The Corporations Amendment (Corporate Insolvency Reforms) Bill 2020 (Cth) has just passed the Senate unamended and will become law after assent. However, the Government has still not finalised the Regulations, which are due to commence on 1 January. 

The reforms are aimed at Australian small businesses who have liabilities of less than $1 million, seeking to reduce the complexity, time and costs associated with external administration.

The proposed reforms are not without some controversy and reservation in the industry.

Some of the changes in response to the economic downturn caused by the pandemic are as follows

Key features of the new debt restructuring process

  • Creates a debt restructuring process and temporary relief for eligible companies through appointing a small business restructuring practitioner (SBRP). The directors will work with the SBRP to develop and implement a debt restructuring plan within 20 business days of the SBRP’s appointment.
  • The directors will retain control of the company, a moratorium will prevent creditor enforcement and the company will be permitted to trade in the ordinary course of business.
  • The company must pay any employee entitlements which are due and payable before the restructuring plan is circulated to creditors.
  • The plan is circulated by the SBRP for creditors to vote upon and is approved if more than 50% of the company’s creditors by value vote in favour of the plan.
  • A small business will not be eligible to appoint an SBRP for the purposes of a streamlined debt restructuring process if it is already under some form of external administration.

Key features of the new liquidation process

  • Creates a “simplified liquidation process” for eligible companies to reduce time and cost in the liquidation process.
  • An expansion on the situations where documents may be given electronically, and permit the electronic signing of such documents.
  • Simplifying dividend and proof of debt processes.
  • Removing requirements to call creditor meetings and the ability to form committees of inspection.
  • Reducing the circumstances in which a liquidator can seek to recover an unfair preference payment from a creditor that is not related to the company.
  • Introduces safeguards to prevent the process being used for illegal phoenixing or corporate misconduct. The proposed safeguards include a limitation on companies using the process more than once and the regulations may prescribe additional safeguards which must be met before a plan can be put to creditors.