Whyalla wipeout: State-sponsored upending of creditor waterfall?

Background

On 19 February 2025, the South Australian government forced OneSteel Manufacturing Pty Ltd (the Company), the operator of the Whyalla steelworks, into external administration in response to protracted failures to pay outstanding royalties owed to the State and trade debts of at least $300 million.

The administrators’ appointment was procured by urgent amendments to the Whyalla Steel Works Act 1958 (SA) (the Whyalla Act). By the introduction of new sections 3A and 3B into the Whyalla Act, any amounts owing by the Company to the State were declared to be a first ranking charge which was deemed to be a security interest for the purposes of the Personal Property Securities Act 2009 (Cth).

A critical aspect of the amendments was the deeming of the State’s newly created charge as a “statutory interest” to which section 73(2) of the PPSA applied, thereby empowering the State to determine the priorities afforded to that statutory interest and all other security interests in the Company’s property. The cumulative effect of these amendments was to deem the State as a first ranking secured creditor with the right to appoint administrators pursuant to section 436C of the Corporations Act 2001 (Cth).

Immediate implications

At time of writing, the State and Federal governments have committed approximately $384 million to fund the conduct of the external administration, with approximately $100 million already paid by the State to the administrators to cover initial trading expenses and remuneration, with the remaining $300 million to be drawn upon to the extent required. In addition, current information arising from the first meeting of the Company’s creditors held on 6 March 2025 indicates that total creditor claims appear to exceed $1 billion, with approximately half of those debts allegedly owed to the Company’s related entities within the GFG Alliance group of companies, with most of the remainder owed to unrelated third-party creditors, including Golding Contractors. It is presently unclear whether the creditor body comprises any bondholders or holders of convertible note-type instruments.

Even with the absence of more granular detail regarding the identity and extent of the Company’s creditors, the State’s resort to special legislation to not only seize control of the Whyalla steelworks’ operations but confer upon itself first-ranking secured creditor status, represents an extraordinary intervention. Whatever rationales may be cited from a national security perspective (including the protection of critical economic infrastructure), the recent amendments to the Whyalla Act represent a dramatic sovereign intervention in conventional practice regarding the operation of creditor priority waterfalls, particularly given the current uncertainty as to the viability of a potential deed of company arrangement (DOCA) and any proposed post-DOCA treatment of creditors (including differential and/or preferential treatment for the State and certain other selected creditors deemed to be integral to any successful restructure of the Company’s operations).

At the very least, if the Whyalla Act amendments result in forced creditor adjustments, it raises a prospect of State-sanctioned restructuring of “significant economic assets” which, if replicated by other Australian governments holding substantial debt positions, may become a material sovereign risk consideration for current and future investors.

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Authored by: 
Pravin Aathreya, Partner