Vol 22 (2025) - Issue 3

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Whyalla Wipeout: State-Sponsored Upending of the Creditor Waterfall?

Synopsis
A fundamental purpose of Australia's formal corporate insolvency laws is the provision of fair and orderly processes (administered by an independent external administrator typically appointed either by the insolvent company's directors or its most significant secured creditor) for dealing with the company's financial affairs. Such processes contemplate 'pari passu' distribution between unsecured creditors subject to the priority rights of secured creditors and certain special 'priority rules' conferring priority entitlements to proceeds from realisation of the insolvent company's assets upon particular creditor categories, including employees.
A cardinal feature of this largely creditor-centric regime is a stable and universally accepted set of legal rules that binds all creditors and stakeholders (including government agencies and bodies) to the outcomes of the external administration regime (being either a voluntary administration or a liquidation). However, the durability and predictability of this regime has recently been sharply brought into question by the dramatic
intervention of the government of the state of South Australia in the operations of the Whyalla steelworks, an intervention that directly triggered the appointment of external administrators to the steelworks' operator, OneSteel Manufacturing Pty Ltd (the 'Company'). As will be explained below, the steps taken by the South Australian government in orchestrating the appointment of administrators to the Company potentially represents an unprecedented liability management approach. The question which emerges is whether that approach could be deployed by other Australian governments to either seize effective control of significant economic infrastructure or otherwise elevate their status as creditors to a preferred or pre-eminent position that would not otherwise be achievable under orthodox pari passu distribution principles. Any such result will potentially represent a material sovereign risk consideration for current and future investors.