VOLUNTARY ADMINISTRATION OF A TELEVISION NETWORK, WHAT DOES THAT MEAN?
The voluntary administration of Channel Ten stunned Australia on Wednesday morning, 14 June 2017.
Early that morning, Channel Ten was forced to call in Administrators, KordaMentha, to help run the company following the decision by Bruce Gordon and Lachlan Murdoch not to guarantee a $250 million re-finance package.
What does that mean for the network channel, shareholders and creditors? For starters, voluntary administration is a process where an insolvent corporate entity is placed in the hands of an independent person who will analyse and assess all the options available, and generate the best outcome for a business owner and its creditors.
Voluntary administration has become a popular form of external administration since its introduction in 1993 with more than 1,000 companies entering this form of external administration each year. Insolvency aims to focus both on prevention and rehabilitation of corporate entities. Australian legislation seeks to deter directors from allowing their businesses to continue to trade into deeper insolvency, by way of the laws against insolvent trading, and the legal duty of a director to consider creditor interests in the face of financial distress.
The Corporations Act 2001 (Cth) (“the Act”) also provides avenues for companies to be rehabilitated outside the formal process of liquidation, particularly via Pt 5.3A of the Act.
The aim of voluntary administration is to allow companies in financial distress time to develop and implement a restructuring plan with its creditors or at least to allow time to plan for an orderly sale of the assets through liquidation.
The advantages of voluntary administration (for the company and the creditors) are that:
The company can put forward a proposal to the creditors without the need for the sanction of the courts and this will, if accepted, bind all creditors with provable debts;
The change of control can occur swiftly and without too much cost;
Directors are not in control of the company during the life of the administration;
During the term of the administration, the company is protected from attack from creditors while the administrator formulates a proposal which will be put to the creditors concerning the future of the company;
Creditors are the ones affected by the company’s hardship and creditors are the one who are given the power to decide on the fate of an insolvent company; and
Administration is not usually a lengthy process, so creditors are not precluded for any substantial period from taking action against the company if a resolution of the company’s affairs is not viable.
Although voluntary administration has a number of advantages, there are potential disadvantages for creditors such as suppliers (who do not hold a security interest under the Personal Property Securities Register) with reservation of title clauses in their supply contracts, who are prevented from recovering their property held by the company without the administrator’s or the court’s permission. Clearly, there is no perfect insolvency system that is without disadvantages.
Voluntary administration is generally accepted as being a useful tool for corporate restructuring that largely achieves its aims, as witnessed with Channel Ten appointing KordaMentha, to act as Administrators of the Network as opposed to winding the network down completely.
So far, it has been reported that KordaMentha will run the TV network as much as possible on a as usual basis. This will hopefully allow KordaMentha to work closely together with the network’s management, employees, suppliers and content partners while undertaking a financial and operational assessment of the company.
Time will tell as to whether the general public will notice the aftermath of Ten’s administration by way of continued re-runs of television shows or more advertising during television programs.
Until KordaMentha or Channel Ten provide any further statement, the administration will continue until it is terminated by one of the events contained in Section 435C(2) and (3) of the Act. The major events are:
A deed of company arrangement executed by the company and the deed’s administrators;
Channel Ten’s creditors resolve that the administration should end or be wound up;
A Court orders the end of the administration, for example, because of some abuse of the Pt 5.3A process;
The period prescribed by Section 439A(5) of the Act for the meeting of creditors ends without the convening of the meeting;
Channel Ten fails to execute a proposed deed of company arrangement; or
The Court appoints a provisional liquidator or orders a winding up.
The administration will be interesting. One of the major assets of Channel Ten, irrespective of its debt levels and perhaps the only jewel in the Crown, is its free-to-air television licence. At present, there are only four such licences. Successive Commonwealth Governments of both major political/persuasions have guaranteed that free-to-air will have marque sporting events. The ultimate destination of this licence will be one of the fundamental issues in the administration.
Should anyone have any interest or involvement in the administration of Channel Ten either as creditors, debtors, employee or supplier, they are invited to contact our Michael Tourkakes, De Marco Lawyers Principal and head of the Commercial & Corporate, Insolvency & Liquidation Practice.
This article is intended only to provide a summary of the subject matter covered. It does not purport to be comprehensive or to render legal advice. No reader should act on the basis of any matter contained in this article without first obtaining specific professional advice.
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