Receivership and restructuring: The Australian Productivity Commission's proposed reforms to s 420A of the Corporations Act 2001 (Cth)

On 21 May 2015, the Productivity Commission released its draft report on the Inquiry into Business Set-up, Transfer and Closure (“Draft Report”) for feedback and consultation. The overall brief given to the Commission by Treasurer Hockey was to “conduct a broad ranging investigation into barriers to business entries and exits and how or where it might be efficiency-enhancing to reduce such barriers.” This included a specific examination of the personal and corporate insolvency regimes in relation to business exits. In this context, the Commission has considered the impact receivership has on corporate rescue during voluntary administration. Specifically, Recommendation 15.6 proposes that the duties of receivers to obtain best prices under s 420A of the Corporations Act 2001(Cth) should be subject to an additional duty “not to cause unnecessary harm to the interests of creditors as a whole, including putting the continuation of the company, or the preservation of the company as an ongoing concern for sale purposes, at risk”. Recommendation 15.6 also proposes that any proposed course of action by the receiver, particularly those involving the sale of assets, that are outside the course of the debtor’s normal business be subject to a simple majority vote of all creditors. The receiver may waive the vote if there would be no funds available for unsecured creditors after payment to the secured creditor has been made. It was further proposed that secured creditors would retain the right to appoint a receiver, and that the appointment should only be overturned if the court determines that the receiver is not acting in accordance with his or her duties.