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Insolvency and Reorganization Law
Insolvency and Reorganization Law Definition
The legal framework for insolvency and reorganization work in Australia is principally governed by three pieces of Federal legislation, namely the Corporations Act for corporations, the Bankruptcy Act for individuals, and the Personal Property Securities Act which provides for the registration and enforcement of security interests in personal property. These laws operate across all States of Australia, and are supplemented by the laws of each State, such as employment and work practices laws, laws regulating property transactions and securities, and laws regulating commercial transactions.
In Australia there is no equivalent to the Chapter 11 process. Instead, formal corporate restructures are normally conducted through the voluntary administration process. This is a non-judicial process and is primarily regulated by creditors voting at meetings of creditors convened by voluntary administrators appointed by the directors of the company in administration. Speed of turnaround is the primary advantage of this process, enabling control of the companies to be returned to creditors if their proposal is agreed to by the majority of creditors, but it does have limitations, in particular in dealing with the claims of all stakeholders, and at times a scheme of arrangement, involving court approval, is the only means to achieve the desired outcome. Nevertheless, the process has been used successfully to deal with very large administrations, and has shown itself to be very flexible.
There also is an increasing trend for informal turnaround and restructure options, with secured creditors entering into moratorium arrangements in preference to appointing receivers. This has the advantage of allowing the business to restructure its business operations in a controlled environment, with the ongoing support of the secured creditors, and maximizes the return to those creditors. This work is still at an embryonic stage of its development, and is yet to be properly regulated.
Invariably, there is a great deal of litigation associated with businesses who experience insolvency, and most practitioners are well-versed in conducting litigation on behalf of companies, creditors, directors and liquidators and other insolvency practitioners. These range from direct insolvency type claims, such as insolvent trading, uncommercial transacton or preference claims, to claims dealing with secondary issues such as breach of contracts, negligence and auditor claims, and breach of director duties claims. Practitioners therefore tend to have a broad range of experience across many areas of practice, and typically will work with other practitioners in their firm to bring in their expertise.
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