What are the new changes to insolvency laws in 2021?
The most significant corporate insolvency reform in 30 years came in effect on the 1st of January 2021. New legislation that is applicable to small businesses has been passed by Parliament and given royal assent. With the end of the temporary Covid-19 relief measures, businesses must be familiar with the changes for the new year.
On the 24th of September 2020, the Treasurer announced small business insolvency law reforms, which commenced from the 1st of January 2021. The new legislation, the Corporations Amendment (Corporate Insolvency Reforms) Act 2020 (Cth) included three key parts:
(1) New Restructuring Processes for Small Businesses
Eligible small businesses have a quicker and less complicated procedure to restructure their existing debts to increase their chances of surviving and trading beyond the pandemic.
(2) New Liquidation Processes for Small Businesses
A simplified liquidation procedure has been introduced for eligible small businesses which allows for faster liquidations at a lower cost.
(3) Other Measures
More measures have been put in place to make sure the insolvency industry can accommodate the proposed changes and the needs of small businesses, such as electronic communications with creditors.
The new small business restructuring process as outlined above in (1) is set out in Part 5.3B of the Corporations Act. It establishes a formal debt restructuring process where a ‘Small Business Restructuring Practitioner’ (SBRP) will work with eligible companies to develop and execute a restructuring plan, with the goal of helping the company continue trading. The plan must be approved by the company’s creditors.
To be eligible, the board of the company needs to determine that:
● It has reasonable grounds to believe that there is a likelihood of current or future insolvency; and
● A SBRP should be appointed.
The requirements are set out in detail in the Corporations Regulations.
For more information regarding the new insolvency law reforms, please contact Insolvency Services Australia on 1800 003 883. We offer a toll-free hotline 24 hours a day, 7 days a week to help you reduce financial distress to your company.