NEWS & INSIGHTS
RESTRUCTURING FOR CROSS-TASMAN SUCCESS
Joe Hayes of Wexted, together with Josh Cairns, Orla McCoy and Scott Abel participated in a panel at the Banking and Financial Services Law Association conference on the Gold Coast in September, focussed on distressed workouts and the collective Australian and New Zealand approaches to managing insolvent trading and wrongful trading risks.
WHAT IS THE BFSLA?
The Banking and Financial Services Law Association connects people in banking, financial services and insolvency law, providing thought leadership through connecting with practitioners, academics, regulators and members of the judiciary. Its Members are lawyers and insolvency practitioners from law firms, banks, financial institutions, trustee companies and insolvency firms at all stages of their career. The BFSLA run an annual conference for Members.
Wexted were delighted to be asked to participate. The Program was varied, covering a range of banking topics. From a restructuring perspective the conference included sessions on insolvency law, cross border issues, PPSA, secured creditor interests, de-banking and distressed workouts.
About the panel
The Panel also included Australian Restructuring Lawyer Orla McCoy, New Zealand Restructuring Lawyer Scott Abel and Australian Safe Harbour Advisor Joe Hayes, and was chaired by New Zealand Restructuring Lawyer Josh Cairns.
The group developed a case study about a business facing a gradual, then sudden crisis facing a listed company in Australia, with a NZ subsidiary, a Bank syndicate and other lenders and stakeholders.
"We focus on the positives and develop a relationship with the Chairman, as building a bridge with equity is always important. Making sure you have a great relationship with the Management team and a Bank Advisor is also critical – debt and equity may not align well so accept differences…. A Course of Action is a roadmap to a better place. For me, for a listed company, it's about remaining quoted. Can we get the Board comfortable about going concern, get a group of banks who want to support us, tell a story about the future, and get market support."
Joe Hayes
| Wexted
| Partner
The Hypothetical
The session focussed on a comparative analysis of New Zealand’s wrongful trading regime and Australia’s insolvent trading laws, with practical strategies to assist directors to steer financially distressed businesses through turnaround scenarios. The facts included:
- A listed Australian listed entity, that acquired a NZ based business;
- The business increased its leverage for growth, supported by solid earnings and shareholder support via several capital raises,
- Lending was provided by a syndicate of Banks including three Australian Lenders, three foreign Lenders. and a NZ based asset lender not aligned to the Syndicate.
- Whilst earnings were solid, analyst reports were weakening and equity support was drifting;
- An equity fund took a strategic stake, resulting in a new director with a different outlook and background joining the Board;
- A significant disruption occurred, resulting in a sudden change in Government regulation meant the business could not service clients;
- Company undertook an immediate and urgent business and forecast review;
- There was significant earnings and staff disruption, and a New Zealand knock on effect;
- Share trading was suspended, with emerging going concern issues and an urgent need for a capital placement;
- Lenders required reporting on covenant compliance and amortisation plans.
While informal mechanisms for dealing with an insolvency or near-insolvency situation can be used, these must accord with directors' duties, the scheme of the Act and the salient features of the available formal mechanisms, such as ensuring all affected creditors are consulted and agree with the course of action proposed. It would be possible to make an arrangement with secured creditors for continued trading, in order to increase the amount available for the unsecured creditors. But, if unsecured creditors are not to be consulted, any such arrangement would have to be on the basis that all existing debts and future debts arising from continued trading, including any GST, would be met."
Scott Abel
| Buddle Findlay
| Partner
Key issues considered
- The issues as between Australian Safe Harbour and the issues facing New Zealand directors in relation to the duties;
- The discussions expected with the directors as the Company seeks to navigate these challenges;
- Director liability and reputations as directors in each jurisdiction;
- What is a Course of Action and a Better Outcome;
- The extent of a Safe Harbour mandate and cross border reliance on the Australian regime;
- The impact of the recent New Zealand cases on Directors duties;
- The interaction between the Company and Bank Advisors ;
- The issues facing the New Zealand Directors and business and Relevant Liability Letters that might protect the NZ Directors from reckless trading.
- The enduring obligations of restructuring advisors;
In terms of the duties to the company, when a company is facing a financial crisis, the directors’ duties to the company require them to take into account the interests of the company’s creditors. You are on notice that steps need to be taken to avoid it becoming insolvent and if things continue the way they are going, that could happen. The directors need to come up with a plan to correct the decline.
Orla McCoy
| Gilbert & Tobin
| Partner
Conclusions:
The Panel determined that Australian Law provided a sound basis for balanced restructuring, and the recent New Zealand cases (Mainzeal/Debut) were instrumental in raising the profile of cross border restructuring and the need to develop a more legitimate restructuring protocol. The Mainzeal case affirms the Supreme Court’s finding in Debut Homes, that it will be a breach for directors to continue trading a company where there is a risk of loss to creditors, even where trading on for a period could improve the position for some of the existing credit. This is an interesting counterbalance to the Safe Harbour regime in Australia, where the concept of a ‘Better Outcome’ is yet to be tested.
It is clear these matters are gaining increased exposure, as the New Zealand cases require a very structured and detailed approach to the payment of future debts
"The session highlighted the tension between Australian and New Zealand law, and the panel Members – it is clear that the recent developments in insolvency law in Australia and New Zealand are worthy of reflection. The panel covered a series of important and relevant issues such as Letters of Liability, Safe Harbour, General duties and relationships, confidence and trust relevant to successful cross border restructuring."
Josh Cairns
| Simpson Grierson
| Partner
Panel Bios
Josh Cairns
Josh leads Simpson Grierson Wellington's banking and finance national practice group. He advises on both corporate finance transactions and corporate restructuring and insolvency engagements. He acts for a range of financial institutions and corporates on financing transactions, and has a particular focus on the infrastructure sector. Based in Wellington, Josh also regularly acts for central and local government entities on complex projects and transactions.
Josh is Director of the Banking and Financial Services Law Association (BFSLA), and a member of the Restructuring, Insolvency & Turnaround Association of New Zealand (RITANZ).
Orla McCoy
Orla is a partner and Co-Head of our Restructuring + Insolvency practice and a fellow of INSOL International. She has over 20 years of local and international experience, and has acted on some of the largest insolvency, distressed workout, and debt restructuring matters in Australia. Orla is widely regarded as one of the leading practitioners in her field. Clients, including corporates, insolvency practitioners, the Commonwealth Government and financial creditors seek Orla’s expertise on both debtor and creditor-side corporate restructuring, formal insolvency appointment and Personal Property Securities Act related matters. Orla has acted on a number of Australia’s ground-breaking and legal-precedent setting engagements.
Scott Abel
Scott specialises in insolvency and debt restructuring, corporate and secured finance, and specialist personal property security and credit recovery advice. He advises and has acted for domestic and foreign banks, financial institutions, insolvency professionals and other organisations on receiverships, liquidations, administrations and workouts.
He is particularly recognised by the market for his leading expertise in Personal Property Securities (PPS) law, often advising banks, insolvency practitioners and other firms and barristers on complex PPS matters.
Joe Hayes
Joe has over 25 years’ experience in the sector, including 13 as a Partner at KPMG and McGrathNicol, before forming Wexted Advisors on 1 July 2017.
Joe is highly skilled working with and advising parties with diverse objectives or disputed positions to achieve best outcomes. Working closely with management, boards, lenders and owners, Joe has undertaken many large and complex restructuring and insolvency cases over a long period. He also has significant expertise in the supervision of complex litigation and the successful settlement of multi-party disputes and has given expert evidence in court proceedings.
Published 4th November 2024
By Joseph Hayes
Partner