Canberra announces huge reforms to insolvency laws – here’s what we expect

Canberra has announced the most significant reforms to insolvency laws in decades, applicable for companies with debts below $1 million.

While the finer details are yet to be confirmed, the proposal to introduce a debtor in possession model from 1 January 2021 which will be available to directors once every seven years, is expected to include the following features:

  • Companies who appoint a qualified Restructuring Advisor will have 20 business days to develop a restructuring plan as an alternative to liquidation.
  • There will be a moratorium on creditor actions while the proposal is being prepared and considered.
  • Employee entitlements must be paid up.
  • Creditors have 15 days to consider the restructuring plan and 50% of creditors in value are required to approve it.
  • Insolvent companies with debts of less than $1m can continue to trade without exposing directors to insolvent trading liability while they put a restructuring proposal to creditors.
  • A streamlined, simplified liquidation process available to some companies.

The proposal provides more structure around the timing and extent of creditor involvement than the existing insolvent trading safe harbour regime and brings Australia a step closer to the US style Chapter 11 model. But we are yet to see the draft legislation and exactly how the changes fit in to the existing insolvency processes of liquidation, voluntary administration and deeds of company arrangement.

For more information and advice on rescuing struggling businesses contact William Buck Restructuring and Insolvency.