Insolvency Law Summary 2021
Since 1 January 2021 changes to the Insolvency laws have come into effect in order to protect the interests of small businesses. These changes come in the form of streamlined debt restructuring and simplified liquidation processes. The changes are designed to increase the efficiency of pre-existing processes by eliminating irrelevant procedures and reducing the rights of liquidators and creditors.
Certain eligibility requirements need to be met before the insolvency law changes can apply including:
- Total debts of less than $1 million (including secured and related party debts but not including contingency payments or employee entitlements);
- Have not used the current debt restructuring or liquidation process within the last seven years;
- Current or former director (within the last 12 months) have not used the same processes in the last seven years;
- Up-to-date tax lodgements.
New Streamlined Restructuring
The changes to the Corporations Act empowers a company to regain control of its finances with the assistance of a small business restructuring practitioner. The practitioner’s role is to assist the company in developing the restructuring, and if the plan is accepted via a vote by the creditors, the practitioner will help implement such plan. Due to their intimate knowledge of the company, the directors are allowed to develop and implement a restructuring plan with the approval of the creditors. During the process, additional protections and restrictions apply, especially of those concerning the company’s assets.
Simplified Liquidation Process
The new provisions allowed for a simplified liquidation process that is eligible for voluntary liquidations, therefore excluding court-ordered liquidation. These provisions are designed to make the insolvency process more efficient for small-businesses by having reduced ASIC reporting requirements and removing certain rights of creditors and liquidators. The new provisions differ from the traditional liquidation process by:
- Decreasing ASIC reporting requirements;
- Removing the requirement for liquidators to call creditor meetings and committees of inspection;
- Reduced instances where a liquidator can clawback unfair preference payments from an unrelated creditor;
- A simplified dividend process.
- New provisions have come into effect to simplify and improve the efficiency of restructuring and liquidation process for small businesses.
- If eligible, a company will retain control of its finances and assets during the restructuring process with the help of a Small Business Restructuring Practitioner.
- If eligible, a company undergoing voluntary liquidation can use the simplified liquidation provisions to decrease its reporting requirements and reduce the rights of its creditors and liquidators.
If you require assistance with any financial legal issue, contact us.