Alice Ruhe, Partner at SMB Advisory, shares an overview of small business insolvency reforms ahead of her presentation at the New Small Business Insolvency Reforms: 1 January 2021 on 23 February 2021.
This time last year, I think we were quite unaware as to what 2020 had in store, from a social, political and of course, business perspective. From lockdowns and restrictions to cash boosts and stimulus packages, it was a year that saw the sometimes unthinkable come in to form.
In order to assist businesses throughout the year, the Federal Government put in place a number of measures, including Jobkeeper and temporary insolvency relief measures. Whilst the Jobkeeper scheme will continue until 31 March 2021, most other insolvency relief measures ceased to be in effect after 31 December 2020. However, as of 1 January 2021 a new raft of Small Business Insolvency Reforms have come into place with a view to provide additional alternatives to financially distressed business.
The Small Business Restructuring Plan Regime will allow for company directors to continue trading their businesses through the restructuring process whilst being assisted by a Restructuring Practitioner to put a plan to their creditors to compromise the company’s debts. The process is quite detailed with tight timeframes and requires the oversight of a Registered Liquidator. After a 20 day proposal period, and a declaration made by the Restructuring Practitioner, eligible creditors decide the companies fate by either accepting or objecting to the plan. Plans can be completed quite quickly with a lump sum payment made shortly after the plan is accepted, or can proceed for up to 3 years with interim payments to be made over time.
In addition to the Small Business Restructuring Plan, a new “Simplified” Creditors Voluntary Liquidation Regime has been introduced. This regime allows for a liquidator to opt for a more streamlined process, should certain eligibility criteria be met, and no more that 25% of creditors object. Features of the shortened regime include:-
- No meetings of creditors;
- Limits on recoveries of voidable preference payments;
- Reduced reporting to ASIC; and
- Only one dividend distribution per liquidation.
The Simplified Creditors Voluntary Liquidation Regime may be available in instances where the company in liquidation:-
- Or its directors have not entered into a Simplified CVL or Small Business Restructuring Process within the last 7 years;
- Has total creditors of less than $1 Million; and
- Has all tax lodgements up to date.
When announced, in September 2020, these Small Business Insolvency Reforms were touted as the “the most significant reforms of insolvency law in almost 30 years”, and whilst this is the case, given the complexity of the legislation and the short time frames available for consultation it will be interesting to see how many affected companies actually take up the new regimes. Notwithstanding, it is important for all advisors to be across the features, eligibility requirements and opportunities provided for in both the Small Business Restructuring Process and the Simplified Creditors Voluntary Liquidation regimes, in order to present the full array of alternatives to their clients, if and when required.
Alice Ruhe has practised in the Insolvency and Corporate Recovery Industry for over 15 years and is a Registered Trustee in Bankruptcy and a Registered & Official Liquidator. She is a member of both the Institute of Chartered Accountants in Australia and the Australian Restructuring Insolvency and Turnaround Association (ARITA) and has experience in all forms of corporate and personal insolvency administrations. Alice has had experience dealing with administrations involving the building, hospitality, information technology, accounting, legal, medical, retail and various other industries. Connect with Alice via LinkedIn
This article is intended to provide general information only in summary format on relevant issues. It does not constitute legal or financial advice, and should not be relied on as such.