The Federal Government announced changes to Australia’s insolvency framework introducing new processes aimed at reducing complexity, time and costs for small businesses from 1 January 2021.
The reforms include a new:
- restructuring relief for incorporated small businesses
- simplified liquidation process for incorporated small businesses
- ‘class’ of registered liquidator who can only undertake the debt-restructuring process.
The changes will allow eligible small businesses to quickly restructure their debt while remaining in control of their companies and improving their opportunity to survive the economic impact of COVID-19.
These reforms apply to your small business if it:
- is a registered company, and
- has liabilities of less than $1 million.
If you are a sole trader or in a partnership, these reforms do not apply to your business.
The temporary restructuring relief provided by the reforms gives small business directors time to consider if your company can enter a restructuring process.
The restructuring process allows eligible companies to:
- retain control of the business, property, and affairs of the company while it develops a plan to restructure the company’s affairs with the assistance of a small business restructuring practitioner, and
- enter into a restructuring plan with creditors.
The temporary restructuring relief:
Stops creditors who are owed less than $20,000 (up from $2,000) from issuing a statutory demand to wind-up your company.
Gives you six months to respond to any statutory demand you receive (temporary increase from 21 days).
Gives you a temporary safe harbour from personal liability for insolvent trading for debts incurred in the ordinary course of your company’s business.
Companies wishing to apply for temporary restructuring relief must do so by 31 March 2021.
For more information or to discuss further, please discuss with your Client Relationship Manager.