The recent decision by the Federal Court of Australia granting leave to proceed against a company despite the appointment of a small business restructuring (SBR) practitioner under the Corporations Act 2001 (Cth) sheds light on important considerations for businesses engaging in proactive recovery planning. Here are the key takeaways from the case:
- Analogous Nature of SBR Regime to Voluntary Administration: The Federal Court approached the statutory stay available under the SBR regime as analogous to that applicable to voluntary administration. This means that where a company enters into SBR, a court may exercise its discretion to lift the stay based on various factors.
- Factors Influencing Court’s Discretion: The court considered various factors in granting leave for proceedings to proceed against the company despite the SBR appointment. These factors included the likelihood of the company failing to satisfy eligibility criteria, non-opposition by the restructuring practitioner, the stage of the proceedings, the presence of insurance coverage, and the potential prejudice to the plaintiff if proceedings couldn’t commence before the limitation period expired.
- Need for Proactive Legal Action: The case highlights the importance of creditors seeking relief from the statutory stay imposed by the SBR regime, significantly where a potential claim against a company in SBR exceeds the eligibility threshold of $1 million.
RRI View
Businesses should be vigilant in their proactive recovery planning efforts, especially in light of the evolving legal landscape surrounding the SBR regime. It’s essential to understand the factors influencing the court’s discretion in lifting the statutory stay and to take timely legal action when necessary to protect their interests. As the SBR regime develops, businesses should stay informed and seek expert legal advice to navigate potential challenges effectively.
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Disclaimer
This information and the contents of this publication, current as at the date of publication, is general in nature to offer assistance to RRI Advisory’s clients, prospective clients and stakeholders, and is for reference purposes only. It does not constitute legal or financial advice. If you are concerned about any topic covered, we recommend that you seek your own specific legal and financial advice before taking any action.