A Brief Conversation: Speaking

with Scott Atkins, Deputy Chair and Head of Risk Advisory at Norton Rose Fulbright Australia

Nerissa Puth

Once a law student at Macquarie University, Scott Atkins is now an internationally renowned financial restructuring and insolvency lawyer, currently sitting as the Deputy Chair and Head of Risk Advisory at Norton Rose Fulbright Australia. With a vast portfolio across the globe, Scott has contributed his expertise widely in advising nations and governments on insolvency and restructuring law reform. Scott is also the Vice-President and Fellow of the International Association of Restructuring, Insolvency & Bankruptcy Professionals (‘INSOL International’), as well as President of the Australian Restructuring Insolvency and Turnaround Association (‘ARITA’), Australia’s peak insolvency and restructuring professional association. Relieved that my request for an interview was granted, I spoke to Scott about how Australia has adapted its laws to assist in the survival of businesses and commerce during the COVID-19 period and the emerging question of what will happen when temporary relief for businesses reaches an end. Our conversation took a plunge into a project to assist the Asian Development Bank (‘ADB’) in crafting and modernising the 106-year old insolvency law in emerging Myanmar, the importance of corporate rehabilitation and value preservation, and the twists and turns that are entailed in the work of an insolvency and financial restructuring practitioner. The Brief would like to thank Scott Atkins for his time, and his incredible insight into insolvency and restructuring law reform.

How has the Australian government supported businesses facing distress during the COVID-19 period?

It’s a very interesting question and I think the government has responded in two ways. The first is by providing financial support and we have seen the unprecedented levels of support through the financial and economic stimulus packages released in March, which included JobKeeper and subsequently the JobSeeker and JobMaker payments and programs. That has had an incredible impact on some sectors of the economy to keep people at least financially covered. It has also allowed businesses to keep their doors open; to continue to provide employment and to provide services. I think the reason why we have seen a reduced number of businesses failing and insolvencies is, of course, because the stimulus package has made a difference. That is the economic side of the government’s response.

On the other side of the equation, the government has undertaken some reform of the Corporations Act 2001 (Cth) to provide important modifications that have staved off insolvency for businesses. That includes putting in place a moratorium in effect for insolvent trading for 6 months that will go through until the end of September 2020. What that means is that directors will be able to focus on saving the businesses that they are directors of, rather than being focused on and distracted by the risk of personal liability to which they would otherwise be exposed for (potentially) insolvent trading. That has been a significant benefit for many small businesses, as well as, medium and larger businesses.

There have also been changes to the Banktupcy Act 1966 (Cth) which have provided relief (in timing terms) from bankruptcy for individuals. For individuals, there has been a change to the period of time within which debts need to be repaid so that bankruptcy notices have a longer period for compliance. This has been quite important and it means that anyone receiving a bankruptcy notice has 6 months within which to meet it. That extended period, as well as the increase in the minimum amount of the debt that needs to exist before a bankruptcy notice can be issued, means that it is much harder to bankrupt individuals.

I think that if you look at each of the elements of the corporate reform package and the personal bankruptcy package, together with the economic stimulus, it is clear that the government has done a considerable amount to lessen the impact of the downturn that has been caused by COVID-19.

You mentioned earlier that a few packages entail a time limitation. In your opinion, once we surpass the time limitation set by sunset clauses, how can the economic recovery of businesses be supported beyond the initial support by temporary relief packages?

It’s a great question because what we need to be most concerned with is ensuring that businesses are able to operate in a viable fashion without government support because government support will not exist forever. We also need to avoid situations where ‘zombie companies’ begin to appear. The concern is that companies will not be able to operate without the support, but there is also nothing that would trigger them to go into insolvency. To avoid that, [it is] critical for many businesses to look very carefully at their balance sheet, their financial position, obtain appropriate advice from appropriate qualified experts to work out ahead of time what restructuring and operational changes may need to be undertaken and whether businesses need to change their mix of staffing and resources. These efforts should all be very much directed towards trying to ensure that their businesses are as strong and robust as possible.

If, having undertaken those reviews and doubt about the viability of the business is raised, then appropriate action needs to be taken as soon as possible so that creditors are not left out of pocket and anyone dealing with the business is not exposed to financial collapse. It is important to be proactive in understanding what needs to be done for each business and that is what business owners should be encouraged to do right now.

I note that you have previously referred to

Australian insolvency laws as draconian. Do you think the reforms that flow from COVID-19 will create an impetus for larger and meaningful reforms in Australia?

I would hope so. I think the COVID-19 reforms that were put through the Corporations Act 2001 (Cth) demonstrate that we are equipped to undertake law reform much more swiftly. The reforms that the government drafted and put through to parliament, admittedly, in strange circumstances, were the result of an intensive amount of work in a short space of time. It just shows that when there is the right political will, reform can be achieved very quickly. It doesn’t need to take decades to review what needs to be changed [before] undertaking change. I’d like to think that one lesson that we have learnt is that law reform should happen more swiftly.

Perhaps, [the COVID-19 reforms] are also an opportunity to take a deep dive into Australian insolvency laws and how they can be improved. My own view is that our insolvency laws are not well designed to support micro and small to medium sized enterprises. On the whole, our insolvency law is geared towards helping much bigger businesses to deal with the insolvency process. Our laws do not effectively, economically or efficiently support the insolvency or restructuring of small enterprises, and it is important to recognise that the majority of businesses operating in the Australian economy are small businesses. So, I think that there is a substantial opportunity to look at law reform in insolvency.

I also think that we have tried to improve the operation of insolvency law in recent years to achieve more effective outcomes. For example, two years ago, we introduced ‘ipso facto’ and ‘safe harbour’ reforms. These were directed towards trying to support the restructuring of businesses in financial distress to prevent or stave off entry into the formal insolvency process, in particular into voluntary administration. Those reforms probably have been effective, but I think there is a lot of room for further improvement. In Australia, we still have the tendency to put a company in financial distress into voluntary administration as the primary response. The empirical evidence is conclusive; most companies that enter into voluntary administration proceed into liquidation, which results in the shutdown of the business and sale of the assets. Also, the return for creditors works out to be on average 11 cents in the dollar. That is not a compelling return and I think there is a lot of room for improvement to enhance the insolvency process.

If [we have a close] look yet again on what is considered draconian – it is the personal liability of directors for insolvent trading. Australia still has the capacity to send directors to jail for insolvent trading. Admittedly, it has happened very rarely and only in the most extreme circumstances. However, it does operate as a significant disincentive for some people to set up businesses in Australia and it also creates a disincentive to use our insolvency processes in some situations.

That’s really interesting! Out of curiosity, I would like to hear more about how you became involved in efforts to modernise Myanmar’s insolvency regime. What does corporate rehabilitation and value preservation mean? Why are these important best practice principles?

The work that I’ve undertaken in Myanmar together with my colleague John Martin has now extended over four years. We had a genuine interest in wanting to work with an emerging economy in the insolvency reform space and were fortunate enough to be invited to put a proposal forward to the Asian Development Bank who sponsored the project. We were assigned the task of working with the ADB and the Union Supreme Court of Myanmar to design a new insolvency law. The primary focus was to modernise a 106-year-old law.

The interesting thing about Myanmar is that it has a rapidly growing economy. It is attracting a lot of foreign investment, but it is at a critical juncture where foreign investors are reluctant to put their money in the country unless they understand what will happen in the event of an insolvency or a failing of any investment. One of the primary drivers for modernising Myanmar’s insolvency law is that Myanmar, even more so than Australia, is comprised of micro and small enterprises. There are very few medium enterprises and almost no large enterprises, but some enterprises are growing to be large very quickly. So, we needed to build an insolvency law that was fit to the Myanmar economy and was responsive to the culture of the country.

So, we built a bespoke insolvency law that is efficient, readily accessible and easy to use. Myanmar has a number of public institutions that are going through a process of modernisation – one of them is the court system. Like a lot of countries in a similar position in their development cycle, the courts are

perhaps under resourced and heavily congested. So, part of the design is to ensure that business owners can go through a rehabilitation process without calling on the assistance of the courts. Hence, we designed the corporate rehabilitation process that enables the business owners, with the assistance of an advisor (an accountant or lawyer) to come up with a plan on how to deal with creditors and to re-organise their businesses to hopefully continue in operation. It’s all very much directed towards ensuring that businesses can be saved where possible and value in those businesses can be preserved. If not, [it is to also ensure] that the capital from those businesses can be recycled in the economy so that valuable capital does not become tied up in unsuccessful or failed ventures. The law came into operation in April – it is Act 1 of 2020 (in Myanmar). We are very much looking forward to seeing the first of the insolvencies under the new law and as it starts to evolve as the country begins to deal with the financial impacts of the pandemic.

That’s really interesting, especially your point of ensuring that reform entail a cultural fit to the country. Some of our student writers have offered to write on topical issues such as the voluntary administration of Virgin Airlines and so, many are curious in exploring restructuring and insolvency as an evolving field. What advice would you give to

Macquarie University students with an interest in restructuring and insolvency?

I don’t think many people at the undergraduate level plan to become insolvency lawyers or insolvency accountants. I think that it’s a field that people discover once they start working and become exposed to a mix of corporate law, finance law, and insolvency and restructuring law. It allows for exposure to problem solving in some of the most complicated situations possible because almost every insolvency begins with a high level of distress for the business, the operators of the business and the stakeholders. So, crisis management is one of the hallmarks of many insolvencies – everything happens very quickly and all at once initially.

The complications that arise in insolvencies are quite extraordinary. When a business operates in a normal fashion, decisions are made on a daily basis by management. When all of that stops, you need to figure out how to unscramble the egg or untie the ball of wool – that is never easy. Often, books and records are never complete, relevant legal issues are complicated and not necessarily clear, which is why we have a lot of litigation in the insolvency space to either clarify the operation of law, to apply principles to work out who has the best claim to assets or who has an obligation owed to the company that needs to be met. I think the reason why people find financial restructuring and insolvency fascinating is because it is a mix of different knowledge and skills. It draws from everything; litigation, corporate advisory, finance, banking, intellectual property, employment law – there is no single domain of law that doesn’t pop up in an insolvency. When the insolvencies are more complex because the business operates in multiple countries all at once, the level of challenge is increased – however, so is the excitement and reward.

My advice with anyone who has an interest in a mix of disciplines of law that cover a broad spectrum would probably find insolvency and restructuring a fascinating discipline. I also find that, for whatever reason, people are always fascinated by corporate collapse. That of itself attracts people who are interested in investigation and forensic related matters. It makes the work more interesting – no job is ever the same, no insolvency is ever the same and there are always unpredictable twists and turns. It’s challenging, but it makes the work very rewarding.