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The Australian economy is swimming in dangerous waters.  Many mid-market Australian companies are going to face the “great white” head on when it comes to refinancing.  A better system must be introduced that allows directors to make considered decisions for the benefit of creditors and shareholders.  The administration process must ensure better returns for creditors and greater likelihood of ongoing employment for staff.

Australia’s leading professional bodies the Turnaround Management Association of Australia (TMA), Law Council of Australia and the Insolvency Practitioners Association of Australia jointly support the introduction of a modified business judgement rule.
The existing law, without the new “safe harbour” for directors, impedes and prevents business workouts whilst limiting options for directors to deal with financial distress.

The proposed business judgment rule strikes the appropriate balance between creating certainty for directors and maintaining business value for the benefit of creditors, shareholders and employees.

How do we stop the sharks from circling?

The TMA believes the “safe harbour” does not go far enough; additional legal changes are required to protect creditor and shareholder value, protect jobs and stop the sharks from circling.

The changes that are required:

•  A moratorium on insolvency clauses (ipso facto clauses) in contracts.  Creditors and suppliers cannot terminate contracts with companies in administration merely because of the appointment of an administrator;
• Creditors can vote to shorten an administration period to 5 days to enable a quick sale/restructure of a business, thus reducing losses in business value through an administration period and administration costs;
• Potential administrators will not be disqualified from being appointed as an administrator because they provided services or advice prior to their appointment.

With the sharks no longer a threat what will this mean?

• Potential administrators can investigate and develop advanced plans to restructure or sell businesses prior to their appointment
• If the business does go into administration, there is likely to be a greater return for creditors because:
       *   Creditors can accept a quick sale/restructure if they think it is in their interest; and
       *   Administrators can sell a “business” rather than assets as contracts in a business will remain in place (providing all payment and other terms are up to date).
• Jobs are preserved when businesses are sold rather than assets being sold

 The Turnaround Management Association is the world’s largest international professional body providing a forum for professionals practicing in the field of “Turnaround Management” – restoring value to struggling enterprises and avoiding terminal insolvency.

Our membership is predominantly made up of professionals practicing in turnaround management, law, insolvency, accounting, management consulting, banking, finance and private equity. With over 300 members in Australia and over 9000 internationally in America, United Kingdom Brazil, the Czech Republic, Finland, France, Germany, Italy, Japan, the Netherlands, Southern Africa, Spain, Sweden, and Taiwan.

For more information or a direct quote please contact Adrian Loader, TMA President.  Adrian is also Managing Director of Allegro Private Equity, a $300m private equity fund.
Phone: 1300 042 811 or email info@turnaround.org.au.