Further Changes to Insolvency Regime Proposed

The Federal Government has announced further reforms to the insolvency regime on the back of last year’s reforms in response to the COVID 19 pandemic.

The proposed changes involve:

• A planned permanent increase in the monetary threshold for issuing a creditors statutory demand to a company to $4,000.
• Refinements to the new small business restructuring framework introduced in September 2020. Read our previous articles on the Small Business Insolvency Reforms here.

Change to statutory demand threshold

Federal Treasurer Josh Frydenberg has announced that the Government plans to further amend the Corporations Regulations to increase the threshold at which creditors can issue a statutory demand on a company from $2,000 to $4,000.

Treasury considers that this will help prevent distressed but viable companies from being pushed into liquidation over relatively small debts. While smaller creditors may be frustrated by this increase, it ought to reduce the number of statutory demand claims being presented to the Courts, and still allows the parties to negotiate directly in an attempt to resolve their disputes.

The timeline for these changes is not yet clear.

Refinements to Small Business Insolvency Reforms

The Federal Government appears to have responded to feedback since releasing the amending legislation and regulations in December 2020, and is proposing a number of refinements of the new insolvency framework for small businesses facing financial hardship.

In summary, relevant legislation will be amended to clarify:

1. Certain rights and responsibilities of restructuring professionals and those dealing with them[1];
2. ASIC’s powers to investigate offences disclosed in the new simplified s 5.5.05 report prepared by liquidators in the simplified liquidation framework and limitations on the publication of those reports;
3. The effect of the appointment of a restructuring professional in the context of an unaccepted corporate takeover, and for the purpose of whether a corporate trustee has experienced an insolvency event;
4. That employees of small businesses who have undergone restructuring and have subsequently entered into liquidation who are eligible to receive entitlements can access the Fair Entitlements Guarantee scheme;[2]
5. That entities subject to regulation by APRA are not eligible to access the small business restructuring, or simplified liquidation, frameworks;[3]
6. That indigenous companies may use the small business restructuring and simplified liquidation processes. Additional changes are proposed to ensure these processes are tailored to the specific needs of aboriginal companies;[4]

These reforms will be made by way of an amending act, and further regulations, specifically the Treasury Laws Amendment (Corporate Insolvency Reforms Consequentials) Bill 2021 (Bill) and the Treasury Laws Amendment (Corporate Insolvency Reforms Consequentials) Regulations 2021 (Regulations).

Copies of the Bill and the Regulations, along with certain explanatory materials, are available on the Treasury’s website here.

See our previous posts on the September 2020 reforms here.

We will provide further updates on the status of the draft legislation as they become available.

If your company is facing financial hardship or considering utilising the new Small Business Restructuring Pathway or simplified liquidation process, or you suspect a company you deal with may be, you can contact us for expert advice and assistance.

[1] The ASIC Act 2001, Corporations Act 2001, and the Superannuation Industry (Supervision) Act 1993.

[2] Fair Entitlements Guarantee Act 2012.

[3] Corporations Act 2001, Banking Act 1959, Insurance Act 1973, Life Insurance Act 1995 and Corporations Regulations 2001.

[4] Corporations Act 2001, Banking Act 1959, Insurance Act 1973, Life Insurance Act 1995 and Corporations Regulations 2001.

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