Changes to Australia’s insolvency framework proposed by the Corporations Amendment (Corporate Insolvency Reforms) Bill 2020 (Cth) have been passed by Parliament and will be available for eligible small businesses from 1 January 2021. Our recent article addressing the proposed Bill can be viewed here.

Following Treasury’s announcement on 24 September 2020 that it will introduce a suite of reforms to Australia’s insolvency framework, the Corporations Amendment (Corporate Insolvency Reforms) Bill 2020 (Cth) (Draft Bill) was released for public consultation between 7 and 12 October 2020, providing much needed clarity as to the practical effect of the insolvency reforms, which are expected to commence on 1 January 2021.

There is an inherent tension between the goals of bankruptcy law and the state law doctrine of constructive trust. A central tenet of bankruptcy policy is that similarly situated creditors should be treated equally: because an insolvent business or individual will not be able to pay all creditors in full, a proper bankruptcy system must provide as equitable a distribution to each of them as possible. Constructive trust law, on the other hand, works to the advantage of a single creditor – which always means the detriment of the others when everyone is competing for limited funds.