The Federal Government have released draft legislation which reforms small business insolvency practices. The bill has been drafted in anticipation of a wave of insolvencies in 2021 as temporary relief measures brought in during the COVID-19 pandemic come to an end. The new legislation is intended to benefit businesses, creditors, and employees by enabling faster and more simplified restructuring or winding up as necessary. The bill proposes to introduce a new Part 5.3B into the Corporations Act 2001 (Cth) which establishes a formal debt restructuring process for eligible small companies, supervised by an appointed ‘small business restructuring practitioner’ (SBRP). To be eligible for appointment of an SBRP the business’ liabilities must not exceed $1 million. The precise method for calculating liabilities is unclear at this stage. SBRP’s have been described as ‘gatekeepers’ in the new restructuring process partly due to their power to terminate the restructuring if they consider that it will be contrary to creditor interests.
The draft legislation is subject to changes in the consultation and parliamentary legislative processes. Once passed, the measures are set to commence on 1 January 2021. The reform is significant as it has been predicted that the changes will capture approximately 75% of businesses facing insolvency. Contact M+E for further insolvency information and advice.