seen from the above, the additional time provided to Administrators to enable them to complete their investigations and to take a more informed view as to the best interest of Creditors, should assist in not only providing the necessary detailed Reports to Creditors, but in some circumstances, prevent the need for the adjournment of Creditors meetings due to the lack of time in which to gather the necessary information to make any such determination.

Secured Creditors

Once the Company is placed into Administration, Secured Creditors only have a limited amount of time in which they can seek to appoint a Receiver, or try to attempt to recover their Secured Property subject to their charge (the matter which is being discussed here is in relation to a secured creditor with a charge over the whole or substantially the whole of the assets of the company).

Under the previous provisions of the Corporations Act, such a secured creditor was only able to seek to recover such security within ten business days after the date on which the administrator advises such creditor of his or her appointment, this period has now been extended to 13 days.

Advertisements

The recent amendments have also removed the requirement to place certain advertisements which will assist in reducing the costs associated with certain aspects of Voluntary Administrations.

Remuneration

New amendments to the Corporations Act require further disclosure by Administrators (and Liquidators) regarding the costs to be incurred in the attendance to these matters.

The above is a brief summary of the recent amendments to the corporations act as to the effect is has on Voluntary Administrations. In the subsequent article, I will discuss the impact of the recent amendments to Creditors Voluntary Liquidations.