New bankruptcy rules favour small business

Businesses with less than $1 million in liabilities can continue trading under a proposed overhaul of insolvency rules by the federal government

On 23 September 2020 the government announced a new insolvency regime which is planned to streamline the existing restructuring process of a voluntary administration. The aim is to help more small businesses restructure and survive the economic impact of COVID-19, a great initiative for small businesses which are often bullied by bigger business.
 
The new insolvency regime will adopt key aspects of the US Chapter 11 Bankruptcy process and will introduce a simpler, faster and more cost effective insolvency process specifically designed for small incorporated businesses with liabilities of less than $1 million.
 
Under the new regime, such businesses will be able to keep operating whilst they develop a debt restructuring plan which creditors will consider and vote whether to accept the plan.
 
Unlike under a voluntary administration appointment, owners will remain in control of the business whilst a plan is developed during a period of 20 business days. During this period, there will be a moratorium on unsecured and most secured creditors taking action against the company. Creditors will then have 15 business days to vote on the plan.

The new process will involve a small business restructuring practitioner who will help prepare the plan, certify the plan to creditors and oversee disbursements once the plan has been accepted by creditors. In the event the plan is not approved, the incorporated entity may be placed into voluntary administration or a new simplified liquidation process currently being legislated. The new simplified liquidation process also available to companies with less than $1 million in liabilities will be more cost effective by streamlining meetings and reporting requirements.
 
The government’s intention is for this new insolvency regime to commence 1 January 2021 , after the temporary insolvency measures introduced earlier this year are lifted. This initiative should make small businesses much more robust.

Call in at your local TaxAssist Accountants for help with any of the above.

Date published 25 Sep 2020 | Last updated 25 Sep 2020

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