insolvency law reform
On 1 January 2021, the Corporations Amendment (Corporate Insolvency Reforms) Act 2020 (Cth) (Amending Act) came into effect. The Amending Act is part of the government’s ongoing response to the economic impacts of COVID-19.
The most significant changes in the Amending Act are the creation of:
Small Business Restructuring process
New small business liquidation process
The purpose of the measures is to provide cheaper and quicker alternatives to voluntary administration and liquidation processes for applicable small businesses, moving away from a “one size fits all model”.
There are eligibility requirements which must be met in order for companies to have the benefit of the Amending Act, including debts of less than $1M and employee entitlements and tax lodgments up to date.
While well-intentioned, the reform may be too little too late. Small businesses which have survived COVID-19 with the help of government support are unlikely to be able to take advantage of the reforms now nor satisfy the requirements to be entitled to (i.e. employee entitlements up to date).
The reforms are important, but not as important as taking steps to reduce your business’s risk of insolvency. We suggest proactive steps and recommend that small business owners conduct a “health check” up and down their supply lines. Some effective strategies for avoiding insolvency and protecting your business generally are:
Having adequate terms and conditions with suppliers and customers.
Take security where possible and in multiple forms.
Look at your supply chains and keep an eye on your critical trade creditors as their solvency could be critical to your business.
If you do experience solvency issues, get help early and communicate with your secured lenders as their support will be critical.
Contact us for more information:
Zac Griffiths
Senior Associate
T: 03 5225 5229
E: zgriffiths@ha.legal
Ali Erskine
Principal Lawyer
T: 03 5225 5208
E: aerskine@ha.legal
