Restructuring & Insolvency

The Government has announced proposed legislation stepped in to prevent a wave of insolvencies when the COVID-19 support measures run their course in December 2020.

Temporary insolvency and bankruptcy protections are in place until 31 December 2020 to enable businesses to trade through the pandemic. The measures provide:

* A temporary increase in the threshold at which creditors can issue a statutory demand on a company (from $2,000 to $20,000) and the time companies have to respond to statutory demands they receive (21 days to 6 months);
* A temporary increase in the threshold for a creditor to initiate bankruptcy proceedings (from $5,000 to $20,000), an increase in the time period for debtors to respond to a bankruptcy notice (21 days to 6 months), and extending the period of protection a debtor receives after making a declaration of intention to present a debtor’s petition;
* Temporary relief for directors from any personal liability for trading while insolvent; and
* Flexibility in the Corporations Act 2001 to provide targeted relief for companies from provisions of the Act to deal with unforeseen events that arise as a result of the Coronavirus health crisis.

Between March and July 2020, there was a 46% decrease in the number of companies that have gone into external administration compared to the same period in 2019.

Anticipating a wave of insolvencies in early 2021, the Government has moved to streamline insolvency laws to enable small business to either restructure or efficiently wind up. There are three key elements to the reforms:

* A new formal debt restructuring process for companies that will enable a business to keep trading under the control of its owners while a debt restructuring plan is developed and voted on by creditors.
* A new, simplified liquidation pathway for small businesses to allow faster and lower-cost liquidation.

The measures will be available to businesses with liabilities of less than $1 million. You can find further information on the proposed insolvency reforms here:

Insolvency Reforms
Rules and regulations are expected in mid to late November including who can give advice. If you are having difficulties please consider talking to us.

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