Insolvency reforms that will allow small businesses to restructure their debts or wind up their operations faster have now kicked in.
Changes to Australia’s insolvency framework have been in effect since 1 January 2021, allowing eligible businesses experiencing financial distress to access a new, simplified debt restructuring process, or enter into a new simplified liquidation pathway to allow for a faster and lower-cost liquidation process.
The new processes will be available to incorporated businesses with liabilities of less than $1 million.
Businesses will also need to have paid all entitlements that it owes its employees and have their tax lodgements up to date.
The simplified debt restructuring process will involve a small business restructuring practitioner who will assist directors in developing a debt restructuring plan.
Entities that are looking to access the simplified debt restructuring process will need to act before 31 March by publishing their declaration on ASIC’s published notices website, and provide ASIC with a copy of their declaration within 5 business days after it is made.
“From the date a declaration is published, temporary relief from insolvent trading liability and responding to statutory demands from creditors applies to the business for up to 3 months. The ability to declare such an intention will be available until 31 March 2021,” said assistant treasurer Michael Sukkar.
Where businesses are unable to survive, the reforms also introduce a new simplified liquidation pathway that is intended to ensure greater returns to creditors and employees.
The simplified liquidation process will disapply certain features of the general process relating to reporting to ASIC, meetings, and the appointment of reviewing liquidators and committees of inspection.
“Together, these measures will reduce costs for small businesses, reduce the time they spend in insolvency process, promote greater economic dynamism, and ultimately help more small businesses through the recovery phase of the COVID-19 recession,” added Mr Sukkar.
The reforms coincide with the end of temporary insolvency protections that were introduced in response to the coronavirus pandemic in March 2020.
The government has since lifted the bankruptcy threshold to $10,000, up from the pre-pandemic $5,000.
If you would like further information on these new arrangements, please contact your Client Manager at FinCare.
Call 02 9542 4655 or email firstname.lastname@example.org
The information provided in this article does not constitute specific advice. For further information, you should contact your professional adviser.