WWW.DISSERTATION.XLIBX.INFO
FREE ELECTRONIC LIBRARY - Dissertations, online materials
 
<< HOME
CONTACTS



Pages:   || 2 | 3 | 4 | 5 |   ...   | 7 |

«SUBMITTED BY: Law Council of Australia Insolvency Practitioners Association of Australia Turnaround Management Association Australia DATED: 2 March ...»

-- [ Page 1 ] --

JOINT SUBMISSION IN RELATION TO

INSOLVENT TRADING SAFE HARBOUR

OPTIONS PAPER

SUBMITTED BY:

Law Council of Australia

Insolvency Practitioners Association of Australia

Turnaround Management Association Australia

DATED: 2 March 2010

SUBMISSION IN RESPECT OF SAFE HARBOUR OPTIONS PAPER

1 SECTION 1 – INTRODUCTION

1.1 This submission is made jointly by the Law Council of Australia, the Insolvency Practitioners Association of Australia, and the Turnaround Management Association Australia, representing the legal, accounting and business advisers whose principal area of practice is insolvency. It is intended to provide the Government with the views and experience of those professionals whose day-to- day practice and business over many years has been in addressing and dealing with the very matters canvassed in the Discussion Paper.

1.2 As major participants in insolvency and turnaround matters, the bodies represented in this joint submission wish to confirm their collective view that limited reform to insolvent trading laws to provide a restructuring safe harbour would be beneficial, and that the adoption of a modified business judgement rule defence would be the appropriate means for achieving this reform. Such a change should be seen as an improvement to, rather than a replacement of, the status quo, as it provides a framework for directors and stakeholders to lawfully pursue proper restructuring opportunities, and encourages early attention to be given to insolvency concerns.

1.3 The parties to this joint submission are as follows:

(a) Law Council of Australia (LCA).The LCA's Insolvency and Reconstruction Law Committee of its Business Law Section, which has participated in the preparation of this submission, is comprised of legal practitioners across Australia who specialise in the insolvency and restructuring field, and includes many of Australia's leading practitioners in this area.

(b) Insolvency Practitioners Association of Australia (IPA). The IPA is the peak professional body representing company liquidators, trustees in bankruptcy, other insolvency professionals, financiers and academics. The IPA and its members necessarily have extensive knowledge of and expertise in insolvency law, policy and practice and in the particular issues of insolvent trading which are the subject of this submission; and (c) The Turnaround Management Association Australia (TMA). The TMA is a not-for-profit organisation comprising professionals practising in the field of "Turnaround Management", aimed at restoring value to struggling enterprises and avoiding terminal insolvency. The TMA's membership is made up of professionals practising in turnaround management, law, insolvency, accounting, management consulting, banking, finance and private equity.

1.4 The parties to this joint submission may wish individually to provide a supplementary written submission addressing additional matters of interest.

2 SECTION 2 – PRELIMINARY MATTERS Importance of restructurings and informal workouts 2.1 Generally speaking, a successful restructuring or informal work-out will resolve the financial position of a company through the private agreement of key stakeholders outside of any formal insolvency process. More common among large enterprises and public companies, a restructuring will involve negotiations between the company and its bankers, bondholders and/or major investors, and can involve the injection of fresh capital from an external source. Alternatively, those negotiations may produce a moratorium on repayment of bank or bond debt pending asset sales, injection of fresh capital, or both. Successful negotiations can produce a restructured balance sheet that returns the company to a state of solvency, or otherwise eliminates the question mark over the company's solvency and may thereby preserve enterprise value, employment and the business as a going concern.

2.2 The significance of this for addressing doubtful solvency is twofold:

–  –  –

Significance of preserving enterprise value 2.3 In a circumstance of financial distress, "enterprise value" may be defined as the value of the company's assets and businesses. Preservation of enterprise value is

important for at least two reasons:

–  –  –

1 By way of amplification, in an informal work-out of a major corporation, it is usually the case that the claims of its financiers are so significant as a percentage of its total liabilities, that it is in their commercial interests to permit the company to continue to trade under agreed funding arrangements while a restructuring is pursued. In such cases, the business continues to operate and trade creditors are paid in the ordinary course of business during the period of restructuring.

–  –  –

2.4 Similarly, where the financial difficulties of the company can be addressed by a reconstruction of the entity's banking facilities or bondholder debt (or by a combination of that and fresh capital), preservation of enterprise value is critical.





Again, the smaller the differential between assets and liabilities, the smaller the gap that the reconstruction needs to address.

2.5 For the above reasons, preservation of enterprise value must be an important public policy goal in dealing with financial distress.

2.6 It is the experience of the practitioners and industry participants represented by this joint submission that formal insolvency appointments can, and often do, cause a destruction of, or diminution in, enterprise value. This can occur (as noted in the

Discussion Paper) in a number of ways, including:

–  –  –

2 The Corporations Act imposes certain time restrictions on the conduct of an external administration. The voluntary administration regime in Part 5.3A of the Corporations Act provides short timeframes for the transition of the company out of administration. Section 477(1)(a) empowers a liquidator to carry on the business of the company, but only insofar as it is necessary for the beneficial disposal or winding up of that business. Also, section 478(1) requires a liquidator to cause the company's property to be applied against its liabilities as soon as practicable after the Court order that it be wound up.

–  –  –

2.7 In circumstances where it is feasible to overcome a company's solvency difficulties by an informal work-out or a restructuring of its balance sheet, it will in most cases be important for this to occur outside of a formal insolvency process.

–  –  –

2.8 The Discussion Paper contains the suggestion in a number of places that a company is either "solvent" or "insolvent". It is acknowledged that chronic or "obvious" insolvency can be readily identified in some companies that have continued to trade. However, in the experience of the practitioners and participants in the insolvency process represented by this submission, the company's state of solvency is frequently not black and white. The following illustrations provide a few

examples of complexities that occur in practice:

–  –  –

2.9 The above represent a few examples in practice of circumstances facing honest, diligent directors. If the directors appoint administrators they risk destroying or substantially diminishing the value of the business. If they do not call in administrators, they risk incurring personal liability for the company's debts incurred in the future, which would usually mean personal bankruptcy for the directors, if found to be liable.

Comparative analysis

2.10 The laws of other countries do not impede proper restructuring attempts by directors in the way that our insolvent trading laws do. A full comparative analysis of laws is contained in the INSOL publication "Directors in the Twilight Zone", but generally speaking, in a circumstance of doubtful solvency the laws of other countries impose an obligation on the directors to have primary regard to the interests of creditors in actions they take in consequence of the financial distress.

This contrasts with Australian law where the overriding insolvent trading prohibition compels directors to place the company into administration where they cannot form the requisite view as to an expectation of solvency, even in circumstances where the interests of creditors might be better served by an informal work-out. There is no flexibility at all in the law as it presently exists.

3 SECTION 3 - INSOLVENT TRADING LAW - MAINTAIN THE STATUS QUO OR

INTRODUCE A RESTRUCTURING SAFE HARBOUR?

–  –  –

3.1 The issues of principle raised in the discussion paper can be seen to engage a

number of different public policy considerations, including:

–  –  –

3.2 Questions surrounding the balance to be struck between preventing abuse and curtailing honest behaviour, and between enhancing or diminishing enterprise value, are not new. As far back as the introduction of the first modern insolvency

–  –  –

3.4 The two above passages go to the heart of the policy issues raised in the discussion paper. As observed in 1883, Parliament must endeavour "to diminish the number of wrecks". And as observed in 1925, the policy objective of deterring some instances of wrongdoing must be balanced with the fetters it places on "honest business" and the damage it can do in consequence.

3.5 In this submission, five principal policy reasons are advanced as to why there

should be a safe harbour defence to insolvent trading liability. They are:

–  –  –

3 Westminster Hansard, 19 March 1883, col. 817.

4 Report of the Company Law Amendment Committee appointed by the Board of Trade on 19 February 1925.

–  –  –

3.6 It is also important to bear in mind that to the extent that a refinement to the law in this area will enable some companies to be saved through a restructuring or informal workout, this will result in the protection of employment and reduce job losses.

First policy reason - The existing law, without any safe harbour, can impede or prevent proper attempts at informal workouts 3.7 No other major Western economy has laws that operate in the same manner, and with the same severity, as Australia's insolvent trading laws.5 If there are grounds for suspecting that the company is insolvent and the director is unable to form an expectation that it is in fact solvent, the director faces personal liability for all of the company's debts incurred after that date. In almost all cases, this would mean personal bankruptcy for the director. A dishonest breach of the provision renders the directors liable to imprisonment for up to 5 years.

3.8 Faced with these consequences, honest, diligent directors will ensure that they do not breach the law. For the reasons explained earlier in this submission at paragraphs 2.8 - 2.9, the question of a company's solvency frequently is not black and white, particularly with regard to large enterprises. If the solvency of a financially distressed company is uncertain or incapable of precise determination, it follows that it may be difficult for the director to form the necessary positive expectation that the company actually is able to pay all its debts as and when they fall due. Thus, not only will honest, diligent directors of companies that are actually insolvent place them into administration, but also there will be directors who feel compelled to do the same thing where the solvency is simply brought into question, because of the absence of their ability to form their positive expectation of solvency.

3.9 Moreover, there is a lack of flexibility with the current insolvent trading law. Once the operation of the law is triggered and a director is unable to form a positive expectation that the company is solvent, the director must cease incurring debts, with the likely result that administrators are appointed. This is so even though professional advice suggests it may be in the best interests of creditors that the company explore an informal workout or restructuring. The adverse implications arising from this inflexibility can be illustrated in several ways.

3.10 There are many examples of directors citing the insolvent trading laws as a reason for the appointment of administrators where a restructuring or informal workout was available to be pursued.

3.11 One example is the Henry Walker Eltin group, where the directors, citing concerns regarding insolvent trading liability, placed the company into administration.

5 See paragraph 2.10 of this submission and the INSOL publication, "Directors in the Twilight Zone".

–  –  –

3.12 In many of the recent spate of corporate failures associated with the GFC, insolvent trading concerns have been cited by directors as a significant or determining factor in their decision to appoint administrators.6

3.13 This is not to say that a restructuring would have been feasible in all or, for that matter, most of the matters. That is not to the point. Of significance is the fact that the option of a restructuring or informal work-out is simply not available to be pursued when directors form the view that the insolvent trading law obliges them to make a formal appointment. There are many cases like Henry Walker Eltin where the formal appointment has been considered premature. No doubt in other cases, no attention was given to the issue of a restructuring as this was simply not an option given insolvent trading concerns.

3.14 It is the experience of practitioners and participants represented by this submission that the relevance of the above observations extends to companies of a smaller size as well as large enterprises and public companies.



Pages:   || 2 | 3 | 4 | 5 |   ...   | 7 |


Similar works:

«THREE ESSAYS ON FOOD STAMP PROGRAM PARTICIPATION AND POVERTY DYNAMICS Sibel Atasoy Dissertation submitted to the faculty of the Virginia Polytechnic Institute and State University in partial fulfillment of the requirements for the degree of Doctor of Philosophy in Economics, Agriculture and Life Sciences Bradford F. Mills, Chair Christopher F. Parmeter, Co-Chair Jeffrey R. Alwang Everett B. Peterson Suqin Ge September 25, 2009 Blacksburg, Virginia Keywords: Food Stamp Program, Poverty Dynamics,...»

«Funding the East Midlands A guide to finding Funding, Investment and Support for the VCS and Social Enterprises Follow us @EMFundingForum November 2013 Welcome to the East Midlands Funding Forum The East Midlands Funding Forum exists to provide a space for funders across the region to share experiences, knowledge, expertise and best practice. One of the key themes in recent discussions has been the challenges faced by the voluntary and community sector on the ground. The biggest of these...»

«Nationalekonomiska institutionen Kandidatuppsats Handledare: Yves Bourdet Datum: 2007-02-02 Tying under EC Competition Law The Tetra Pak II Case Daniel Gustafsson Abstract This paper discusses tying, a practice which, when used by large firms, has in the past been treated as anti-competitive and therefore undesirable. In the European Community, tying has been assessed in only a few court cases. The so called Tetra Pak II case was one such case. There, the court held that the defendant, Tetra...»

«State of Georgia Department of Transportation Signing and Marking Design Guidelines Signing and Marking Design Guidelines 9/22/2016 4.0 Atlanta, Georgia 30308 This document was developed as part of the continuing effort to provide guidance within the Georgia Department of Transportation in fulfilling its mission to provide a safe, efficient, and sustainable transportation system through dedicated teamwork and responsible leadership supporting economic development, environmental sensitivity and...»

«Personal Capital Gains or Rate of Return Taxation? A Survey of Theory in Reform Proposals David White WORKING PAPER 05/2015 April 2015 Chair in Public Finance Working Papers in Public Finance Victoria Business School The Working Papers in Public Finance series is published by the Victoria Business School to disseminate initial research on public finance topics, from economists, accountants, finance, law and tax specialists, to a wider audience. Any opinions and views expressed in these papers...»

«LYME REGIS TOWN COUNCIL STRATEGY AND FINANCE COMMITTEE MINUTES OF THE MEETING HELD ON WEDNESDAY 7 SEPTEMBER 2016 Present Chairman: Cllr Mrs M. Ellis Councillors: Cllr J. Broom, Cllr R. Doney, Cllr D. Hallett, Cllr P. Hicks, Cllr B. Larcombe, Cllr S. Larcombe, Cllr O. Lovell, Cllr S. Miller, Cllr Mrs C. Reynolds, Cllr J. Scowen, Cllr D. Turner, Cllr S. Williams Officers: Mr J. Wright (town clerk) and Mr M. Green (deputy town clerk) 16/31/SF Public Forum Mrs J. Whittington Mrs J. Whittington,...»

«Nir Halevy Graduate School of Business Stanford University 655 Knight Way, Stanford, CA 94305 nhalevy@stanford.edu Positions 2015— Associate Professor of Organizational Behavior (untenured) Graduate School of Business Stanford University 2013—2015 Assistant Professor of Organizational Behavior Fletcher Jones Faculty Scholar for 2014-2015 Graduate School of Business Stanford University 2010—2013 Acting Assistant Professor of Organizational Behavior Graduate School of Business Stanford...»

«The Sinkholes of Global Finance: Racialization and Cosmopolitanism among Financial Elites in Malaysia Laura Elder Ph.D. Davidson College Laelder@davidson.edu Abstract An ethnographic examination of the day-to-day networking sociality of financial elites in Malaysia, Singapore, and Hong Kong shows that, in line with ethnographic studies of core country elites, the subjectivities inculcated among hedge fund managers show racial and class cleavages, but in fund managers’ work, bridging capital...»

«Adriel A. Hilton, Ph.D. www.adrielhilton.com Business Address Western Carolina University Killian 209G Cullowhee, North Carolina 28723 (828) 227-7310 (office) aahilton@wcu.edu (e-mail) EDUCATION Doctor of Philosophy Higher Education (Administration) Morgan State University, Baltimore, MD School of Education and Urban Studies Department of Advanced Studies, Leadership and Policy Dissertation Title: The Perceptions of Administrators Concerning the One Florida Initiative Master of Applied Social...»

«PAPER EA021 A series of background briefings on the policy issues in the May 2015 UK General Election #ElectionEconomics Productivity and Business Policies Anna Valero and Isabelle Roland CEP ELECTION ANALYSIS Productivity and Business Policies  UK productivity (GDP per hour) and income grew faster than in France, Germany and the United States between 1979 and 2008, reversing a century of relative decline. Increases in higher education, tougher product and labour market competition, the...»

«Sermon #853 Metropolitan Tabernacle Pulpit 1 A SERMON FOR THE MOST MISERABLE OF MEN NO. 853 A SERMON DELIVERED ON LORD’S-DAY MORNING, JANUARY 31, 1869, BY C. H. SPURGEON, AT THE METROPOLITAN TABERNACLE, NEWINGTON. “My soul refused to be comforted.” Psalm 77:2. In this refusal to be comforted, David is not to be imitated. His experience in this instance is recorded rather as a warning than as an example; here is no justification for those professors who when they suffer bereavements or...»

«A grammar of business rules in Information Systems P JOUBERT,1 JH KROEZE2 AND C DE VILLIERS,3 Abstract There are many situations during information system development (ISD) where there is a need to do modelling on a business level before more detailed and robust modelling are done on the technical system level. Most business level modelling uses some form of natural language constructs which are, on the one hand, easy to use by untrained users, but which are too vague and ambiguous to be used...»





 
<<  HOME   |    CONTACTS
2016 www.dissertation.xlibx.info - Dissertations, online materials

Materials of this site are available for review, all rights belong to their respective owners.
If you do not agree with the fact that your material is placed on this site, please, email us, we will within 1-2 business days delete him.