Top 3 Restructuring Tools
Finance partner, Ian Dorey, shares the top 3 restructuring tools assisting companies to get through tough times.
In the last 12 months or so we have seen some advances in the area of restructuring to allow companies some assistance to get through the tough times.
So what do we have available:
- The first tool is the Safe Harbour Regime which came into existence from 19 September 2017 designed to provide a carve out for directors against Australia's strict insolvent trading regime. There are some preconditions that have to be met and need to continually be met to allow the company to rely on this regime however it can be seen as a tool to allow both directors and possible white knights some comfort.
- The second is the Stay on Ipso Facto clauses which effects contracts entered into after 1 July 2018. An Ipso facto clause is one that upon an insolvency event occurring a contract can be immediately terminated. Often for a company its main asset will be trading contracts and this Stay on Ipso Facto clauses will allow such assets to be protected for the benefit of all creditors. The Government did just before 1 July issue directives about what contracts were exempt from such a stay.
- The third tool is that of holding Deeds of Company Arrangement or Holding DOCA. Although not referred to in the Corporations Act, this type of DOCA has been used previously and now has the endorsement from the High Court. Under a Holding DOCA there is no distribution to creditors and it allows the administrator time to carry out further investigations or explore options for other means of restructuring a company without the need for court intervention.
The other advantage is that this allows a status quo to be maintained. Obviously this course of action needs the support of creditors as all DOCA's do.
Time will tell how effective these tools will be, however, turnaround and insolvency professionals should appreciate having these in their "kit bag".
Care, still needs to be taken and good advice around these tools, remains a "vital cog" in the restructuring of companies.