The Morrison Government continues to implement its Economic Recovery Plan, with the passage of legislation to enact the most important changes to Australia's insolvency framework in 30 years, helping to keep businesses in business and more Australians in jobs.
The reforms, which were announced by the Government as part of the 2020-21 Budget, will strengthen our insolvency system to better support small businesses dealing with the economic impact of COVID-19.
The legislation introduces a new, simplified debt restructuring process that can be accessed by small businesses experiencing distress. This process draws on key features of the Chapter 11 bankruptcy model in the United States and will apply to incorporated businesses with liabilities of less than $1 million - covering around 76 per cent of businesses subject to insolvencies today, 98 per cent of whom who have less than 20 employees.
By moving from a rigid one-size-fits-all "creditor in possession" model to a more flexible "debtor in possession" model, eligible small businesses can restructure their existing debts while remaining in control of their business.
A new simplified liquidation pathway will also be introduced to allow faster and lower-cost liquidation, increasing returns for creditors and employees.
These new insolvency processes will be available for eligible small businesses from 1 January 2021.
Complementary measures to enable more practitioners to enter the profession are also being implemented.
Together, these measures will reduce costs, cut red tape and ultimately help more small businesses to recover from the COVID-19 crisis.
