Companies (Insolvency Assistance)
Amendment Act 1991
No. 34 of 1991
An Act to amend the law relating to companies
[Assented to 21 March 1991]
The Parliament of Australia enacts:
Short title etc.
1. (1) This Act may be cited as the Companies (Insolvency Assistance) Amendment Act 1991.
(2) In this Act, “Principal Act” means the Companies Act 1981.
Commencement
2. This Act commences on a day to be fixed by Proclamation.
Power to compromise with creditors and members
3. Section 315 of the Principal Act is amended:
(a) by inserting after subsection (1) the following subsections:
“(1a) Where:
(a) a compromise or arrangement is proposed between 30 or more corporations that are wholly-owned subsidiaries of a holding company and the creditors or a class of the
creditors of each of those subsidiaries and between the holding company and the creditors or a class of the creditors of the holding company; and
(b) the proposed compromise or arrangement in relation to each subsidiary includes a term that orders will be sought under section 317 transferring the whole of the undertaking and of the property and liabilities of the subsidiary to the holding company; and
(c) the Court is satisfied, on the application in a summary way of the holding company or of a creditor of the holding company or, if the holding company is being wound up, of the liquidator, that the number of meetings that would be required between creditors in order to consider the proposed compromises or arrangements would be so great as to result in a significant impediment to the timely and effective consideration by those creditors of the terms of the compromises or arrangements;
the Court may order a meeting or meetings, on a consolidated basis, of the creditors of the holding company and of each of the subsidiaries or of such class or classes of those creditors as the Court determines and, where the Court makes such an order, the Court may approve the explanatory statement required by paragraph 316 (1) (a) to accompany notices of the meeting or meetings.
“(1b) Where:
(a) there are fewer than 30 wholly-owned subsidiaries of the holding company but the matters referred to in paragraphs (1a) (b) and (c) are satisfied; and
(b) the Court considers that circumstances exist that would justify its doing so;
the Court may make an order under subsection (1a) in relation to the proposed compromise or arrangement.
“(1c) Where an order is made under subsection (1a) in relation to a proposed compromise or arrangement, the succeeding provisions of this Part apply to the compromise or arrangement as if:
(a) references in this Part to a company included references to all of the corporations to which the order relates; and
(b) references in this Part to creditors of a company included references to the creditors of all of the corporations to which the order relates; and
(c) references in this Part to a class of the creditors of a company were references to the relevant class of creditors of all of the corporations to which the order relates.”;
(b) by inserting in subsections (2), (3), (4) and (19) “or (1a)” after “subsection (1)”;
(c) by inserting in subsection (15) “or (1a)” after “subsection (1)” (first occurring);
(d) by inserting in subsection (15) “or (1a), as the case may be” after “subsection (1)” (last occurring).
[Minister’s second reading speech made in—
House of Representatives on 5 December 1990
Senate on 6 March 1991]
Overview
The Companies (Insolvency Assistance) Amendment Act 1991, enacted by the Parliament of Australia, amends the Companies Act 1981 to address the inefficiencies in the insolvency process that can arise when multiple corporations within a corporate group seek to compromise with creditors. The Act aims to streamline the process by allowing the court to order consolidated meetings of creditors, thus reducing the logistical and financial burdens on creditors when multiple subsidiaries and their holding company are involved in compromise negotiations. This amendment provides a more efficient mechanism for resolving insolvency issues within large corporate groups, facilitating quicker and more effective decision-making by creditors. The policy objective is to enhance the effectiveness and timeliness of insolvency proceedings, thereby protecting the interests of all stakeholders involved.
Scope and Application
The Companies (Insolvency Assistance) Amendment Act 1991 amends the Companies Act 1981 to provide greater flexibility and efficiency in the insolvency processes involving multiple related entities within a corporate group. Specifically, this Act applies to proposals for compromises or arrangements between 30 or more wholly-owned subsidiaries of a holding company and their creditors, as well as the holding company itself and its creditors. The primary objective is to facilitate the timely and effective consideration of such proposals by streamlining the process through consolidated meetings, thereby mitigating the significant impediment that would otherwise arise from the necessity of conducting numerous individual meetings. The Act allows the Court to order consolidated meetings of creditors and to approve explanatory statements in these instances, providing a more efficient mechanism for resolving insolvencies within complex corporate structures. The Act’s provisions extend to all corporations involved in the compromise or arrangement, ensuring that the insolvency process is managed cohesively across the entire corporate group.
Key Provisions
The main operative sections of the Companies (Insolvency Assistance) Amendment Act 1991 (hereafter referred to as the "Act") provide for the consolidation of meetings for creditors when a compromise or arrangement is proposed between 30 or more wholly-owned subsidiaries and their creditors, as well as the holding company and its creditors (section 3). The Act introduces amendments to section 315 of the Companies Act 1981 (referred to as the "Principal Act") to allow the Court to order consolidated meetings of creditors, either of the holding company and each of the subsidiaries or of such classes of creditors as the Court determines, when certain conditions are met (section 3(a)). Additionally, the Act allows for such an order to be made even when there are fewer than 30 subsidiaries, provided that the Court considers it justified (section 3(b)). The provisions of this Part are then applied to the compromise or arrangement as if references to the company and its creditors included all corporations to which the order relates (section 3(c)).
The Act imposes obligations and requirements on the parties involved in the compromise or arrangement. The holding company, or a creditor, or the liquidator if the holding company is being wound up, must apply to the Court for an order under section 315 if the proposed compromise or arrangement involves 30 or more wholly-owned subsidiaries and their creditors, and if the Court is satisfied that a significant impediment to the timely and effective consideration of the compromise or arrangement by creditors would result from the number of meetings required (section 3(a)(b)(c)). The Court must consider whether to make an order for consolidated meetings under section 315 when fewer than 30 subsidiaries are involved, but the conditions specified in section 3(b) are met (section 3(b)).
There are no specific offences, penalties, or civil/criminal consequences for breach mentioned in the text of the Act. However, the Court has the authority to order consolidated meetings of creditors under section 315 when the specified conditions are met. Failure to comply with the requirements of the Act or to make an appropriate application to the Court could potentially result in the compromise or arrangement not being approved, which may have financial and legal consequences for the parties involved. It is important to note that the consequences of non-compliance with the Act would be determined by the Court in each specific case.