New Small Business Insolvency Reforms from 1 January 2021
On 24 September 2020, the Treasurer announced the largest insolvency reform in 30 years for small businesses. The legislation — Corporations Amendment (Corporate Insolvency Reforms) Act 2020 (Cth), was recently passed by Parliament and came into effect on 1 January 2021.
The legislation had three main components:
1. Small Business Restructuring;
2. Simplified Liquidation for Small Businesses; and
3. Further Measures.
In brief, Small Business Restructuring was introduced to help eligible businesses stay in business by restructuring their debts. It provides a quicker and less complex way to deal with debts, involving the appointment of a Small Business Restructuring Practitioner (SBRP). The SBRP will work with the business to formulate and implement a restructuring plan, which must be approved by the company’s creditors. To be eligible the business must not have debts exceeding $1m. Other eligibility criteria apply.
Simplified liquidation will mean small businesses can complete liquidations quicker and at a lower cost than usual. It will only be available for creditors’ voluntary liquidation and not for members’ voluntary liquidation or court ordered liquidations. The simplified liquidation process will remove some of the red tape, such as holding meeting of creditors.
Further measures, such as electronic communications with creditors, were enacted to ensure the insolvency industry is able to communicate with creditors in a timely and cost effective manner.
Full details about the nature of these reforms can be found here.
If you would like to learn more about the new changes to insolvency laws, please contact Australian Company Liquidations on 1800 175 497. We are registered company liquidators who offer a free 24/7 insolvency hotline for Australian directors seeking expert advice.