Changes to Australia’s insolvency framework proposed by the Corporations Amendment (Corporate Insolvency Reforms) Bill 2020 (Cth) have been passed by Parliament and will be available for eligible small businesses from 1 January 2021. Our recent article addressing the proposed Bill can be viewed here.
The legislation introduces a new, simplified debt restructuring process accessible by small businesses experiencing financial distress and moves to what has been touted as a more flexible ‘debtor in possession’ model as opposed to the current ‘creditor in possession’ model. The reforms will apply to incorporated businesses with liabilities of less than $1 million, which are expected to cover around 76% of businesses subject to insolvencies today.
A new simplified liquidation process has also been passed with the legislation. The Government has suggested that this simplified process will provide for faster and lower-cost liquidation, resulting in increasing returns for creditors and employees. Time will tell whether that intention succeeds.
The legislation establishes the framework for the insolvency reforms, while details governing the operation of the new simplified processes have been included in the subordinate legislation, which includes both regulations amending the Corporations Regulations 2001 and rules made under the Corporations Act 2001 (Cth). Public consultation on the exposure draft subordinate legislation and explanatory material closed on 24 November 2020, however the subordinate legislation is yet to be passed.
Gadens will publish further information on the complete legislation and subordinate legislation once enacted.
If you have any questions about how the new legislation may impact your business, please do not hesitate to contact a member of our insolvency team.
Rob Hinton, Partner
Natalie McCabe, Senior Associate