Small business insolvency reforms now in effect
The federal government’s SME insolvency reforms that were passed through Parliament in December last year are now effective as of the start of 2021.
The reforms in the Corporations Amendment (Corporate Insolvency Reforms) Bill 2020 were announced as part of the delayed 2020–21 federal budget.
Under the reforms, eligible businesses experiencing financial distress can access a new, simplified debt restructuring process that allows them to restructure their existing debts while remaining in control of their business.
Eligible businesses not able to immediately secure a small business restructuring practitioner to commence the new process can also declare their intention to access the process through a notice on ASIC’s published notices website.
From the date a declaration is published, temporary relief from insolvent trading liability and responding to statutory demands from creditors applies to the business for up to three months, with the ability to declare such an intention available until 31 March 2021.
For businesses unable to survive the economic impacts of COVID-19 recession, a new simplified liquidation pathway will be available to allow faster and lower-cost liquidation, increasing returns for creditors and employees.
In addition, other measures included in the reforms have been made to facilitate a faster and more effective response from the insolvency sector to attend to the needs of small business.
Assistant Treasurer Michael Sukkar said the reforms are designed to help keep businesses in business and more Australians in jobs.
“The reforms reposition our insolvency system to help more incorporated small businesses, with liabilities of less than $1 million, restructure and survive the economic impact of the COVID-19 recession,” Mr Sukkar said.