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The Federal Government says it has commenced with the most important changes to Australia’s insolvency framework in 30 years.
From 1 January, eligible businesses experiencing financial distress can access a new, simplified debt restructuring process that allows them to restructure their existing debts while remaining in control of their business, the Government said in a statement.
The reforms are aimed at repositioning the country’s insolvency system to help more incorporated small businesses – with liabilities of less than $1-million – restructure and survive the economic impact of the Covid-19 recession.
“As the economy continues to recover, it will be critical that distressed businesses have the necessary flexibility to either restructure or to wind down their operations in an orderly manner,” Michael Sukkar, the Assistant Treasurer, said.
“The reforms are designed to help keep businesses in [operation] and more Australians in jobs.”
An important aspect of the restructured process is that, should an eligible business not be able to immediately secure a small business restructuring practitioner to commence this new process, the business can declare its intention to access the process through a notice on the Australian Securities and Investments Commission (ASIC) published notices website.
From the date a declaration is published, temporary relief from insolvent trading liability and responding to statutory demands from creditors applies to the business for up to three months. The ability to declare such an intention will be available until 31 March 2021.
“For those businesses that are unfortunately unable to survive the economic impacts of the Covid-19 recession, a new simplified liquidation pathway will be available to allow faster and lower-cost liquidation, increasing returns for creditors and employees,” Sukkar said.
“Complementary measures have also been enacted to ensure the insolvency sector can respond effectively, both in the short and long term, to increased demand and to the needs of small business.
“Together, these measures will reduce costs for small businesses, reduce the time they spend in insolvency process, promote greater economic dynamism, and ultimately help more small businesses through the recovery phase of the Covid-19 recession,” Sukkar stated.
Further information for small businesses on the simplified debt restructuring process, and how to access further temporary insolvency relief, can be found on the Treasury website.