Alert

Who does this affect?

Companies seeking to effect a complex restructuring or compromise of claims by members or creditors and third party contributories such as financiers, insurers, directors and advisers as well as insolvency practitioners and M&A lawyers.

What do you need to do?

Take note of the developments in schemes law and consider schemes of arrangement for complex restructurings and insolvencies and other compromises involving third party contributories.

Authors
Melissa Fogarty  
Senior Associate

Samantha Kinsey  
Senior Associate

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Tony Troiani  
Partner
T +61 3 9643 4286

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Melbourne
Stephen Minns  

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On Friday, the Full Federal Court affirmed Justice Finkelstein’s decision to approve the Opes Prime schemes of arrangement.

In his ground breaking decision, Justice Finkelstein confirmed that a scheme of arrangement can be used to release third parties, provided that there is a sufficient nexus between the release and the relationship of the parties to the scheme (in this case, the creditors and the scheme companies).

The decision paves the way for schemes of arrangement to be used to achieve the release of insurers, financiers and other third party contributories in complex corporate restructurings and insolvencies. It may also have wider application in the context of solvent schemes of arrangement (members’ and/or creditors’ schemes) involving releases of third party contributories such as insurers, financiers, directors or advisers.

The Full Federal Court’s decision marks a significant achievement for the Ferrier Hodgson and Mallesons team, which first became involved when the Opes Prime companies were placed into administration in March 2008.

The Mallesons team of insolvency and M&A specialists, led by Tony Troiani, advised on all elements of the complex scheme of arrangement, including:

• the bespoke mediation process involving the Opes Prime financiers (ANZ and Merrill Lynch), the liquidators and ASIC

• the use of a scheme of arrangement to achieve a global release of the financiers, in exchange for funding

• the enforceability of schemes of arrangement in foreign jurisdictions

• complex scheme meetings involving different classes of creditors and multiple meetings, and

• the court hearings to approve the schemes.

Mallesons advised on all stages of the court hearings, which involved 13 different contradictors.

A schemes revival?

We predict a re-emergence of creditors’ schemes of arrangement following the Opes Prime scheme, particularly for complex restructurings and insolvencies.

Although creditors’ schemes of arrangement have been quite rare in corporate insolvencies since the introduction of the voluntary administration regime, the Opes Prime scheme illustrates the significant advantages of schemes of arrangement, particularly for restructurings and insolvencies involving third party contributories.

The procedural requirements for schemes of arrangement are, however, greater than the requirements for a deed of company arrangement. In particular, a scheme of arrangement involves detailed explanatory material, a higher threshold for creditor approval (more than 50% in number holding at least 75% of the debt in value as opposed to a simple majority by number and value) and court approval.

Other key learnings

The Opes Prime scheme illustrates the flexibility of schemes of arrangement both in terms of the ability to release third parties and the approval process. Mallesons advised on several novel aspects of the Opes Prime schemes, for example:

• obtaining directions from the court to hear submissions from contradictors at the first court hearing before the creditors’ meetings to approve the schemes

• detailed calculation rules to expedite the assessment of creditors’ claims, and

• a contractual solution for dealing with issues regarding the enforceability of the scheme against foreign creditors.