The Federal Government has announced its largest insolvency reform package in over 30 years, which includes a simplified formal debt restructuring process for eligible small businesses.

The centerpiece of the reforms is the adoption of a US-style "debtor in possession" restructuring model, which closely mirrors the recently enacted small business restructuring provisions of subchapter V of the US Bankruptcy Code.

The Treasurer has announced major proposed reforms to Australia’s insolvency framework aimed at facilitating the restructuring of small to medium businesses (MSMEs) and streamlining their liquidation if rescue is not achievable (Reforms). The Reforms are intended to come into effect from 1 January 2021, after the suite of current insolvency protections introduced to address the economic impact of COVID-19, expire on 31 December 2020.

A short week this week due to the public holiday in Western Australia.

This is a service specifically targeted at the needs of busy non-executive directors. We aim to give you a “heads up” on the things that matter for NEDs in the week ahead – all in two minutes or less.

The Australian Federal Government has announced significant insolvency law reforms that will affect small businesses with liabilities of less than $1 million. The reforms are expected to commence on 1 January 2021 and will introduce, among other measures, a new debt restructuring process and liquidation pathway for small businesses which the Government intends to be simpler, more flexible and more efficient than existing processes.

In brief

This alert briefly discusses key amendments to the insolvency legislation that the federal government has enacted and how councils can protect themselves from contractor insolvency in construction contracts.

Changes to insolvency legislation

We update our earlier client alert with a version including additional details that are available.

In brief

On 24 September 2020, the Treasurer announced that the Australian Government would introduce new legislation to give effect to:

This week’s TGIF discusses the key elements of the Federal Government’s recently announced reforms to insolvency laws for businesses with liabilities below $1 million.

Key takeaways

The Treasurer has announced the most consequential changes to Australia’s insolvency laws in 30 years.

The changes are styled on the Chapter 11 regime utilised in the United States. It represents a significant shift from the current ‘creditor-in-possession’ regime to a ‘debtor-in-possession’ system. Incorporated entities with liabilities of less than $1 million will be able to access the scheme.

Some of the key features of the proposed scheme are:

Ahead of the October budget, the treasurer has announced proposals to overhaul insolvency laws in Australia, to introduce provisions to allow struggling businesses to continue trading whilst a restructuring plan is developed. The changes, which share similarities with US Chapter 11 bankruptcy provisions, are yet to be legislated, but are proposed to commence with transitional provisions from 1 January 2021.

A legislative instrument was registered by the Commissioner on 22 September, setting out the revised alternative tests for decline in turnover to qualify for JobKeeper fortnights from 28 September 2020 onwards.

The new alternative tests remain broadly in line with the original, with the same 7 circumstances available to entities where there is not an appropriate relevant comparison period in 2019. These include businesses that: