The Corporations Amendment (Corporate Insolvency Reforms) Act 2020 (Act) and Corporations Amendment (Corporate Insolvency Reforms) Regulations 2020 commenced on 1 January 2021. The Act introduced a new debt restructuring process designed to reduce complexity, time and costs. This process allows companies to quickly restructure, with the assistance of a small business restructuring practitioner. This is essential for many businesses in the wake of the pandemic. If restructure is not possible, a new simplified liquidation process allows businesses to wind up faster, and reduces the compliance burden on insolvency practitioners, thereby saving costs for creditors and employees, and allowing business owners to move on. You can read more about the new insolvency law reforms on our Pinpoint ® platform here.
Before these reforms came into effect, Australia’s corporate insolvency system was based on a one-size-fits-all model which imposed the same duties and obligations on all companies, regardless of the company size or complexity of the administration. High costs and rigid processes failed to account for the needs of small businesses by depleting their limited resources. These issues became even more pressing in the wake of the COVID-19 pandemic, with a potential increase in the number of businesses facing financial distress, particularly small businesses. The insolvency law reforms are aimed at achieving greater economic dynamism by assisting more small businesses to survive and increasing the efficient reallocation of capital where survival is not possible.
On 23 April 2021, the Treasury announced proposed amendments (via a Bill and draft Regulations) to the primary and subordinate legislation in order to further support the intended outcomes of the new debt restructuring and simplified liquidation processes.
The proposed amendments are outlined below.
The proposed Bill
The Treasury Laws Amendment (Corporate Insolvency Reforms Consequentials) Bill 2021 (Bill) will amend a number of Acts, as outlined in the table below: