Australian banks have historically relied on formal liquidation,
voluntary administration and receivership processes available under
the under the Corporations Act 2001 (Cth) and under general law
where informal restructurings have failed. There has been little
appetite for exploring alternative methods to exit distressed
situations by debt trading.
Until recently, an immature secondary debt market and general
unwillingness to see potential upside returns flow to distressed
investors exacerbated the reluctance of lenders to exit distressed
situations by trading out of risk positions.
Australian banks now view trading out of distressed loans as a
viable option, often assessed at the outset of an informal
restructuring and used as a benchmark indicator for assessing other
exit strategies.
