Further insolvency reforms to support business dynamism

Australian Treasury

As part of our economic recovery plan, the Morrison Government is pursuing further measures to improve Australia’s insolvency framework for both small and large businesses.

In the 2020-21 Budget, the Government announced the most significant reform to Australia’s insolvency framework in 30 years. These reforms, which came into effect on 1 January 2021, created a new simplified restructuring and liquidation process for small companies and has given directors the control and flexibility they need to either restructure or wind down operations.

As a result of the strength and speed of Australia’s economic recovery and the temporary regulatory measures put in place to protect small businesses from insolvency during the peak of the crisis, the rate of insolvencies remains around 40 per cent lower than pre-COVID levels.

The Government remains committed to further simplifying and streamlining insolvency law so that viable businesses that do encounter economic challenges have the opportunity to restructure and go on trading.

To this end, the Government will:

  • consult on how trusts, which are commonly used by small businesses, are treated under insolvency law;
  • review whether the insolvent trading safe-harbour provisions, which were introduced in 2017 and designed to promote a culture of entrepreneurship and innovation by providing breathing space for distressed businesses, remain fit for purpose; and
  • consult on improving schemes of arrangement processes to better support businesses, including by introducing a moratorium on creditor enforcement while schemes are being negotiated.

Treasurer Josh Frydenberg said these measures will play an integral part in Australia’s economic comeback.

“As Australia’s economy rebuilds, it’s important that as many businesses as possible have the opportunity to turnaround, restructure and survive. That’s why the Morrison Government is committed to building on our already significant insolvency reforms, keeping more businesses in business and driving Australia’s economic growth.”

Assistant Treasurer, Minister for Housing, and Minister for Homelessness, Social and Community Housing, Michael Sukkar said the Government will also continue cutting red tape wherever possible.

“A flexible, streamlined insolvency system will help more businesses in distress get to the other side of this crisis. The Government looks forward to consulting with stakeholders on the most effective ways forward.”

Following public consultation that took place during February and March 2021, the Government will also increase the threshold at which creditors can issue a statutory demand on a company from $2,000 to $4,000. This will help prevent distressed but viable companies from being pushed into liquidation over small debts.

Continuing to enhance Australia’s insolvency framework is a key part of the Morrison Government’s economic recovery plan.

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