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Legislation setting out reforms to Australia’s insolvency framework has now been introduced into Parliament.
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Small business insolvency reforms land in Parliament
13 November 2020
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The Corporations Amendment (Corporate Insolvency Reforms) Bill 2020 has now been introduced, laying out significant changes that the government contends will help small businesses restructure and survive the economic impact of COVID-19.
The reforms are set to kick in from 1 January 2021 pending the passage of legislation.
Among the changes include allowing businesses with liabilities of less than $1 million to continue trading while they develop a debt restructuring plan.
A debt restructuring process begins with the appointment of a small business restructuring practitioner, who is now required to be a registered liquidator.
The government believes relying on registered liquidators will ensure the practitioner has the requisite qualifications, knowledge and experience necessary to support a distressed small business through the debt restructuring process and to develop a debt restructuring plan to put to creditors.
The bill also details a temporary safe harbour to prevent directors from being liable for insolvent trading where a company intends to enter into the formal debt restructuring process but has been unable to secure and appoint an external administrator.
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The temporary relief period will be between 1 January 2021 and 31 March 2021, with the safe harbour to apply for three months, or for a further month if the company seeks an extension.
Where business are unable to survive, the bill also introduces a new simplified liquidation pathway that is intended to ensure greater returns to creditors and employees.
The simplified liquidation process will disapply certain features of the general process relating to reporting to ASIC, meetings and the appointment of reviewing liquidators and committees of inspection.
The bill also contains measures to provide more flexibility to ASIC-convened committees considering applications for registration as a liquidator or trustee to allow an applicant to be registered even if the committee is not satisfied of particular criteria.
Treasurer Josh Frydenberg and Assistant Treasurer Michael Sukkar said the legislation set out the “most significant changes to Australia’s insolvency framework in 30 years”.
“The reforms will cover around 76 per cent of businesses subject to insolvencies today, 98 per cent of whom who have less than 20 employees,” Mr Frydenberg and Mr Sukkar said in a joint statement.
“Together, these measures will reduce costs for small businesses, reduce the time they spend during the insolvency process, ensure greater economic dynamism, and ultimately help more small businesses through the recovery phase of the COVID-19 crisis.”
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