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:
What's next for Australian businesses after the temporary COVID-19 insolvency law relief expires at the end of 2020? The government's new announcement sheds light on the next steps.
Key takeouts
The Australian Government has announced proposed major reforms to corporate insolvency laws for incorporated businesses with liabilities of less than $1 million that are facing financial distress.
The temporary safe harbour introduced by the Federal Government is not a panacea for directors of distressed businesses. It may be time to act now.
The Coronavirus Economic Response Package Omnibus Act 2020 introduced relief measures in the second stage of the Federal Government’s plan to 'cushion the economic impact of the coronavirus and help build a bridge to recovery'.[1]
The Australian federal government has continued introducing temporary and potentially permanent insolvency law reforms intended to assist the economic repair efforts during, and following, the pandemic. In the latest development, which occurred in somewhat strange circumstances, the federal government has announced that it will shortly introduce new laws into parliament, which are intended to reduce complexity, time and the costs for small businesses to restructure their financial affairs.
Pursuant to regulations which commenced on 22 September 2020, the Australian Government has extended the temporary insolvency relief measures (which came into force on 25 March 2020 in response to the coronavirus (COVID-19) pandemic) to 31 December 2020.
In brief
The Treasurer has today announced two new corporate insolvency regimes:
- a new "debtor in possession" restructuring plan process; and
- a new simplified liquidation process,
due to commence from 1 January 2021 and available to companies with liabilities of less than A$1m.
Restructuring Plan Process
The new restructuring plan process involves:
In this edition of Gilbert + Tobin's Corporate Advisory Update, we focus on key legal developments over the last month which are particularly relevant to in-house counsel.
Temporary COVID-19 Corporations Act relief to allow virtual company meetings and electronic and split execution extended to 22 March 2021
This is an update to our previous insight article Major short-term changes to Australian insolvency regime which discussed the introduction of Parts 2 and 3 of Schedule 12 (Temporary Measures) to the Coronavirus Economic Response Package Omnibus Act 2020 (Cth) (Act) on 23 March 2020.