Read the letter from Senator the Hon Michaelia Cash, Minister for Employment, Skills, Small and Family Business, Senator for Western Australia, written 24 September 2020:
INSOLVENCY REFORMS TO SUPPORT SMALL BUSINESS RECOVERY
Today, the Morrison Government announced the most significant reforms to Australia's insolvency framework in 30 years.
The Government is making changes to our insolvency framework as part our economic recovery plan to keep businesses in business and Australians in jobs.
The changes will introduce new processes suitable for small businesses from 1 January 2021, reducing complexity, time and costs for small businesses.
The reforms, will help more small businesses restructure and survive the economic impact of COVID-19. As the economy continues to recover, it will be critical that businesses who are distressed have the necessary flexibility to either restructure or to wind down their operations in an orderly manner.
The key elements of the reforms include;
The introduction of a new debt restructuring process for incorporated businesses with liabilities of less than $1 million, drawing on some key features of the Chapter 11 bankruptcy model in the United States;
Moving from a rigid one-size-fits-all “creditor in possession” model to a more flexible “debtor in possession” model. This will allow eligible small businesses to restructure their existing debts while remaining in control of their business;
A rapid 20 business day period for the development of a restructuring plan by a Small Business Restructuring Practitioner, followed by 15 business days for creditors to vote on the plan;
A new, simplified liquidation pathway for small businesses to allow faster and lower cost liquidation; and
Complementary measures to ensure the insolvency sector can respond effectively both in the short and long term to increased demand and to meet the needs of small business.
The reforms will cover around 76 per cent of businesses subject to insolvencies today, 98 per cent of whom who have less than 20 employees.
Together, these measures will reposition our insolvency system to reduce costs for small businesses, reduce the time they spend during the insolvency process, ensure greater economic dynamism, and ultimately help more small businesses get to the other side of the crisis.
For more information on the Treasurer’s media release and fact sheet, click here.