Insolvency Reforms
13 October 2020
Insolvent Trading Relief Extended until the end of 2020
On 25 March 2020 the Coronavirus Economic Response Package Omnibus Act 2020 (Cth) (Act) came into effect for a period of six months. The Act contained a number of reforms to the operation of various insolvency laws for financially distressed individuals and businesses. This temporary relief has now been extended to 31 December 2020.
The reforms specific to insolvency law are:
Insolvency Reforms for Small Business
On 24 September 2020, the Government announced a number of insolvency reforms to protect small businesses from the economic impact of the Coronavirus. The intention of these reforms is to enable more small businesses to quickly restructure, and where restructure is not possible, businesses will be able to wind up faster. These measures will commence on 1 January 2021, subject to the passing of legislation. Further, key aspects of the reforms will be progressed through regulations and rules, which are not yet available.
These reforms include:
Additional information on the proposed legislation is available here.
If you have any questions about insolvency reforms or insolvent trading relief, please click here to contact us, or call us on +61 2 9233 7299.
Insolvent Trading Relief Extended until the end of 2020
On 25 March 2020 the Coronavirus Economic Response Package Omnibus Act 2020 (Cth) (Act) came into effect for a period of six months. The Act contained a number of reforms to the operation of various insolvency laws for financially distressed individuals and businesses. This temporary relief has now been extended to 31 December 2020.
The reforms specific to insolvency law are:
- temporary increases to the threshold at which creditors can issue a statutory demand (from $2,000.00 to $20,000.00);
- temporary increase to the threshold at which creditors can initiate bankruptcy proceeding (from $5,000.00 to $20,000.00);
- increased time periods for responses to statutory demands and bankruptcy notices from 21 days to six months; and
- temporary relief for directors from insolvent trading liability (although cases of fraudulent or dishonest insolvent trading may still attract criminal actions).
Insolvency Reforms for Small Business
On 24 September 2020, the Government announced a number of insolvency reforms to protect small businesses from the economic impact of the Coronavirus. The intention of these reforms is to enable more small businesses to quickly restructure, and where restructure is not possible, businesses will be able to wind up faster. These measures will commence on 1 January 2021, subject to the passing of legislation. Further, key aspects of the reforms will be progressed through regulations and rules, which are not yet available.
These reforms include:
- if a small business (less than $1 million in liabilities) becomes insolvent, a “small business restructuring practitioner” will assist the company to restructure its debts;
- while retaining control of the business, the directors of the company then have 20 days to develop a plan. Creditors will not be able to take action against the company during this period;
- after this time, creditors will then have 15 days to vote on the debt restructuring plan (including advisor remuneration);
- if at least 50% of the creditors by debt value vote in favour of the plan, the plan will be implemented. If the creditors vote against the plan, the business will enter into the existing voluntary administration system;
- employee entitlements will be required to be paid out in full before the plan is voted on by creditors and creditors related to directors cannot vote on the restructuring plans; and
- a director or company will only be able to use this process once every seven years.
Additional information on the proposed legislation is available here.
If you have any questions about insolvency reforms or insolvent trading relief, please click here to contact us, or call us on +61 2 9233 7299.
Emma Davies John Graves
Senior Associate Principal
Bradfield & Scott Lawyers Bradfield & Scott Lawyers
Telephone: 9233 7299 Telephone: 9233 7299
Email: edavies@bradscott.com.au Email: jgraves@bradscott.com.au
Senior Associate Principal
Bradfield & Scott Lawyers Bradfield & Scott Lawyers
Telephone: 9233 7299 Telephone: 9233 7299
Email: edavies@bradscott.com.au Email: jgraves@bradscott.com.au
