Legal lifeline for business
Treasurer to reform bankruptcy rules
SMALL businesses on the brink of collapse due to COVID-19 will be thrown a job-saving lifeline to restructure and stay afloat through massive reforms to the nation’ s bankruptcy rules.
Struggling owners will no longer be burdened with the huge cost of going through voluntary administration when they hit financial trouble, provided they can reach an agreement with creditors under a faster and simple new scheme starting on January 1.
Treasurer Josh Frydenberg will on Thursday unveil permanent changes to insolvency rules, shifting away from the current “one size fits all” system the government believes is reducing the opportunity of small businesses to survive.
About 400 Australian companies have entered administration each month of the pandemic — a number likely to soar once current temporary insolvency changes and other supports wrapup.
Under the new proposed process, small businesses with liabilities of less than $1m would be able to seek reorganisation advice from insolvency experts for a flat fee.
If the company’s board agrees to appoint the expert— known as a Small Business Restructuring Practitioner—a restructure plan will be developed within 20 business days.
During this time, the owners control the business and can trade as normal, with special rules kicking in preventing unsecured as well as some secured creditors from taking action against them.
These protections are the same as what would ordinarily apply in voluntary administration, except in this instance the owners maintain control of their company.
The SPRB then sends a repayment plan to creditors, certifying the small business is able to meet the terms, and if at least half of those owed money agree, then the owners can continue operating while paying down the debt.
Mr Frydenberg said the “significant reforms” would help keep more businesses a float and shore up jobs.
“The reforms are a critical part of our economic recovery plan and will help to boost business confidence and dynamism across the economy by allowing viable businesses to survive as our economy rebuilds,” he said.