Restructuring companies in troubled times: director and creditor perspectives
Edited by R P Austin and Fady JG Aoun
Ross Parsons Centre of Commercial, Corporate and Taxation Law
Throughout the developed world, policymakers are struggling to balance creditor protection against the preservation of businesses in difficulty. The balance tilts in favour of creditors in some countries, and debtor companies elsewhere.
The stakes are very high. If the legal system unduly favours debtor companies at the expense of creditors, and in particular lenders, there will be a flight of capital, a liquidity crisis and the entire business community will suffer. If, on the other hand, creditor protection is placed above business salvation, there will be dramatic corporate failures, with devastating cumulative results for the economy and society. The list of casualties of the collapse of a large enterprise will be very lengthy: including workers, consumers, trade creditors, financiers and investors.
When that happens, governments will suddenly be under siege and ad hoc rescue packages will be demanded. Consider, in the Australian context, the collapses of Ansett, One.Tel and HIH. Getting the balance right is therefore a matter of the highest priority. Indeed, there is no more important corporate law reform challenge for the Commonwealth Government.
At present, the Australian laws concerning directors' duties, liability for insolvent trading and continuous disclosure make it difficult for the directors of listed public companies to pursue a workout, and tempt them to place their company in voluntary administration without fully exploring the prospects for rescue. This is in sharp contrast with the Chapter 11 procedure in the United States, and developing trends in the United Kingdom, which favour preserving the ailing business and nursing it back to good health.
Corporate restructuring experts from the United States, the United Kingdom and Australia were brought together by the Supreme Court of New South Wales in August 2010, to explore these issues at the Supreme Court Annual Corporate Law Conference. This publication contains the speakers' presentations, a panel discussion on a hypothetical problem, and an introductory essay. It will be of interest to company directors and their advisers, insolvency practitioners, lawyers and law students, bankers, accountants and investment bankers.
A focus of attention at the conference was a Commonwealth Treasury paper canvassing the idea of protecting directors in a workout through a modified business judgment rule. Evidently the present government is no longer pursuing that proposal. But the fundamental and pressing problem - that Australian law is poorly equipped to handle attempts at restructuring to avert a massive corporate failure and the consequent large-scale losses for workers, creditors and investors - remains to be addressed.