Coinciding with the end of COVID-19 insolvency relief measures, as at 1 January 2021 the Australian Federal Government have introduced new insolvency reforms with the objective of providing a simplified pathway for small businesses to allow faster and lower cost liquidations.

Key takeaways

  • Commenced 1 January 2021
  • Objective is to reduce costs and time for small businesses
  • Extended use of technology for communication and meetings

Small Business Restructuring

  • Eligible small business has access to a ‘debtor-in-possession’ style restructuring process (i.e. director/s remain in control)
  • Appointment of a ‘small business restructuring practitioner’ (RP)
  • Director/s develop a restructuring plan (i.e. debt compromise)
  • If plan completed, company is released from its debts and continues to trade
  • Faster and less complex process to maximise chance of survival

Simplified Liquidation Process

  • Eligible small business has access to a ‘simplified liquidation pathway’
  • Director’s lose control of company (as per normal liquidation)
  • Appointment of a registered liquidator
  • Faster and lower cost liquidation process

Small business restructuring 


Eligibility Criteria

  • Less than $1M in debts on the day restructuring begins (does not include employee entitlements and contingent liabilities)
  • No director (current or in the previous 12 months) or the company has done a restructuring or simplified liquidation in the last 7 years (Exemption: prior restructuring or simplified liquidation must not have begun more than 20 business days prior)
  • Tax lodgements, including Superannuation, are up-to-date
  • Paid all employee entitlements that are payable (prior to offering restructuring plan)
  • Director’s to provide within 5 business days:
    • Declaration that the company meets the eligibility criteria
    • Whether there are any voidable transactions


New Process

Key Features

Simplified liquidation process


Eligibility Criteria

  • Less than $1M in debts on the day liquidation begins (include amounts for employee termination even if they are yet to be terminated)
  • Company is unable to pay its debts in full within 12 months
  • Tax lodgements are up-to-date (including superannuation)
  • No director (current or in the previous 12 months) or the company has done a restructuring or simplified liquidation in the last seven years
  • Director/s to provide within five business days:
    • Report on company’s business affairs
    • Declaration that company meets the eligibility criteria


New Process

Key Features

 

Other measures

Accessing Restructuring Relief

  • Between 1 January 2021 and 31 March 2021, director must:
    • Make a declaration about company’s eligibility for temporary restructuring relief
    • Publish notice of declaration on ASIC’s published notice website
 

Further information 

HLB Mann Judd provides tailored restructuring and risk advisory services. Our experienced team has a proven history of successfully assisting our clients through financial and operational difficulties. As a full service national firm, we can provide businesses with comprehensive health checks and tailored strategic financial solutions.