Small Business Insolvency Reforms

Coinciding with the end of Covid-19 insolvency relief measures, as at 1 January 2021 the Australian Federal Government have introduced new insolvency reforms with the objective of providing a simplified pathway for small businesses to allow faster and lower cost liquidations.

KEY TAKEAWAYS

• Commenced 1 January 2021
• Objective is to reduce costs and time for small businesses
• Extended use of technology for communication and meetings

Small Business Restructuring

• Eligible small business has access to a ‘debtor-in-possession’ style restructuring process (i.e. director/s remain in control)
• Appointment of a ‘small business restructuring practitioner’ (RP)
• Director/s develop a restructuring plan (i.e. debt compromise)
• If plan completed, company is released from its debts and continues to trade
• Faster and less complex process to maximise chance of survival

Simplified Liquidation Process

• Eligible small business has access to a ‘simplified liquidation pathway’
• Director’s lose control of company (as per normal liquidation)
• Appointment of a registered liquidator
• Faster and lower cost liquidation process

SMALL BUSINESS RESTRUCTURING

Eligibility Criteria

• Less than $1M in debts on the day restructuring begins (does not include employee entitlements and contingent liabilities)
• No director (current or in the previous 12 months) or the company has done a restructuring or simplified liquidation in the last 7 years (Exemption: prior restructuring or simplified liquidation must not have begun more than 20 business days prior)
• Tax lodgements, including Superannuation, are up-to-date
• Paid all employee entitlements that are payable (prior to offering restructuring plan)
• Director’s to provide within 5 business days:

1. Declaration that the company meets the eligibility criteria
2. Whether there are any voidable transactions

New Process

Key Features

SIMPLIFIED LIQUIDATION PROCESS

Eligibility Criteria

• Less than $1M in debts on the day liquidation begins (include amounts for employee termination even if they are yet to be terminated)
• Company is unable to pay its debts in full within 12 months
• Tax lodgements are up-to-date (including superannuation)
• No director (current or in the previous 12 months) or the company has done a restructuring or simplified liquidation in the last seven years
• Director/s to provide within five business days:

1. Report on company’s business affairs
2. Declaration that company meets the eligibility criteria

New Process

Key Features

OTHER MEASURES

Accessing Restructuring Relief

• Between 1 January 2021 and 31 March 2021, director must:

1. Make a declaration about company’s eligibility for temporary restructuring relief
2. Publish notice of declaration on ASIC’s published notice website

FURTHER INFORMATION

HLB Mann Judd provides tailored restructuring and risk advisory services. Our experienced team has a proven history of successfully assisting our clients through financial and operational difficulties. As a full service national firm, we can provide businesses with comprehensive health checks and tailored strategic financial solutions.