Further insolvency reforms for business dynamism
On 3 May 2021, the Treasurer announced that the Morrison government is pursuing further measures to improve Australia’s insolvency framework for both small and large businesses.
Background
As part of the 2020–21 budget, the government announced the most significant reforms to Australia’s insolvency framework in 30 years. These reforms, which commenced on 1 January 2021, created new simplified liquidation and debt restructuring processes for small companies, and has provided directors with the control and flexibility they need to either restructure their business or wind down operations.
Review
As a result of the strength and speed of Australia’s economic recovery out of the COVID-19 pandemic, and the temporary regulatory measures put in place to protect small businesses from insolvency during the peak of the crisis, the rate of insolvencies in Australia remains approximately 40% lower than pre-COVID-19 levels.
The government is committed to further simplifying and streamlining insolvency law so that viable businesses that do encounter financial difficulties have the opportunity to restructure and continue trading. As a result, the government will:
- consult on how trusts, which are commonly used by small businesses, are treated under insolvency law,
- review whether the insolvent trading safe harbour provisions remain fit for purpose1, and
consult on improving schemes of arrangement processes to better support businesses, including by introducing a ban on creditor enforcement while schemes are being negotiated.
The aim is for a flexible and streamlined insolvency system.
Following public consultation in February and March 2021, the government will also increase the threshold at which creditors can issue a statutory demand on a company from $2,000 to $4,000. This will help in assisting distressed, but viable, companies from being forced into liquidation over small debts.
You can read more about the insolvency law reforms on our Pinpoint™ platform here.
Sources: Treasury Department, Frydenberg J and Sukkar M, Further insolvency reforms to support business dynamism, [joint media release], 3 May 2021, accessed 5 May 2021.
CCH Pinpoint ®, Insolvency Law Reform, accessed 5 May 2021.
Footnotes
1 The insolvent trading safe harbour provisions were introduced in 2017. The provisions were designed to promote a culture of entrepreneurship and innovation by providing distressed businesses with some breathing space.
