With the economy taking a hit from the pandemic, the Government is doing more to help small businesses survive the impacts. Insolvency laws have been modified to assist in the recovery of businesses and temporary insolvency protections are in place until 31 December 2020, to support trading through the pandemic.
If you are a small business owner in financial distress, it is crucial that you seek advice before the 31st December 2020 – you may be protected from insolvent trading under these new measures. These new protection measures will only apply if the company director commences an external administration before the 31st December 2020. It is important to note that the temporary relief protecting small businesses expires at the end of 2020.
New Re-Structuring Process for Small Businesses
The insolvency reforms will commence from 1st January 2021, subject to the passing of legislation. The simplified reforms are noteworthy for small businesses, who may benefit from faster wind-ups and a simplified restructuring process. Further, these reforms allow small businesses owners to continue to remain in control of their business, while simultaneously preparing a debt restructuring plan. This is important because under the current system, owners and directors immediately lose control of their business once administrators are brought in.
The following will apply to an eligible company:
- The company has 20 days to establish a restructuring plan. A restructuring practitioner must be engaged, who will assist with reviewing financial affairs and determining eligibility.
- Creditors must vote on the restructuring plan within 15 days of receiving the proposal
- The company must pay all employee entitlements
- If more than 50% of creditors support the plan, it will be approved.
Liquidation Pathway for Small Businesses
The new liquidation regime applies to companies with liabilities of less than $1 million. This program is intended to retain the existing measures, but will focus on will reducing expenses, time, and regulatory responsibilities.
The changes are as follows:
- Reduced circumstances in which a liquidator can claim an unfair preference payment from a creditor
- The use of technology will be maximised for voting and other communications between creditors and liquidators
- Liquidators will only need to report to ASIC on potential misconduct of directors where there are reasonable grounds to believe misconduct has occurred
- The removal of requirements to call creditors meetings and form committees of inspection
- Simplification of the process for lodging a proof of debt and distribute dividends
Why are these changes important?
These changes are beneficial as they not only create simplified means for restructure or liquidation, they allow directors to retain control over their business when faced with financial distress.
Please contact us if you have any questions or if you are concerned about insolvency of feel you are under financial stress. We endeavour to provide the best solution for your individual circumstances. You can email us at firstname.lastname@example.org or phone 07 5451 1118.