Major Reforms for Corporate Insolvency
- Published 24.09.2020
Proposed Reforms - Key Takeaways
The Federal Government has announced significant changes expected to corporate insolvency procedures because of the COVID-19 pandemic.
Treasurer Frydenberg has indicated the following reforms are being planned:
- There will be a new insolvency regime for companies which have liabilities less than $1 million.
- The aim is to make insolvency administration quicker and cheaper. It will commence on 1 January 2021.
- Unlike the present system where an independent insolvency administrator is appointed to control the company whilst in administration, under the proposed system, control of the company would remain with the directors who can trade on in the ordinary course of business, and a small business restructuring practitioner would deal with creditors.
- There would be a moratorium on creditors pursuing recovery against the company and director guarantors during the administration period.
- The insolvent company would have 20 days to come up with a restructuring plan and company creditors would have to vote on whether to accept the plan within 15 days after that.
We will await the announcement of further details by the government. It is important trade suppliers and other creditors to small business become familiar with the changes when announced.