Secured creditors watch out for Restructuring
- Published 22.02.2021
As from 1 January 2021, distressed companies may resort to a process known as restructuring leading to a formal restructuring plan binding upon all creditors. It is a no-frills and simplified version of a DOCA (deed of company arrangement) process. It does however leave secured creditors exposed for a small window of time from the appointment of a restructuring practitioner to immediately before a restructuring plan is approved by creditors.
During this restructuring period:
- Secured creditors cannot enforce their security interest (certain exceptions apply).
- The company may sell goods subject to security interest (such as goods sold under retention of title) during ordinary course of business.
- There is no obligation within the restructuring provisions of the Corporations Act for the company to account for proceeds from the sale of goods subject to security interest to secured creditors.
- The company may potentially use proceeds from the sale of goods subject to security interest to pay for new stock from a different supplier.
- Creditors cannot enforce Ipso facto provisions in contract.
- The company may not however use any of the said proceeds to pay for pre-restructuring trade debts.
In addition to the above, if a security interest has not been registered on the PPSR at the time a restructuring practitioner is appointed (or otherwise perfected) then the security interest is invalid.
A secured creditor may be able to reduce its exposure during the restructuring period by taking certain measures with the company and the restructuring practitioner.
Please contact us to discuss your options.