Small business restructurings (SBR), which allow companies with less than $1 million in liabilities (other than employee entitlements) to restructure their unsecured debts, are increasing in popularity. SBRs now amount to about 25 per cent of all monthly company insolvencies, and outnumber voluntary administrations.

In this article, from knowledge gained in advising small business restructuring practitioners, and from wider industry commentary, we discuss some of the good, and not so good, aspects of the SBR regime.

The good

After a couple of years where uptake was slow, the small business restructuring (SBR) regime, which came into effect 1 January 2021, has well and truly cemented itself as the favoured debt restructuring process for companies with less than $1 million in liabilities (other than employee entitlements). There are now more SBRs per month than voluntary administrations, and represent around 25 per cent of all new corporate insolvencies.

Preparing a business for an exit can be a complex and time-consuming task.

Section 90-15(1) of the Insolvency Practice Schedule (Corporations) (Cth) (IPSC) provides that the court may make such orders as it thinks fit in relation to the external administration of a company. It’s well recognised the broad power under that section extends to the making of judicial directions on the application of insolvency practitioners under section 90-20(1)(d) of the IPSC.

When to seek a judicial direction

The High Court of Australia has recently upheld a decision of the Full Federal Court in Metal Manufacturers Pty Limited and Gavin Morton as liquidator of MJ Woodman Electrical Contractors Pty Ltd (in liquidation) & Anor^[1], which confirmed that statutory set-off is not available to be offset against a liquidator’s claim for the recovery of an unfair preference.

On 28 September 2022, the Federal Government, through the Parliamentary Joint Committee on Corporations and Financial Services (PJC), began an inquiry into corporate insolvency in Australia.

The announcement follows calls from industry for a ‘root and branch’ review of corporate insolvency law in Australia.

Submissions are open until 30 November 2022 and the PJC intends to table a report to Parliament by 30 May 2023.

Key takeaways

The Bankruptcy Amendment (Service of Documents) Regulations 2022 came into effect on 6 April 2022. The regulations are intended to clarify that certain documents under the Bankruptcy Act 1966 (Cth), including a bankruptcy notice, can be given, sent, or served electronically without obtaining the prior consent of the recipient to receive the document electronically.

Brief background

When COVID-19 hit Australia in 2020, there were widespread fears about the economic impact of the health crisis, with a predicted avalanche of insolvencies. Many of us greeted 2021 with optimism, hoping for the world to open up as we adjusted to the ‘new normal’. Instead, the virulent Delta strain and snap state lockdowns are keeping the country on edge. While the health crisis continues, the economic crash has been largely avoided.

In another move to protect small business owners, the Federal Government has permanently raised the minimum debt required to serve a statutory demand from $2,000 to $4,000, effective today.

The increase was introduced by the Corporations Amendment (Statutory Minimum) Regulations 2021 (Cth) (Regulations). The new threshold applies to all statutory demands served on or after 1 July 2021. The 21-day period to comply with a statutory demand remains unchanged.

In this issue, we consider Qantas’ recent Full Federal Court win in its JobKeeper stoush with the union, and the interpretation of who is entitled to the COVID-19 cash flow boosts following on from the AAT’s decision in Slatter Building Group Pty Ltd and Commissioner of Taxation (Taxation) [2021] AATA 456. We also provide an update on the latest appeals, ATO guidance and rulings.

Buckle up, Qantas’ fight over JobKeeper entitlements isn’t over yet