The government has proposed significant reforms to Australia’s insolvency framework in response to financial impacts on businesses resulting from COVID-19.

These reforms will enable small businesses to quickly restructure to maximise their chance of survival. Where this is not possible, directors of small businesses will have the option to wind up the business in a simple and more cost effective manner.

The changes are proposed from 1 January 2021 onwards, subject to the passing of legislation.

The announcements are:

1. A new debt restructuring process to help viable financially distressed businesses to maximise the chances of their survival.
2. A simplified and more cost-effective liquidation process which will be quicker and increase the returns for creditors and employees.
3. Complementary measures to assist the insolvency sector to respond effectively to increased demand and to the needs of small businesses.

Debt Restructuring Reform

Eligibility criteria

• Incorporated businesses with liabilities of less than $1 million.
• Employee entitlements due and payable must be paid.
• Outstanding tax returns must be lodged.

Key elements

• A “small business restructuring practitioner” (SBRP) is appointed.
• The business owner remains in control of the business and continues to trade in the ordinary course of business.
• Unsecured and some secured creditors are prohibited from taking actions against the company. A personal guarantee cannot be enforced against a director or one of their relatives during this period.
• A restructuring plan will be developed jointly with the owners and a “small business restructuring practitioner” who will oversee the process.
• A majority of creditors will be required to vote in favour of the proposed restructuring plan for it to be binding.

Simplified Liquidation Process

Eligibility criteria

• Incorporated businesses with liabilities of less than $1 million.

Key elements

• No requirement for creditors meetings or Committees of Inspections.
• Simplified dividend process.
• Reduced circumstances of unfair preference payments.
• Liquidator has reduced investigative responsibilities and fewer reporting functions.

Learn more

If you would like to discuss options available to your small business please contact Cameron Woodcroft, Nigel Markey, Brad Hellen or your Pilot advisor on 07 3023 1300.