insolvency reforms to support small businesses
2 mins reading time
On 24 September 2020 the Federal Government announced, as part of its JobMaker plan, a package of reforms directed at streamlining insolvency processes for small businesses.
The reforms draw on key features of the US Chapter 11 bankruptcy process and include:
- the introduction of a ‘debtor-in-possession’ model for businesses with liabilities under $1 million, allowing directors to remain in control whilst formulating a debt restructuring plan alongside a restructuring practitioner;
- business owners have a 20 business-day period to develop a restructure plan for the company, which creditors then have 15 business days to vote on;
- a new, simplified liquidation process to reduce the time and costs of the winding up of small businesses; and
- a series of further and complementary measures including (without limitation):
- relaxing of registration requirements for insolvency practitioners to encourage more practitioner to enter or re-enter the market; and
- converting key processes set out in the Corporations Act 2001 (Cth), such as means of communication and voting, to be ‘technology neutral’ to allow insolvency practitioners to focus on the substantive issues.
The Treasurer is yet to put the draft legislation before Parliament but these measures are due to commence on 1 January 2021, which coincide with the expiry of the current COVID-19 insolvency relief measures on 31 December 2020.
In the meantime, a fact sheet outlining the new measures has been released by the Treasurer.
The devil will be in the detail. Directors need to be aware that these changes will significantly affect insolvency and restructuring considerations for small businesses.
We will report further when the draft legislation is released. If you have any questions, please contact us.
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insolvency reforms to support small businesses
On 24 September 2020 the Federal Government announced, as part of its JobMaker plan, a package of reforms directed at streamlining insolvency processes for small businesses.
The reforms draw on key features of the US Chapter 11 bankruptcy process and include:
- the introduction of a ‘debtor-in-possession’ model for businesses with liabilities under $1 million, allowing directors to remain in control whilst formulating a debt restructuring plan alongside a restructuring practitioner;
- business owners have a 20 business-day period to develop a restructure plan for the company, which creditors then have 15 business days to vote on;
- a new, simplified liquidation process to reduce the time and costs of the winding up of small businesses; and
- a series of further and complementary measures including (without limitation):
- relaxing of registration requirements for insolvency practitioners to encourage more practitioner to enter or re-enter the market; and
- converting key processes set out in the Corporations Act 2001 (Cth), such as means of communication and voting, to be ‘technology neutral’ to allow insolvency practitioners to focus on the substantive issues.
The Treasurer is yet to put the draft legislation before Parliament but these measures are due to commence on 1 January 2021, which coincide with the expiry of the current COVID-19 insolvency relief measures on 31 December 2020.
In the meantime, a fact sheet outlining the new measures has been released by the Treasurer.
The devil will be in the detail. Directors need to be aware that these changes will significantly affect insolvency and restructuring considerations for small businesses.
We will report further when the draft legislation is released. If you have any questions, please contact us.