Government flags further insolvency reforms ahead of budget

The Treasurer has flagged the possible introduction of insolvency protection for businesses that operate through a trust, as well as a review to determine whether the insolvent trading safe-harbour provisions, introduced in 2017, remain fit for purpose.

Also on the government’s agenda are consultations on introducing a moratorium on creditor enforcement while schemes of arrangement are being negotiated.

"As Australia’s economy rebuilds, it’s important that as many businesses as possible have the opportunity to turnaround, restructure and survive," Treasurer Josh Frydenberg said in a statement.

"That’s why the Morrison government is committed to building on our already significant insolvency reforms, keeping more businesses in business and driving Australia’s economic growth," the Treasurer flagged ahead of the 11 May budget reveal.

The government is looking to further the reforms it announced in the 2020–21 budget, which created a new simplified restructuring and liquidation process for small companies and gave directors the flexibility to either restructure or wind down operations.

According to Treasury data, as a result of these temporary regulatory measures, which kicked in on 1 January, the rate of insolvencies remains around 40 per cent lower than pre-COVID levels.

As the government continues to leak key budget inclusions, Assistant Treasurer Michael Sukkar revealed it will continue cutting red tape wherever possible.

"A flexible, streamlined insolvency system will help more businesses in distress get to the other side of this crisis. The government looks forward to consulting with stakeholders on the most effective ways forward," Mr Sukkar said.

Following public consultation that took place during February and March 2021, the government will also increase the threshold at which creditors can issue a statutory demand on a company from $2,000 to $4,000, to help prevent distressed but viable companies from being pushed into liquidation.