On 1 January 2021, drastic reforms were made to the Australian insolvency legal landscape through The Corporations Amendment (Corporate Insolvency Reforms) Act 2020 (Cth) (the Amending Act). Despite these reforms only applying to eligible incorporated small businesses with liabilities of less than $1 million, the federal Government has labelled this change as “the most significant to the Australian insolvency framework in nearly 30 years”.
The changes include:
In this two-part article series, we will first look at the SBDR. In our second article, “Simplifying the liquidation process: new laws for small businesses”, you can learn about the new-look simplified liquidation laws.
Prior to the Amending Act, it did not matter whether a business was small or large, or whether the administration of the business was relatively simple or complex – the same rules applied to all.
To briefly summarise the “creditor in possession” insolvency system before the Amending Act, a company typically would be externally administered by way of:
With limited exceptions in a receivership, one key commonality between the three forms of external administration is that directors of the company are no longer in control over the business.
However, as the Government accepts, there may be high costs and lengthy processes associated with the three primary forms of external administration, particularly for small businesses, which may discourage them from engaging with the insolvency system at an early stage in their financial distress. This, the Government says, would sometimes result in limiting a small business’ opportunity to undergo a restructure in bid to survive.
Additionally, as the costs incurred under external administration are borne out of the assets of the distressed company and can sometimes be greater than the value of these assets, the company may be forced into liquidation at the end of the voluntary administration, resulting in reduced returns for creditors and employees.
In bid to eradicate, or reduce, these inefficiencies and cost burdens – enter: the new SBDR.
The new SBDR represents a shift away from the “creditor in possession” model to a “debtor in possession” model by allowing directors of eligible businesses to remain in control of their company to restructure company debts. The rationale is to benefit from the directors’ intimate company knowledge to maximise the company’s chance of survival. Through the appointment and assistance of the Small Business Restructuring Practitioner (SBRP) and with the approval of its creditors, eligible business will be able to develop and implement a restructure plan.
The following are some key features of the SBDR.
To be eligible to access this SBDR process, the company must:
Only registered liquidators are permitted to consent to appointment and to act as a SBRP. Importantly, to ensure independence through the SBDR process, the SBRP cannot be connected with the company and would be disqualified if that person, for example:
The SBRP will advise the company in relation to the SBDR process and assist with the development of the restructuring plan. The company, with the assistance of the SBRP, has 20 business days to prepare and propose the restructure plan to the company’s creditors. The restructure plan must be in an approved form as prescribed by the regulations. The plan may, or be required to (subject to the regulations), contain information relating to the debts and claims that must or may be dealt with, the payment of those debts, the period by when those debts must be paid, and the SBRP’s remuneration.
The plan is accompanied by a restructuring proposal statement, which is also developed by the company, to provide a schedule setting out the company’s creditors, and the amount owed to them by the company. The statement includes a signed declaration to the creditors in accordance with the regulations. The declaration is central to the integrity of the restructure, as it declares to creditors that the SBRP reasonably believes that the company is eligible to the SBDR process, and that the company can conduct its obligations set out in the plan. Conversely, the SBRP can declare that the company is not eligible and provide reasons for that conclusion.
Once the plan has been completed, creditors will be asked to vote in writing on whether or not the plan should proceed within 15 business days (which may be extended). Each creditor’s vote is proportionate to the value of their debt. Creditors who are the SBRP or related to the company are not involved in the voting process.
If the plan is accepted by majority vote (in value of the company’s creditors), the SBPR will assist the director/s to implement the restructure in accordance with the plan. If the plan is rejected, the company may engage alternatives to SBDR, such as voluntary administration or liquidation.
During restructure period, the company will be protected from creditors seeking to enforce a security interest. However, if the company’s property is subject to a possessory security interest and is in the lawful possession of the secured party, the secured can continue possession but cannot sell the property. Further, court proceedings are stayed and barred from being commenced, unless written consent is provided by the SBRP, or leave of the Court is granted.
The company is also prohibited from entering into any transactions concerning company property unless the transaction is made within the ordinary course of the company’s business, or is allowed by court order or consented to by the SBRP.
The temporary COVID-19 safe harbour relief to laws that prohibit insolvent trading has been extended to 31 March 2021 by the Amending Act. This three-month grace period was included by the Government to accommodate for what they anticipated to be a high demand for the SBDR process and a shortage of supply of SBPRs.
The SBRP may terminate the SBDR process at any time but on certain grounds. For example, the SBRP may terminate the SBDR process if they reasonably believe that the company is not eligible, the SBDR is not in the creditor’s interests, or that it would be in the interests of the creditors to end the restructure or to wind up the company. The SBDR may also come to an end if, for example, there was non-compliance with the plan.
To effect termination, the SBRP must give written notice, including the information required by the regulations, to the company and to as many creditors as reasonably practicable. Termination is effected on the day notice is given to the company.
Although the SBRP is not liable to any action or proceedings arising from their decision to terminate, or not terminate, they do owe and retain duties of care and diligence as an officer of the company under the Corporations Act 2001 (Cth).
The SBDR is intended to better assist eligible small businesses by reducing the costs associated with external administration, as well as to reduce the compliance burden for insolvency practitioners. It relies on the intimate knowledge that directors have on the company to maximise the chance of survival for the business. This should have the effect of increasing the viability of small business in these uncertain and challenging times, or increase returns to creditors and employees where a small business cannot be salvaged.
If you or your business is, or will be, affected by these insolvency changes and you are looking for advice, please get in touch with our Litigation and Dispute Resolution group today. We have extensive experience in advising large to small companies as well as directors, liquidators, creditors and other stakeholders of companies in an insolvency context and would be more than happy to assist.
In June 2023, a Canadian Court in South-West Terminal Ltd v Achter Land and Cattle Ltd, 2023 SKKB 116, held that the "thumbs-up" emoji carried enough weight to constitute acceptance of contractual terms, analogous to that of a "signature", to establish a legally binding contract. Facts This case involved a contractual dispute between two parties namely South-West Terminal ("SWT"), a grain and crop inputs company; and Achter Land & Cattle Ltd ("ALC"), a farming corporation. SWT sought to purchase several tonnes of flax at a price of $17 per bushel, and in March 2021, Mr Mickleborough, SWT's Farm Marketing Representative, sent a "blast" text message to several sellers indicating this intention. Following this text message, Mr Mickleborough spoke with Mr Achter, owner of ALC, whereby both parties verbally agreed by phone that ALC would supply 86 metric tonnes of flax to SWT at a price of $17 per bushel, in November 2021. After the phone call, Mr Mickleborough applied his ink signature to the contract, took a photo of it on his mobile phone and texted it to Mr Archter with the text message, "please confirm flax contract". Mr Archter responded by texting back a "thumbs-up" emoji, but ultimately did not deliver the 87 metric tonnes of flax as agreed. Issues The parties did not dispute the facts, but rather, "disagreed as to whether there was a formal meeting of the minds" and intention to enter into a legally binding agreement. The primary issue that the Court was tasked with deciding was whether Mr Achter's use of the thumbs-up emoji carried the same weight as a signature to signify acceptance of the terms of the alleged contract. Mr Mickleborough put forward the argument that the emoji sent by Mr Achter conveyed acceptance of the terms of the agreement, however Mr Achter disagreed arguing that his use of the emoji was his way of confirming receipt of the text message. By way of affidavit, Mr Achter stated "I deny that he accepted the thumbs-up emoji as a digital signature of the incomplete contract"; and "I did not have time to review the Flax agreement and merely wanted to indicate that I did receive his text message." Consensus Ad Idem In deciding this issue, the Court needed to determine whether there had been a "formal meeting of the minds". At paragraph , Justice Keene considered the reasonable bystander test: " The court is to look at “how each party’s conduct would appear to a reasonable person in the position of the other party” (Aga at para 35). The test for agreement to a contract for legal purposes is whether the parties have indicated to the outside world, in the form of the objective reasonable bystander, their intention to contract and the terms of such contract (Aga at para 36). The question is not what the parties subjectively had in mind, but rather whether their conduct was such that a reasonable person would conclude that they had intended to be bound (Aga at para 37)." Justice Keene considered several factors including: The nature of the business relationship, notably that Mr Achter had a long-standing business relationship with SWT going back to at least 2015 when Mr Mickleborough started with SWT; and The consistency in the manner by which the parties conducted their business by way of verbal conversation either in person or over the phone to come to an agreement on price and volume of grain, which would be followed by Mr Mickleborough drafting a contract and sending it to Mr Achter. Mr Mickleborough stated, "I have done approximately fifteen to twenty contracts with Achter"; and The fact that the parties had both clearly understood responses by Mr Achter such as "looks good", "ok" or "yup" to mean confirmation of the contract and "not a mere acknowledgment of the receipt of the contract" by Mr Achter. Judgment At paragraph , Keene J said: "I am satisfied on the balance of probabilities that Chris okayed or approved the contract just like he had done before except this time he used a thumbs-up emoji. In my opinion, when considering all of the circumstances that meant approval of the flax contract and not simply that he had received the contract and was going to think about it. In my view a reasonable bystander knowing all of the background would come to the objective understanding that the parties had reached consensus ad item – a meeting of the minds – just like they had done on numerous other occasions." The court satisfied that the use of the thumbs-up emoji paralleled the prior abbreviated texts that the parties had used to confirm agreement ("looks good", "yup" and "ok"). This approach had become the established way the parties conducted their business relationship. Significance of the Thumbs-Up Emoji Justice Keene acknowledged the significance of a thumbs-up emoji as something analogous to a signature at paragraph : "This court readily acknowledges that a thumbs-up emoji is a non-traditional means to "sign" a document but nevertheless under these circumstances this was a valid way to convey the two purposes of a "signature" – to identify the signator… and… to convey Achter's acceptance of the flax contract." In support of this, Justice Keene cited the dictionary.com definition of the thumbs-up emoji: "used to express assent, approval or encouragement in digital communications, especially in western cultures", confirming that the thumbs-up emoji is an "action in an electronic form" that can be used to allow express acceptance as contemplated under the Canadian Electronic Information and Documents Act 2000. Justice Keene dismissed the concerns raised by the defence that accepting the thumbs up emoji as a sign of agreement would "open the flood gates" to new interpretations of other emojis, such as the 'fist bump' and 'handshake'. Significantly, the Court held, "I agree this case is novel (at least in Skatchewan), but nevertheless this Court cannot (nor should it) attempt to stem the tide of technology and common usage." Ultimately the Court found in favour of SWT, holding that there was a valid contract between the parties and that the defendant breached by failing to deliver the flax. Keene J made a judgment against ALC for damages in the amount of $82,200.21 payable to SWT plus interest. What does this mean for Australia? This is a Canadian decision meaning that it is not precedent in Australia. However, an Australian court is well within its rights to consider this judgment when dealing with matters that come before it with similar circumstances. This judgment is a reminder that the common law of contract has and will continue to evolve to meet the everchanging realities and challenges of our day-to-day lives. As time has progressed, we have seen the courts transition from sole acceptance of the traditional "wet ink" signature, to electronic signatures. Electronic signatures are legally recognised in Australia and are provided for by the Electronic Transactions Act 1999 and the Electronic Transactions Regulations 2020. Companies are also now able to execute certain documents via electronic means under s 127 of the Corporations Act. We have also seen the rise of electronic platforms such as "DocuSign" used in commercial relationships to facilitate the efficient signing of contracts. Furthermore, this case highlights how courts will interpret the element of "intention" when determining whether a valid contract has been formed, confirming the long-standing principle that it is to be assessed objectively from the perspective of a reasonable and objective bystander who is aware of all the relevant facts. Overall, this is an interesting development for parties engaging in commerce via electronic means and an important reminder to all to be conscious of the fact that contracts have the potential to be agreed to by use of an emoji in today's digital age.
The McCabes Government team are pleased to have assisted Venues NSW in successfully overturning a District Court decision holding it liable in negligence for injuries sustained by a patron who slipped and fell down a set of steps at a sports stadium; Venues NSW v Kane  NSWCA 192 Principles The NSW Court of Appeal has reaffirmed the principles regarding the interpretation of the matters to be considered under sections5B of the Civil Liability Act 2002 (NSW). There is no obligation in negligence for an occupier to ensure that handrails are applied to all sets of steps in its premises. An occupier will not automatically be liable in negligence if its premises are not compliant with the Building Code of Australia (BCA). Background The plaintiff commenced proceedings in the District Court of NSW against Venues NSW (VNSW) alleging she suffered injuries when she fell down a set of steps at McDonald Jones Stadium in Newcastle on 6 July 2019. The plaintiff attended the Stadium with her husband and friend to watch an NRL rugby league match. It was raining heavily on the day. The plaintiff alleged she slipped and fell while descending a stepped aisle which comprised of concrete steps between rows of seating. The plaintiff sued VNSW in negligence alleging the stepped aisle constituted a "stairwell" under the BCA and therefore ought to have had a handrail. The plaintiff also alleged that the chamfered edge of the steps exceeded the allowed tolerance of 5mm. The Decision at Trial In finding in favour of the plaintiff, Norton DCJ found that: the steps constituted a "stairwell" and therefore were in breach of the BCA due to the absence of a handrail and the presence of a chamfered edge exceeding 5mm in length. even if handrails were not required, the use of them would have been good and reasonable practice given the stadium was open during periods of darkness, inclement weather, and used by a persons of varying levels of physical agility. VNSW ought to have arranged a risk assessment of the entire stadium, particularly the areas which provided access along stepped surfaces. installation of a handrail (or building stairs with the required chamfered edge) would not impose a serious burden on VNSW, even if required on other similar steps. Issues on Appeal VNSW appealed the decision of Norton DCJ. The primary challenge was to the trial judge's finding that VNSW was in breach of its duty of care in failing to install a handrail. In addition, VNSW challenged the findings that the steps met the definition of a 'stairwell' under the BCA as well as the trial judge's assessment of damages. Decision on Appeal The Court of Appeal found that primary judge's finding of breach of duty on the part of VNSW could not stand for multiple reasons, including that it proceeded on an erroneous construction of s5B of the Civil Liability Act 2002 and the obvious nature of the danger presented by the steps. As to the determination of breach of duty, the Court stressed that the trial judge was wrong to proceed on the basis that the Court simply has regard to each of the seven matters raised in ss 5B and 5C of the CLA and then express a conclusion as to breach. Instead, the Court emphasised that s 5B(1)(c) is a gateway, such that a plaintiff who fails to satisfy that provision cannot succeed, with the matters raised in s 5B(2) being mandatory considerations to be borne in mind when determining s 5B(1)(c). Ultimately, regarding the primary question of breach of duty, the Court found that: The stadium contained hazards which were utterly familiar and obvious to any spectator, namely, steps which needed to be navigated to get to and to leave from the tiered seating. While the trial judge considered the mandatory requirements required by s5B(2) of the CLA, those matters are not exhaustive and the trial judge failed to pay proper to attention to the fact that: the stadium had been certified as BCA compliant eight years before the incident; there was no evidence of previous falls resulting in injury despite the stairs being used by millions of spectators over the previous eight years; and the horizontal surfaces of the steps were highly slip resistant when wet. In light of the above, the Court of Appeal did not accept a reasonable person in the position of VNSW would not have installed a handrail along the stepped aisle. The burden of taking the complained of precautions includes to address similar risks of harm throughout the stadium, i.e. installing handrails on the other stepped aisles. This was a mandatory consideration under s5C(a) which was not properly taken into account. As to the question of BCA compliance, the Court of Appeal did not consider it necessary to make a firm conclusion of this issue given it did not find a breach of duty. The Court did however indicated it did not consider the stepped aisle would constitute a "stairway" under the BCA. The Court of Appeal also found that there was nothing in the trial judge's reasons explicitly connecting the risk assessment she considered VNSW ought to have carried out, with the installation of handrails on any of the aisles in the stadium and therefore could not lead to any findings regarding breach or causation. As to quantum, the Court of Appeal accepted that the trial judge erred in awarding the plaintiff a "buffer" of $10,000 for past economic loss in circumstances where there was no evidence of any loss of income. The Court of Appeal set aside the orders of the District Court and entered judgment for VNSW with costs. Why this case is important? The case confirms there is no obligation in negligence for owners and operators of public or private venues in NSW to have a handrail on every set of steps. It is also a welcome affirmation of the principles surrounding the assessment of breach of duty under s 5B and s 5C of the CLA, particularly in assessing whether precautions are required to be taken in response to hazards which are familiar and obvious to a reasonable person.
The recent decision in New Aim Pty Ltd v Leung  FCAFC 67 (New Aim) has provided some useful guidance in relation to briefing experts in litigation.