This article first appeared in the December, 2020 edition of South Square Digest and is reproduced with permission.
It is a fundamental policy tenet of the insolvency systems in both the United Kingdom and Australia that insolvency laws should be structured to help ‘save’ and restructure companies and businesses which, despite current financial distress, are viable and have a reasonable prospect of a return to successful trade.
This policy can be traced back to the 1982 CorkReport in the United Kingdom,1 the recommendations of which became the foundation of the Insolvency Act 1986 (UK) (Insolvency Act), and the 1988 Harmer Report in Australia,2 which largely adopted the recommendations of the Cork Report and led to the subsequent corporate law reform program culminating in the passage of the Corporationst Act 2001 (Cth) (Corporations Act).
Yet, despite the policy underpinning and the stated objectives of the Insolvency Act and the Corporations Act, in practice the achievement of corporate and business rescue for viable entities has been relatively limited. Notably, in both the United Kingdom and Australia, there has continued to be a lack of cooperation and collectivist action by creditors following the insolvency of a corporate debtor, with creditors typically preferring an individual enforcement approach (if possible), notwithstanding the progress made to advance informal restructuring under the London Approach principles that have gone on to shape informal workouts across the United Kingdom, Europe and Asia over the last decade.
This article commences by examining the recent reforms made by the Corporate Insolvency and Governance Act 2020 (UK) (CIGA), which go some way towards advancing the prospect of corporate and business rescue in the United Kingdom, and noting the absence of similar mechanisms other than ipso facto enforcement prohibitions in Australia.
The article then focuses on two other areas of law reform that have an important role to play in cultivating a stronger business rescue culture in the United Kingdom and Australia: super-priority debtor-in-possession (DIP) financing and prepack business sales.
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