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The federal government has been called to release further details of its proposal to overhaul insolvency laws, as the profession cautiously welcomes the reform plans.
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Profession cautiously receives insolvency reform proposal
25 September 2020
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On Thursday, the government announced plans to reform the insolvency regime, effectively allowing businesses with liabilities of less than $1 million to continue trading while they develop a debt restructuring plan within 20 business days.
The government is also looking to introduce a new small business restructuring practitioner, who will help the business develop a restructuring plan and certify the plan with creditors.
Australian Restructuring Insolvency and Turnaround Association chief executive John Winter said that while reforms to unnecessary processes in small company liquidations were overdue and welcomed, there were other elements within the proposal that needed closer inspection.
“The biggest issue is going to be in the expectation that creditors — from banks through to suppliers, employees, subbies and the like — are going to keep allowing businesses to rack up more debt while this restructuring occurs, knowing that they may end up being owed more and getting nothing,” Mr Winter said.
“With the proposed creation of Small Business Restructuring Practitioners, the government needs to take the opportunity to fully regulate the provision of insolvency and restructuring advice, to shut down the exploding level of dodgy, unqualified advisers who facilitate phoenixing and asset stripping.
“An approach similar to that taken to AFSLs is absolutely essential.”
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CPA Australia’s general manager of external affairs, Jane Rennie, said that while the reform proposal was broadly welcomed, the government needed to release further details and consult closely with the profession ahead of implementing changes.
“We understand the imperative to make these changes quickly. This process needs to be carefully managed to prevent unintended harm to small businesses, their creditors and the practitioners they rely on for advice,” Dr Rennie said.
“Even for small businesses with liabilities of less than $1 million, the issues can be incredibly complex and require detailed review and planning.
“We urge the government to release the details of the proposed reforms as soon as possible to enable CPA Australia and our members to comment, highlight issues and begin getting ready to advise small businesses on the changes.”
Likewise, Chartered Accountants Australia and New Zealand business reform leader Karen McWilliams said the details of the proposed changes needed to be fleshed out.
“In our briefing with Treasury today, we were able to discuss the necessary parameters and safeguards that should be in place, particularly the high professional standards required for the proposed Small Business Restructuring Practitioners,” Ms McWilliams said.
“This is a complex piece of reform, which has the potential to curtail many future pain points for business but also requires very careful analysis and detailed feedback, which we look forward to continuing to provide to Treasury.
“Further, as these measures will be permanent rather than temporary during the pandemic, we consider it critical for there to be an in-built review process for late next year to ensure that the laws are still fit for purpose and relevant.”
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