Uncharted waters

The last few years have been exceptionally challenging for all professionals, including insolvency practitioners. Global health and economic disruptions brought about by COVID-19, and rising geo-political tensions have set us all into uncharted waters. Insolvency practitioners have had to be agile and nimble, responding to continuing changes to insolvency laws, economic stress and uncertainty and preparing for legislative reform to Australia’s insolvency regime. We anticipate that economic and legal uncertainty will continue to be a challenge into 2023.

What happened to appointment numbers?

COVID-19 and accompanying government intervention resulted in the lowest rates of appointments for insolvency practitioners. As the pandemic began to fade away, Australia’s insolvency industry collectively waited on bated breath, observing that economic stimulus could not last forever, and expecting a tidal wave of new appointments. While appointment numbers did return to pre-pandemic levels in July 2022, numbers have recently dropped again. After a very slow start, the small business restructuring process started to get some uptake in mid-2022 but also dropped back. Many practitioners have experienced an uptick in inquiries, but many still are not progressing to appointments, at least not yet.

Will we have a recession?

Renewed pressure from creditors such as the Australian Tax Office is starting to provoke a degree of financial strain that was lacking in recent years. Meanwhile, the economic waterline continues to recede. Inflation and interest rates are rising amid global shortages of goods, services and labour. Deutsche Bank have recently predicted Australia to enter into recession in 2023 based on an expected rise in unemployment.

What about construction?

The Construction industry has continued to makeup a significant proportion of insolvency appointments. In Maddocks’ Construction Pulse Survey 2022, 97 per cent of respondents said they are concerned that ongoing challenges will cause the number of head contractor and sub-contractor insolvencies to rise, further impacting industry capacity. Even with significant infrastructure projects, it seems likely that there is more distress to come in the Construction industry.

A federal inquiry into corporate insolvency

Amongst these economic warning signs, the Federal Parliamentary Joint Committee on Corporations and Financial Services recently began an inquiry into corporate insolvency in Australia. There have been calls for a root and branch review of Australia’s insolvency regime for many years. A final report is expected in late May 2023. We will monitor the legislative reforms closely and will be ready to support you to implement any relevant changes.

What was new in case law?

2022 has also been a busy year for developments in case law. Highlights include both wins and losses for liquidators on unfair preferences, the Courts continuing to grapple with complexities when corporate trustees are placed into liquidation, determining priority of claims between employees and secured creditors, testing new phoenixing laws, considering costs in challenges to liquidator’s remuneration, the overlap between the Corporations Act 2001 (Cth) and security of payment legislation, environmental liabilities for insolvency practitioners, and how receivers ought to exercise their power of sale.

The Annual Return provides an overview of some of these issues: analysing legal developments and their implications for your practice.

Where the Maddocks team was active

In its 138th year, Maddocks celebrated the 10th anniversary of its Canberra office and the 20th anniversary of the Sydney office. Our National Restructuring & Insolvency Team has been busy continuing to grow our expertise in restructuring and insolvency matters and has been involved in many high profile matters in the last year including:

• acting for a class of investors in the first joint sitting between the High Court of New Zealand and the Federal Court of Australia relating to the affairs of Halifax Services Limited (in liquidation)
• acting for the secured creditor and receivers appointed to a national food distribution business, In2Food Group;
• acting for one of the respondent head builders in complicated insolvency proceedings relating to the liquidation of the various Hastie Group entities
• acting for the voluntary administrators and now liquidators of STA Travel entities
• continuing to support the liquidator and special purpose receiver of Banksia Securities Limited (in liquidation) (receivers and managers appointed) to recover a judgment debt of approximately $20 million arising from the findings made in Bolitho v Banksia Securities Ltd (No 18) (remitter) [2021] VSC 666
• a high profile voluntary administration in the aged care sector
• the restructure of global luxury women’s label in Australia and New Zealand
• acting for the receivers of the Northern Territory’s largest shopping centre, and
• numerous safe harbour advice to directors as they navigate a post COVID-19 world.

Supporting the industry and ARITA

We continue our strong contribution to ARITA, with Danielle Funston as National Board Director and Chair of the ARITA NSW/ACT Committee, Melissa Jeremiah as the Deputy Chair of the ARITA VIC/TAS Committee and Mathew Gashi on the ARITA VIC/TAS Young Professional Committee. We are pleased to announce that Mathew Gashi and Cara Thompson have successfully completed the ARITA Advanced Certification, strengthening our team’s expertise and knowledge in all matters of insolvency.