COVID-19 is continuing to have an enormous social and business cost in Australia and governments both State and Federal have been doing their best to provide assistance.
Currently many small businesses are relying upon government wage subsidies for ongoing viability. A leading economics research firm has projected that almost 1/4 of a million small businesses are at risk of failure.
The Federal Government recently announced new insolvency laws aimed at assisting small businesses to regain viability. These laws are modelled on legislation that has been in place in the US for many years commonly known as “Chapter 11”. The objective is to provide a process that potentially allows stressed businesses to take action to restructure before it becomes too late to save the business.
The key points of the new laws are –
• They are intended to commence on 1 January 2021 following the lifting of various temporary COVID-19 insolvency relief measures;
• They will be available to “small companies” which is defined as any incorporated business with liabilities of less than $1 million;
• A company wishing to access the provisions will have 20 business days to propose a debt restructuring plan during which the company can continue to trade;
• A new category of insolvency practitioner will be introduced specifically to assist companies with restructuring plans; and most importantly
• Unlike current insolvency procedures, during the initial part of the restructuring process, the company will remain under the control of its directors.
It is hoped that these new processes will be less costly to implement and more tailored to individual circumstances than existing measures.
The full details of the provisions are yet to be announced. The Business Law Team at Everingham Solomons will follow the developments closely because, Helping You is Our Business.
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