The Federal Government is working on a major overhaul of the current Insolvency Legislation, due to take effect from 1 January 2021. These changes are targeted to support Australian small businesses with liabilities of less than $1 million, with the intention of simplifying the administration process and making insolvency services more accessible when businesses need it most.
The key reforms worth noting include:
- The introduction of a Small Business Debt Restructuring Process, whereby a Small Business Restructuring Professional (SBRP) will be appointed/selected by the Company to develop an Insolvency plan, review the financial affairs, certify the plan to creditors, and manage any distributions under the plan.
- Proposed safeguards and the impact on creditors including: a prohibition on related party creditors voting on restructure plans, a bar on the company or directors using the process more than once within a 7 year period, the ability for a practitioner to stop a process where misconduct is identified, and the debtor company's proposed plan must achieve a requisite majority to be binding with creditors retaining the right to vote.
- The current Liquidation Process is also being streamlined to reduce time and costs for all parties, including: reduced circumstances in which a liquidator can seek to claw back unfair preference payments from a non-related creditor, easier reporting on the grounds of misconduct, removing requirements to call creditor meetings and instead form committees of inspection, and a simplified dividend and proof of debt process.
It's pleasing to see that the Australian Securities and Investments Commission (ASIC) has recently clarified that only a Registered Liquidator may consent to act as a SBRP, as this recognizes the critical need for suitably qualified insolvency professionals to bring their expertise in overseeing the process.
These amendments to the Corporations Act 2001 are currently in draft by the Federal Government, with additional amendments to still be made to the Insolvency Practice Rules (Corporations) 2016, Insolvency Practice Schedule (Corporations) 2016 and Corporations Regulations 2001.
If you have any questions regarding these amendments, or how they will affect your business or those you trade with, please contact our office on 1800 650 656. We’re here to help your business.
Angus Edwards | Principal