Collecting in Australia

• Thepaymentbehaviorofdomesticcompaniesisgoodcomparedtointernationalstandards.However,delays areregisteringadeterioratingtrendandaverageDSOnowstandsat50days.

• Thecourtsystemiscomplicatedbythecountry‘sfederalstructureandprovidesnofast-trackproceedingsforthesettlementofundisputableclaims.Thecourtsareotherwiseefficient,butdelaysandcoststendtobe significantandenforcingforeignjudgmentsmayprovedifficult.

• Insolvencyproceedingsarecomplexandexpensive,withchancesofrecoveryverylow.

Collection complexity

Complexity relating to

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Payments

Court proceedings

Insolvency proceedings

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ContentsGeneral Information........................................................................................................................................3

Availabilityoffinancialinformation................................................................................................................3Maincorporatestructures...............................................................................................................................3Regulatoryenvironment..................................................................................................................................3

Getting Paid........................................................................................................................................................4

DaysSalesOutstanding(DSO).......................................................................................................................4Latepaymentinterest.......................................................................................................................................4Debtcollectioncosts.........................................................................................................................................4Ownershipprotection......................................................................................................................................4Payments.............................................................................................................................................................4

Collecting Overdues........................................................................................................................................5

Amicableaction................................................................................................................................................. 5Legalaction......................................................................................................................................................... 5Alternativestolegalaction.............................................................................................................................. 7

Handling Insolvent Debtors.......................................................................................................................... 7

Insolvencyproceedings................................................................................................................................... 7

Days Sales Outstanding (DSO): ThereisadeterioratingtrendinpaymentswithaverageDSOat50days.

General information

Availability of financial informationRelevantfinancialinformationondomesticcompaniesisdifficulttoobtainforseveralreasons.Firstly,onlystockexchangelistedcompanieshaveanobligationtopublishtheirfinancials,thereforeonly2%to3%ofAustraliancompaniespublishorpubliclyfileannualorsemi-annualrecords.Secondly,corporationsoftenrelyontruststructures,whicharenotlegalentitiesintheirownrightbutaimtolimitvisibilityandaccountability.ThevastmajorityofAustraliantraders’portfoliofurthermoreconsistsofsmalltomid-sizecompanies,wherefinancialsareconfidentialandcanonlybeobtainedbyouranalystsviadirectapproachorthroughcreditreportingagencies.EulerHermesallocateseachcompanyagradereflectingitsfinancialhealthandhowitconductsbusiness.Gradesrepresentacoreofourknowledgeandanalyses,andhelpclientsidentifyandavoidrisk.Dataiscontinuouslymonitoredtoofferthemostup-to-dateinformationtosupportmanagementdecisions.

Main corporate structuresLiabilityforbusinessdebtsisdeterminedbylegalstructures,whicharedescribedasfollows:• Proprietorshipiscommonlyrelieduponforsmallscaleoperations

sinceitisbasedonthepersonalqualitiesofthesoleproprietorwhoownsthebusinessassets.Asaresult,theproprietorisfullyliableforthebusiness’activitiesanddebts.

• Partnershipsallowupto20partnerstoconductbusinesstogetherThepartnersestablishtheirliabilitiesandrightsinaspecific‘partnershipagreement’butdonotcreateaseparatelegalentity.UnlessaLimitedPartnershipissetup,thepartners’liabilityisjointandunlimited,evenifonepartnergeneratesbusinessdebtswithouttheotherpartners’knowledgeorconsent.

• ProprietaryLimitedCompaniesareverypopularstructureswhichmaybesetupbyonetofiftyshareholders.Thereisnominimumcapitalrequirement,andtheshareholdersareliableontheircontribution.Companiesprovideanotherformalizedlegalstructureinwhichthesharesaretradableandriskislimitedtocapitalcontributions.

• Trustsareparticularstructuresinwhichoperationsareregulatedbyanagreement(deed)andinwhichatrustee(i)holdstheassetsofthetrustand(ii)runsthebusinessforthebenefitofbeneficiaries.Trustsarecomplexstructureswhichoftenaimatminimizingtax,butthecourtshaveintimebecomeconcernedabouttheirmethodsandbeneficiariesareincreasinglybeingheldpersonallyliablefortheentity’sdebts.

• ForeignbusinessesmayalsosettleinAustraliathroughaRepresentativeOffice(whichcannotgenerateincome)orthroughaBranch(whichisindependentandentitledtoconductbusinessactivities).

• JointVenturesdifferfrompartnershipsinsofarastheparties(whetherindividualorcorporateentities)regrouptheirresourcesandskills

inordertodevelopacommonprojectandgenerateacommonincomewithoutnecessarilyincorporatingaseparateentity.

Regulatory environmentThecourtsysteminAustraliacanbecomplexsincethecountryhasafederalgovernmentstructureanditiscomposedoftwointernalterritories(theNorthernTerritoryandtheAustralianCapitalTerritory)andsixsovereignstateswithreservepowers.Eachhasitsownlegalsystemandlaws,whichsometimesaddscomplexitydespiteongoingharmonizationeffortstakingplace.Therearenospecifictribunalsforcommercialmatters,buttherearecertainspecializeddivisionswithinexistingcourts(i.e.theCommercialList,theAdmiraltyDivision,etc.).Therefore,dependingonthequantumoftheclaimandthecauseofaction,largecommercialdisputesareusuallybroughttotheFederalCourtofAustralia(theFCAsitsinallcapitalcities)ortotheSupremeCourtinoneoranotherterritory.Asageneralrule,though,LocalCourtsorMagistratesCourts(namesmayvaryfromonestatetoanother)arecapabletodecideonclaimsuptoAUD40,000inSouthAustralia,AUD100,000inVictoriaandNewSouthWales,orAUD150,000inQueensland.DistrictCourtsareabletodecideonclaimsuptoAUD750,000,whereasSupremeCourtswouldbesuitableforclaimsinexcessofAUD750,000.

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Getting Paid

Days Sales Outstanding (DSO)Paymentbehaviorofdomesticcompaniesremainsgoodcomparedtointernationalstandards,withpaymentsinAustralianormallytakingplacewithin30daysonaverage(measuredfromtheendofthemonthinwhichgoodsaredeliveredorservicesaresupplied).However,thereisadeterioratingtrendinpaymentswithaverageDSOat50daysfor2016.

Late payment interestGovernmentagenciesarerequiredtopaysmallbusinesseswithin30daysofreceiptofacorrectlyrenderedinvoice,otherwisepenaltyinterestsmayapply(asdeterminedundersection22oftheTaxationAdministrationAct1996).Inbusiness-to-businessrelations,however,latepaymentmattersarenotregulatedandmustbedealtwithbythepartiesdirectly.

Debt collection costsCollectioncostsareusuallynotchargeabletothedebtorunlessthecontractoutlinespreciselywhichcostsmaybeconsidered.Often,thecostsarenotrecuperatedasthepartiesprefersettlingclaimsamicably,buttheynonethelessconstituteefficientnegotiationtools.

Ownership protectionRetentionofTitle(RoT)contractualprovisions(alsoknownasRomalpaclauses)ensurethatabuyershallonlyacquireownershipofgoodsoncepaymenthasbeenreceivedinfull.Thesearrangementsmaybetriggeredduringandoutsideofinsolvencyproceedingsalike,butthereisanincreasinglysignificantformalismattachedtotheseclauses,whichmustthereforebeconsideredwiththegreatestcare.Inparticular,thePersonalPropertySecurityAct2009(Cth)(PPSA)whichcameintoforceinJanuary2012hascreatedastrictobligationforsuppliersofgoodstoregistertheirsecurityinterestsfortheguaranteetobecomeeffective.Indeed,onlytheRoTarrangementsregisteredwiththePersonal

PropertySecurityRegisterprotectthesupplier’sproperty(calleda‘purchasemoneysecurityinterest,’orPMSI)bygivingthecreditor‘superpriority’overothercreditors’debts.Superpriority,inaddition,requiresthatregistrationiscompletedbeforethegoodsaredelivered(PPSAs.62),andonlyappliesforgoodswhichhaveremainedunpaidfor.RetentionofTitleprovisionsincludedincontractsenteredintopriortoJanuary2012losttheireffectunlessregisteredby30January2014.

PaymentsThemostcommonpaymentmethodsareasfollows:ThemajorityoftransactionsinAustraliaaredoneonopenaccount,whichmeansthatthegoodsareshippedanddeliveredbeforepaymentisdue.EFTelectronicfundstransferandswiftbanktransfersareotherwiseamongthemostpopularpaymentmeansworldwideastheyarefast,secured,andsupportedbyanincreasinglydevelopedbankingnetworkdomesticallyandinternationally.Forexporttransactions,transfersmaybeinsuredbyanExportCreditInsurancepolicy,whichhelpsminimizetheriskofsuddenorunexpectedcustomerinsolvency.EulerHermes’worldwidenetworkofriskofficesmonitorsthefinancialwell-beingofcustomersandgrantsthemaspecificcreditlimituptowhichclientsmaytradeandclaimshouldsomethinggowrong.Alternatively,StandbyLettersofCredit(abankguaranteesthedebtor’screditqualityandrepaymentabilities)constitutereliableguaranteeswhichcanbeinterpretedasasignofgoodfaithsincetheycanbetriggeredasa‘paymentoflastresort’iftheclientfailstofulfilacontractualcommitment.Also,ConfirmedDocumentaryLettersofCredit(adebtorguaranteesthatacertainamountofmoneyismadeavailabletoabeneficiarythroughabankoncecertaintermsspecificallyagreedbythepartieshavebeenmet)maybeconsideredasitcanbeobtainedeasilyfromlocalbanks(maybecostly).ChecksarehardlyusedinAustralia,exceptperhapsbysoletraders.Generallyspeaking,bankguaranteescanbeobtainedfairlyrapidlyeventhoughtheymaybeexpensivedependingontheissuinginstitution.

Late payment interest: Inbusiness-to-businessrelations,latepaymentmattersarenotregulatedandmustbedealtwithbythepartiesdirectly.

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Collecting overdues

Amicable actionAmicablesettlementopportunitiesshouldalwaysbeseenasthemostefficientalternativetoformallitigationproceedingssinceAustralianlawdoesnotprovideforfasttracklegalproceedings.Inpractice,theAustralianauthoritieshavesetupvariouspre-legalactionmechanisms(undertheCivilDisputeResolutionActof2011)toencouragethepartiestonegotiateandsettlecommercialdisputespriortocommencingacourttrial.Beforestartinglegalproceedingsagainstadebtor,assessmentofassetsisimportantasitallowsverificationastowhetherthecompanyisstillactiveandwhetherrecoverychancesareatbest.Inaddition,itisessentialtobeawareofthedebtor’ssolvencystatus:ifinsolvencyproceedingshavebeeninitiated,itindeedbecomesimpossibletoenforceadebt(seebelow).ForundisputeddebtaboveAUD2,000,creditorsmayalternativelysendthedebtorarequest(StatutoryDemand)topaywithin21daysandthreatentofileapetitionforliquidationifthetimelimitisnotrespected(undersection459EoftheCorporationsAct2001).

Legal action

Ordinary proceedingsIftheamicablephasefails,orifthedebtorquestionstheclaim,theoptionofstartinglegalproceedingsremains,althoughittendstobelengthyandcostlywhentheclaimisdefended.Ordinaryproceedingswouldtypicallytakeplaceasfollows:althoughthereisnomandatoryobligationtorequestpaymentinwritingbeforetakinglegalaction,aDemandLetterrecallingtheprincipalandinterestdueisadvisable.Inordertocommenceformalproceedings,aStatementofClaimmustbeservedtothedebtor,whomustthenabidebythedecisionorfileadefensewithin30days(delaysmaybegranteddependingongeographicalfactors).Failureofthedebtortocomplywiththerulesentitlesthecreditortoapplyforadefaultjudgment.Otherwise,thecourtwouldorganizehearingsanddefineatimelinefortheproceedings(discoveryphaseallowinglawyerstoquestiontheparties,mediationphase).Remediesorderedbythecourtmaytaketheformofcompensatorydamages,specificperformanceorders,restrictiveinjunctionsorrestitutionorders.Punitivedamagesareavailableintortcasesbutremainunheardofindebtlitigationproceedings.Itisalsoworthaddingthatcommencingthelawsuitbeforethecompetentcourtinthedebtor’splaceofregistrationusuallyhelpspreventproceduraldelaysduetolackofjurisdictionarguments.ClassAction(lawsuitinvolvingagroup)proceedingsarealsoincreasinglycommoninAustralia.

Necessary documentsCopiesofunpaidinvoices,laststatementofaccount,copyofsupplycontract,copyofcreditapplication,proofofdeliveryifnecessary(AWBBOLforexport).

Time limitationsDebt-relatedclaimsmustbebroughttocourtwithinsixyears,startingfromtheoriginalduedate.Beyondthistimelimitation,legalactionwillnotbegrantedalthoughcertainfactors(formallyacknowledgingdebts,forinstance)mayincertaincircumstancesinterrupttheprescribedperiod.IntheNorthernTerritory,theprescribedperiodisreducedtothreeyears.

Precautionary measuresPrecautionarymeasuresintheformofpreliminaryinjunctionsmaybeawardedtopreservethestatusquopendingafinalandenforceablejudgment.Mandatoryandprohibitoryinjunctionswouldrespectivelycompelorpreventapartytodosomething,butalthoughtheyarecommoninIntellectualPropertyorTradePracticescases,theyremainrareindebtlitigation.Eachrequiresthattheapplicantdemonstrates,amongotherpoints,thatmeredamageswouldbeinsufficienttocompensatepotentiallossesintheabsenceofaninjunction.Searchorders(AntonPillarorders),issuedifcriticalevidenceislikelytobeconcealedordestroyedbythedefendant,areextremelyrarelyawarded.Stayorderspreventapartyfromcommencingorcontinuingproceedingsonatemporarybasis,whileanti-suitinjunctionsrestrainapartyfromcommencingorcontinuingproceedingsinaforeignjurisdiction.Alternatively,interimattachmentorders(alsoknownasfreezingorders)helppreserveassetswhichoughttobeusedtosatisfyafinaljudgmentbutwhichareatriskofbeingdissipatedinordertofrustrateenforcement.Applicationismadeexparte(i.e.withoutthedebtorbeingpresent),thereforethecreditormustdiscloseallrelevantfactssupportingtherequest.Itisimportanttonote,however,thatafreezingorderdoesnotcreateanypreferentialrightinfavoroftheclaimantovertheseizedassetsshouldthelegalactionleadtoliquidationproceedings.Inaddition,ifthecreditorisdefeated,theymaybeliableforthelossanddamagesufferedbythedebtorasaresultofthefreezingorder.Courtsmaythereforeordercreditorstoprovidesecurityoncostsinordertoprotectdebtorsfromirresponsibleaction.

Collection @ Euler HermesItisalwaysadvisedtoattemptcollectionpriortoanylegalactioninordertomaximizechancesofsuccessfulrecoveryandavoidlegalcostsanddelays.Ourkeyprincipleistocollectincloseproximitytothedebtor,usingaseriesofletters,emailsandphonecallsinthelocaldebtorlanguage.OurWorldCollectionNetworkofEulerHermesofficesandexternalprovidersareexpertsinprofessionaltradedebtcollectionandnegotiation,ensuringpositiveoutcomeswhileretainingimportantclientrelationships.EulerHermescanhandlethecompletecollectionsprocessfromamicable,pre-legalactionthroughtojudgmentandenforcement.

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Lodging an appealAppealisusuallyavailablewhenajudgmentistaintedbyanerroroflaworfactthoughproceduresmayvaryfromonecourttoanother.AppealsagainstjudgmentsrenderedinfirstinstancebyFederalCourtsarereviewedinternallybyaFullCourt(threejudges).AppealsagainstjudgmentsrenderedinfirstinstancebytheStates’SupremeCourts,bycontrast,arereviewedintheAppealDivisionofthesameCourts(inSouthAustraliaorTasmania,appealsfromfirstinstancejudgmentsintheSupremeCourtareconsideredbyaFullCourtoftheSupremeCourt).Finally,decisionsrenderedinsecondinstancebyAppellatejurisdictionsmaybebroughttotheHighCourt(usuallycompetentonconstitutionalmatters)providedthatspecialleavehasbeengranted.Thetimelimitsforbringinganappealdifferfromonejurisdictiontoanother,butleaveforappealcanusuallyberequestedwithin45daystothreemonthsfollowingthenotificationofthedecisiontotheparties.Overall,thiscourtstructuretendstomakeappealprocedurescomplexandexpensive.

Enforcing court decisionsAjudgmentisenforceableassoonasitbecomesfinal(i.e.whenappealsarenotavailableanymore).ThejudgmentcreditorhasuptotwelveyearstoseekenforcementofalocaljudgmentthroughExaminationNotices,GarnisheeOrdersorWritsofExecution.ExaminationOrdersareusefultoolsastheymayforcethedebtortoprovideinformationontheirfinancialsituationandassets,andthushelpuschoosearecoverystrategy.TheOrdermustberequestedfromthecourtafterjudgmenthasbeenentered.ThecourtmayalsoissueaGarnisheeOrderallowingthecreditortorecoveritsdebtdirectlyfromthedebtor’sbankaccount(orsalary)aswellasfromthedebtor’sdebtors,untiltheprincipalandinterestarepaidoff.Inpractice,however,theprocedureisbestusedafterexaminingthebooksandrecordsofthecompanyincourt(ExaminationOrder).ThecourtmayfinallygrantaWritofExecutionfortheLevyofProperty,whichordersasherifftoseizeandsellthedebtors’propertytothebenefitofthecreditor.Thesheriff’scostsincludefixedfees(lessthanAUD100)aswellasapercentageontheproceeds.Thesheriff’sinterventionoftenpushesthedebtortoachieveanarrangement(instalments)toavoidseizure,butthedebtormightalternativelyprefertofileanapplicationtosetthejudgmentaside.Suchcostsareusuallyaddedtothedebtor’spayabledebt.Debtsmayalsoberecoveredthroughinsolvencyproceedings.AcertificateofjudgmentmayindeedbeannexedtoaCreditorsStatutoryDemandrequiringthedebtortopaysecureorcompoundthedebtwithin21days.Failuretodosowouldconstituteprimafacieproofofinsolvencyandwouldgivegroundstoawindingupapplication.

How long could legal action take?Straightforwardclaimswouldnormallybesettledwithintwotofourmonths,butdisputedclaimsmaylastmorethanayear.Enforcementproceedings,inaddition,couldtakesixtoninemonthswherethe

debtor’sassetsaredifficulttoidentify.Internationallitigationwillalwaystakelongerandcostmorethandomesticlitigation–thedifferencewoulddependonnumerousfactorswhichcouldonlybemeaningfullyquantifiedonacasebycasebasis.

How much could this cost?Proceduralcostsmaydifferfromonestate’slegislationtoanother,butthecourtsenjoybroaddiscretioninorderingcosts.Asageneralrule,theunsuccessfulpartyisrequestedtopaythereasonablelegalcostsofthesuccessfulparty,butinpractice,approximately60%to70%ofthecostsareeffectivelychargedtothem,unlessthecourtscalculatecostssoastograntindemnitytothewinningparty(whichmaythenrecover100%ofitscosts).Efforts(whetherpositiveornegative)madeduringthepre-legalamicablenegotiationsareusuallytakenintoconsiderationwhenawardingcosts.Aspreviouslymentioned,thelawdoesnotauthorizeaddingautomaticcollectioncostsandinterestsunlessthematterhasbeenagreedcontractually.However,thelawallowsthecreditortoaddafixedamounttotheclaimwhilefilingitscasewithacourt,inordertorecuperatelegalfeesuponobtaininganenforceablefinaldecision.Inpractice,costsareusuallyleftasideaspayingthedebtiswhatmattersmost.Courtfeesareregulatedand‘scalecosts’aresetbyeachstateorterritorygovernment.Thesearepublishedontherelevantcourtwebsite.Havingalawyermayconstituteagoodwaytominimizeproceduralcosts.Conditionalarrangementswherebyattorneysarenotpaidupfrontbutratherreceiveafixedsumuponsuccess(i.e.‘no-win-no-fee’)arecommoninvariouslitigationproceedings,butnotinrelationtodebtrecoverycases.Contingentfeeswherebythelegalprofessionalsareentitledtoreceivingapercentageonthefinalawardmaybeprohibitedbylawdependingonthejurisdiction.Thisprohibitiondoesnotnormallyapplytolitigation-fundingcompanies.

Litigation @ Euler HermesShouldlegalactionbenecessary,EulerHermescanprovidesupportthroughoutthelegalprocessfromjudgmenttoenforcementviaourWorldCollectionNetworkofEulerHermesofficesandexternalproviders.Legalactioncanoftenbecomplicatedandexpensive,soyouwillbeinformedofallcostspriortoanyactionandadvisedonwhichrouteisbesttotake.

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Alternatives to legal action

Alternative Dispute Resolution methods (ADR)ADRmechanismsarepopularinAustraliabutremainunusedindebtlitigationthusfar.Nonethelessandaspreviouslynoted,thepartieshaveanobligationtonegotiateinordertosettletheirdisputepriortobringingformallegalaction.Inaddition,mediationandarbitrationmayberelieduponbythepartiesonavoluntarybasis,oruponcourtinvitationaimingatsolvingcommercialdisputesthroughinformalprocedures.Inmediationproceedings,amediatorisappointed(bythepartiesorbyacourt)tohelpthepartiesreachanacceptablecompromise,butithasnoauthoritytodecidefortheparties.Anyagreementbetweenthepartiesandvalidatedbythemediatorisbinding.Inarbitrationproceedings,bycontrast,thearbitratorisappointedbythepartiesandgivenauthoritytosolvethedisputeontheirbehalf.Therefore,thearbitralawardisfinal,binding,andenforceablethroughdomesticcourts.Arbitrationstandardsforinternationaldisputescoincidewiththe2006versionoftheUNCITRALModelLawonInternationalCommercialArbitration.Arbitratorsmaygrantinterimrelief.

Foreign forumsAsaresultofthedifficultytoobtaintimelydecisionsfromdomesticcourtswhentheclaimisdisputed,aforeignforum(i.e.underaforeignlaworbeforeaforeigncourt)mayintheorybeconsidered.Indeed,Australiancourtsusuallyrespectforeignjurisdictionprovisionsasagreedbythepartiestoacontractunlesspublicpolicyreasonspreventfromapplyingthelawofthechosenforum(orif,asinrelationtoconsumerprotectionmatters,thelegislatorhasimposedtheexclusiveapplicationofAustralianlaw).Itisessential,however,thattheagreementischaracterizedbyaninternationalconnection(forexample,onepartyhaselecteddomicileinanothercountry,ortheplaceofexecutionislocatedabroad),andthatajurisdictionclauseisdraftedtothiseffect.

Enforcing foreign awardsEnforcingforeignawardsinAustraliamaybeatimeconsumingexerciseandusingdomesticcourtsmaysometimesremainfasterthanobtaininganawardabroadandenforcingitthroughanexequaturprocedure.Currently,theenforcementofforeignjudgmentsinAustraliaisgovernedbybothstatutoryregimes(theForeignJudgmentsAct1991andtheForeignJudgmentsRegulations1992)andCommonLawprinciples.ForeignawardsmustfirstberegisteredofficiallywithanAustralianCourtandberecognizedasadomesticandenforceablejudgment(exequaturproceedings).Theforeignawardmustbeafinalandconclusivemoneyjudgment.Ofcourse,theawardmustbeenforceableinthecountryoftheissuingcourtbutitmusthaveremainedunenforced.Furthermore,recognitionnormallydependsonwhetherareciprocalrecognitionandenforcementagreementexistsbetweenAustraliaandtheissuingcountry.Therefore,unlesstheissuing

countryislistedinthe1992Regulations,judgmentfromitscourtswillnotbeenforceableinAustralia.AustraliaisasignatorytotheNewYorkConventionontheRecognitionandEnforcementofForeignArbitralAwardsof1958.Therefore,domesticcourtsalsooughttorecognizeandenforcedecisionsrenderedthroughinternationalarbitrationproceedings.

Handling insolvent debtors

InsolvencyinAustraliaismerelyacashflowmatterandSection95AoftheCorporationsAct2001(Cth)statesthatacompanyremainssolventif(andonlyif)thecompanyisabletopayallitsdebtswhentheybecomedue.Insolvencyproceedingsareexpensiveandcomplex,soareusuallyusedasalastresort.However,theNationalPersonalInsolvencyIndex(apublicregisterinelectronicformat)providesalistofinsolventcompanies.Therefore,thethreatofinitiatinginsolvencyproceedings(throughastatutorydemandletter)mayconstituteaneffectivemeansofpressurewhilecollectingunpaiddebt.Inpractice,insolvencyproceedingstendtofollowafinaljudgmentorresultfromthedebtor’sfailuretocomplywithastatutorydemandwithin21days(inwhichcaseproceedingsoccurbeforetheFederalCourt).Section459PoftheCorporationsActprovidesfordifferentproceedings.

Insolvency proceedings

Out-of-Court proceedingsInformalout-of-courtproceedingsmaybeconductedbutallcreditorswouldneedtoagreeandexecuteadeedsothatonlyonecreditorcouldoverturnsuchanarrangement.UnlikeaDeedofCompany

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Arrangement(DoCA),thecreditorswouldhavenoprotectionagainstunfairpreferenceclaimsbyanylaterliquidator.

Restructuring the debtReceivershipproceedingsconstituteafirstsettlementpossibility.Areceiverisnominateduponenforcementofageneralsecurityagreement(debenture)andtakesoverthecompanymanagementuntilthedebtisrepaidorrecovered.Iftheprocessfails,aliquidationproceduremaybeinitiated.Acourt-sanctionedSchemeofArrangementbetweencreditorsandthecompanymayalsobereached.Itbecomeseffectiveoncearequiredmajorityofcreditors(atleast50%innumberand75%invalueofcreditorsineachclass)hasapprovedtheschemeandthecourthasvalidatedtheagreement.Thosecreditorsthatdidnotvoteinfavorofthearrangementarenonethelessbound,whichmayhavesignificantconsequencesconsideringthatthelawprovidesnolimitationastohowmuchofthedebtissusceptibletobeingwritten-off.VoluntaryAdministrationisthemostcommonprocedureasitaimstomaximizeacompany’schancestocontinueitsactivities.Theproceduresuspendsthedirector’scontrolinfavorofaregisteredadministrator(appointedbythecompanyitself).Creditorsandotherpartiesaregenerallypreventedfromenforcingtheirrightsduringthemoratoriumphase,butitisverycommonforcommercialcontractstoallowapartytoterminatethecontractiftheotherundergoessomeinsolvencyprocedures.DoCAmayeventuallyformalizeanagreedcompromisewhichthenbindsallunsecuredcreditors,includingthosethatdidnotvoteinfavor.

Winding up proceedingsLiquidationmayberequestedbythepartiesandleadstonominatingaliquidatorinchargeofcontrollingthecompany,keepingthecreditorsinformed,anddistributinganyassets.Thecompanyisthenderegistered.Onceappointed,theliquidatormustcontactpotentialcreditorsandcommunicateaclaimsubmissiondate(throughnewspapersforinstance).Theliquidatormaythenadmitorrejectaclaim,andwouldoftenaskforfurtherevidencejustifyingthecreditor’sright.

Priority rulesPriorityrulesnormallyapplywhiledistributingtheproceedstothecreditors.Securedcreditorsholdingasecurityinterest(asdefinedinSection12ofthePersonalPropertySecuritiesAct2009)aregivenpriorityagainstunsecuredcreditorsinliquidationproceedings.Expensesflowingfromtheinsolvencyproceedings,forinstance,constituteprioritydebts.Employeesareaspecialclassofcreditorswhichhasadegreeofpriorityoversecuredandunsecuredcreditors.Taxdebtsareconsideredunsecuredandwouldonlybepaidforifsufficientfundsremain.Thepetitioningcreditor’slegalcosts(relatedtotheinsolvencyproceedings)maybeconsideredapriorityandrefundedtothecreditorpriortosharingdividends.

Cancellation of suspect transactions (clawback)Inaddition,theliquidatormaycancelvarioustypesoftransactionsconcludedduring‘suspectperiods’priortotheproceedings.Forinstance,transactionsaimingatavoidingcreditorswithintenyearspriortotheproceedings,unreasonabledecisionstakenbythedirectorswithinfouryearspriortotheproceedings,transactionsfavoringonecreditorovertheothers(unfairpreferences)concludedwithinsixmonthspriortotheproceedings,unfairloans,fraudulenttransactionsetc.wouldbeconsideredproblematic.Incriminatedtransactionswouldthenbevoidandthecreditorwouldberequestedtorefundtheamountsatstake(aclaimwouldbelodgedagainstthecreditor).

How long could insolvency proceedings take?Itisdifficulttoprovidetimeframesforreorganization-basedproceedings,however,liquidationtendstobeeffectiveandfairlyquick(fromsixto18monthsonaverage).

Necessary documentsCopiesofunpaidinvoices,laststatementofaccount,copyofsupplycontract,copyofcreditapplication,proofofdeliveryifnecessary(AWBBOLforexport).

Insolvency @ Euler HermesEulerHermesworkscloselywithdebtors,creditorsandlawyerstoprovidesupportduringinsolvencyandrestructuringprocesses.Withmanyoptionsavailablewhenitcomestoinsolvencyaction,wecanofferadviceonwhichoptionismostsuitable.

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ThisCollectionProfileispublishedbyEulerHermes,acompanyofAllianz,forinformationpurposesonly.Theinformationprovidedthereinshallnotberegardedasprovidinganylegaladviceoradviceofanykind.Readersshouldmaketheirown independentevaluationof this informationandundernocircumstancesshallanyactionbeundertakensolelyrelyingonit,whilelegaladviceshouldbesoughtwithlegalpractitionersatalltimes.Whilethisinformationhasbeencollectedanddraftedbyrecognizedexperts intheirfieldand it isbelievedtobecorrectandreliable,EulerHermesmakesnowarranty(expressofimplied)ofanykind,inregardstotheaccuracyorcompletenessofthisinformation,nordoes itacceptanyresponsibilityor liability forany lossordamagearising inanyway fromanyusemadeof,orreliance placed on, this information. This material should not be reproduced or disclosed without our consent. It isnotintendedfordistributioninanyjurisdictioninwhichthiswouldbeprohibitedandCollectionProfilesaresubjecttochangewithoutnotice.

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EulerHermes,acompanyofAllianz,leaderincreditinsurancesolutionshelpingcompaniesgrowtheirbusinesssafelyathomeandabroad,providesglobalcommercialdebtcollectionserviceswithtrueend-to-endcapability.EulerHermesoffersbothdomesticand international tradedebtcollectionservicesworldwide.Throughournetwork,weuseourexperience and knowledge of local markets to ensure a professional service for our clients from pre-legal actionthroughtolegalproceedings.

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