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New insolvency law reform to keep businesses afloat

25 September 2020
Written by Abigail Curtis
Read Time 1 mins reading time

Thousands of small businesses facing imminent closure will be thrown a lifeline under new insolvency laws that will allow them to trade their way out of insolvency and avoid being wound up by ­administrators and liquidators.

Companies as well as sole traders owing less than $1 million to creditors will have a stay of execution which will potentially save thousands of small businesses that are currently on the brink of collapse.

The move will save thousands of jobs and allow the directors and owners of businesses to maintain control of their business as they seek to restructure and trade out of ­indebtedness.

Temporary measures introduced in March 2020 designed to shield distressed businesses from being forced into administration by creditors will expire at the end of the year.

There are more than one million businesses and companies accessing JobKeeper payments to keep them afloat and most of them are small businesses with debts under $1 million.

These new permanent reforms are expected to rescue up to 80 per cent of businesses currently insolvent primarily because of COVID-19.

They will spare thousands of small businesses from being forced into voluntary administration or liquidation and help viable businesses survive.

Allowing small businesses to ­restructure their debts while ­remaining in control of their ­business

Current insolvency law treats every company the same regardless of size, which requires an external administrator or liquidator to be appointed to take control of a company that can’t repay debt.

The high cost of voluntary administration and liquidations generally consumes the assets and resources of many small businesses, making it impossible to restructure or recover from financial distress.

Under the proposed new laws, businesses are expected to be given 20 days to come up with a plan to trade out of the insolvency and offer a deal to creditors. Creditors are then likely get 15 days to vote on accepting the deal.

If unsuccessful the business would be liquidated under a new streamlined scheme, by cutting liquidators’ investigative processes, mandatory meetings and reporting requirements.

A key difference here is that business owners and company directors control which restructure plans are put to creditors and not an administrator who may reject offers which might be better for creditors but too risky for the administrator.

For help with any business restructuring needs, please get in touch with us.

Stay up to date with our news & insights

New insolvency law reform to keep businesses afloat

25 September 2020
Written by Abigail Curtis

Thousands of small businesses facing imminent closure will be thrown a lifeline under new insolvency laws that will allow them to trade their way out of insolvency and avoid being wound up by ­administrators and liquidators.

Companies as well as sole traders owing less than $1 million to creditors will have a stay of execution which will potentially save thousands of small businesses that are currently on the brink of collapse.

The move will save thousands of jobs and allow the directors and owners of businesses to maintain control of their business as they seek to restructure and trade out of ­indebtedness.

Temporary measures introduced in March 2020 designed to shield distressed businesses from being forced into administration by creditors will expire at the end of the year.

There are more than one million businesses and companies accessing JobKeeper payments to keep them afloat and most of them are small businesses with debts under $1 million.

These new permanent reforms are expected to rescue up to 80 per cent of businesses currently insolvent primarily because of COVID-19.

They will spare thousands of small businesses from being forced into voluntary administration or liquidation and help viable businesses survive.

Allowing small businesses to ­restructure their debts while ­remaining in control of their ­business

Current insolvency law treats every company the same regardless of size, which requires an external administrator or liquidator to be appointed to take control of a company that can’t repay debt.

The high cost of voluntary administration and liquidations generally consumes the assets and resources of many small businesses, making it impossible to restructure or recover from financial distress.

Under the proposed new laws, businesses are expected to be given 20 days to come up with a plan to trade out of the insolvency and offer a deal to creditors. Creditors are then likely get 15 days to vote on accepting the deal.

If unsuccessful the business would be liquidated under a new streamlined scheme, by cutting liquidators’ investigative processes, mandatory meetings and reporting requirements.

A key difference here is that business owners and company directors control which restructure plans are put to creditors and not an administrator who may reject offers which might be better for creditors but too risky for the administrator.

For help with any business restructuring needs, please get in touch with us.