New Insolvency Legislation – Enabling business owners to stay in charge while dealing with debts

New Insolvency Legislation – Enabling business owners to stay in charge while dealing with debts 

Current State 

Currently, if a company is insolvent or close to it, an administrator receiver, or liquidator may be appointed as a consequence of the company either being unable to meet its debt obligations on time, or the value of its liabilities exceeds that of its assets.

Overhaul of Insolvency Laws

The Australian government has indicated that it will overhaul insolvency laws and embrace key features of the United States’ Chapter 11 laws that allow business owners with liabilities of less than $1 million to stay in charge while they deal with their debts. The new laws are expected to provide for a flat fee for companies that call in advisers to trade their way out of trouble as experts predict a wave of insolvencies from forced shutdowns to halt the spread of COVID-19.

We are here to help individuals and small businesses navigate through these changes.

Key points:

  • Experts believe a high rise of insolvencies when protections for business owners expire at the end of the year 
  • The reforms will allow small businesses to restructure their debts while remaining in control of their business. 
  • The cost of putting a business into administration or liquidation can be so expensive and can consume the remaining assets of small businesses. 
  • If at least 50% of creditors by debt value vote in favour, the plan will be implemented, while if creditors vote the plan down the business can go into the existing voluntary administration system. 

The new system would see small business owners, with liabilities of less than $1 million dollars, remain in control of their company and assets, rather than immediately being placed in the hands of an administrator or creditors. A business or company that has become insolvent would now have 20 days to put together a restructuring plan. Once submitted to the creditors of the business/company creditors will have 15 days after that to accept the plan.

This new process will involve a small business restructuring practitioner helping the business prepare the plan, certify the plan to creditors, and oversee disbursements once the plan is in place. In the past creditors would appoint an external administrator to oversee the affairs of insolvent businesses. This new process will allow the business owner to retain the ability of control in consultation with its creditors. 

Adding to the new measures, safeguards have also been put in place to ensure employee entitlements are paid out in full before any voting by creditors and creditors related to any directors of the business will not be allowed to vote on a proposed restructuring plan. 

These changes have been made to help prevent a wave of failures before businesses have the opportunity to recover. 

The federal government plans to implement the reforms from January 1, 2021.

There is no substitute for Expertise & a Proven Track Record.

At Melbourne Legal we have expertise in all aspects of insolvency. We have for many years helped many small businesses and individuals navigate their way out of financial difficulty. 

The prospect of insolvency is intimidating and stressful but quite common. Sometimes events happen that can lead a once thriving business or enterprise to face financial challenges that are simply too hard to survive. Individuals too can find themselves in serious financial difficulty. 

Quite often, solutions are available.

For individuals, we can assist with – 

  • Protecting your assets to safeguard them in the event of financial difficulties 
  • Negotiations and or arrangements with creditors 
  • In the absence of other solutions, bankruptcy 

For companies, we can assist with – 

  • Protecting the company’s assets to safeguard them in the event of financial difficulties
  • Negotiations and or arrangements with creditors
  • Protecting directors and shareholders
  • Dealing with Creditor’s Statutory Demands served on the company
  • Voluntary administration, receivership, and liquidation
  • Dealing with administrators, receivers and or liquidators 

This is a complex area of law and involves lawyers, clients and accountants working closely together to achieve the best outcomes.

We have experience in acting with respect to : 

  • companies or individuals being pursued for money by creditors 
  • companies contemplating receivership or liquidation 
  • companies who have entered liquidation or administration
  • companies entering into a deed of company arrangement (DOCA)
  • businesses that seek to restructure 
  • directors served with director penalty notices by the Australian Taxation Office 
  • Companies served with creditor statutory demands 
  • insolvent trading claims
  • company wind up applications 
  • preference allegations and claims by liquidators or bankruptcy trustees 
  • personal property securities enforcement and disputes 
  • voluntary administration advice 
  • receivership advice 
  • insolvency related litigation 
  • debt recovery  
  • allegations of unpaid tax debts with the Australian Taxation Office (ATO) 
  • Part X arrangements with creditors under the Bankruptcy Act 
  • bankruptcy

If you or your business are suffering due to COVID-19 and need assistance and advice on how to navigate through these unprecedented times, please reach out.

Our firm, led by Principal Mario Merlo, is the leading expert in dealing with all insolvency matters. For a limited time take advantage of our FREE 20min confidential consultation offer to discuss your situation and work out an action plan to protect your interests.  Call 1300 739 361 or click here.