Insolvency Reforms to Support Small Business – More Options for SMEs
On 23 September 2020, the Federal Treasurer announced proposed reforms to the Australian insolvency regime with an implementation date of 1 January 2021. This Bill has now been passed both Houses of Parliament, effective 10 December.
The proposed reforms provide business owners in financial distress a simplified way to manage their affairs which will give them more control to operate their business, as they work with an insolvency practitioner to restructure their business and business debts and develop a plan that will be acceptable to their creditors and trade out of the crisis.
The Federal Treasurer confirmed he wants to implement a process that is simple and that will allow viable businesses, impacted by the global pandemic and economic crisis, to restructure their business and to remain in control of their business as they design a plan to repay their creditors.
Initial information from Government fact sheets confirm the following:
Further regulations governing the legislation will be required. We expect them to be announced shortly. It is intended that a two-tiered approach will separate companies into two groups, those with creditors exceeding one million and those with creditors of less than one million.
Those companies with creditors of less than one million would benefit from a simplified system that would allow the following mechanisms to operate.
In summary, the proposed reforms offer the opportunity to preserve the value of the business, allow for a restructured business that is viable to continue to operate under the control of the owners, assisted by an insolvency specialist and trade out of the crisis, with clear plan to repay the creditors.
In addition, if the process is followed appropriately, the directors will avoid the risk and potential personal liability of trading whilst insolvent. The creditors may receive more under this process than if the directors had placed the company into liquidation.
Hamilton Murphy are Insolvency & Restructuring Specialists with offices across Australia who understand small business and have a proven record of asking good questions, listening carefully to your clients so they can provide practical advice and options that are tailored to your unique circumstances.
We will continue to monitor the detail within the proposed reforms and provide updates as more information becomes available.
Should you have any queries regarding the above information or any related matters, please do not hesitate to contact our team via our website Hamilton Murphy or send us an email at [email protected].
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