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Innovation on the rise in restructuring and insolvency market

Post-pandemic, future innovations in restructurings can be done via newer, more creative approaches within the Australian market, new research has revealed.

After testing the limits of Australia’s restructuring and insolvency regimes, the circumstances of COVID-19 mean that future restructuring could take place in innovative and creative ways, according to Clayton Utz’s report From Red to Black; an annual review of the dynamics of the Australian restructuring and insolvency market.

National practice group leader and co-author of the report Timothy Sackar said the “extreme occurrence” of COVID-19 had paved the way for a series of “creative and sometimes ground-breaking responses” to restructuring and insolvency matters.

One high-profile example of this innovation was the successful restructure and sale of Virgin Australia to Bain – on which Clayton Utz advised Virgin Australia on in April last year. Mr Sackar led the Clayton Utz team at the time and said the deal was “a great example of how effective our domestic insolvency procedures are in efficiently restructuring companies in the interests of creditors”.

“The fact that we were able to utilise an existing regime to successfully complete the Virgin transaction shows that there is a lot that can be achieved with our existing insolvency regimes,” he said, adding that “while enhancements are always worth considering, wholesale change may simply be a step too far”.

This year’s edition of From Red to Black also found that there has been a 45 per cent reduction in the number of formal insolvency appointments in Australia since the pandemic started, due to a mix of legislative protections, stimulus measures, and access to cheap capital – which has allowed businesses to refinance and restructure.

Loan-to-own is also gaining momentum in the Australian debt restructuring market, with primary financiers and corporate creditors increasingly visible in the market, alongside alternative capital providers and secondary debt market participants.

Furthermore, the report found that the rescue financing market in Australia is still maturing, with empirical analysis revealing 36 rescue financing cases in the last 20 years. An independent rescue financing market in Australia, the research noted, would be a “welcome development, which could ultimately save many businesses from closure”.


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