Major Change to Bankruptcy Laws: What Does This Mean For Your Business?
It has been extremely difficult for many to keep their businesses afloat amid the COVID-19 crisis. Throwing a lifeline to small businesses, the government has overhauled bankruptcy laws to save thousands of jobs and companies on the verge of collapse.
What Are The Changes?
From the current ‘creditor-in-possession’ regime, Australia’s insolvency laws shifted to a ‘debtor-in-possession system’. Entities with liabilities below $1 million will be able to access the scheme.
The key features of this temporary insolvency law include:
- The business owner will remain in control of their company and will work with a Small Business Restructuring Practitioner (SBRP) to craft a restructuring plan in 20 business days
- The restructuring plan will be presented to creditors and they will vote if it is to be accepted in 15 business days.
- If the plan is approved, all unsecured creditors will be bound and the business will be allowed to resume trading.
- If the plan is rejected, the entity may enter into voluntary administration or access the new liquidation pathway which is simplified.
These reforms will commence on 1 January 2021.
What Does This Mean for My Business?
With these changes, the financial pressure on businesses will be significantly reduced, providing more breathing room for business owners to work out their next steps.
If your business is struggling to stay afloat and you are finding it increasingly difficult to repay ongoing debts, these temporary changes to insolvency laws may be welcome relief.
However, it is important to note that these are only temporary. So now is the perfect time to make a realistic assessment of your business’ financial situation and its viability.
If shutting down your business is inevitable after careful assessment, it will pay to have these conversations sooner.
Need Help Assessing Your Business?
Closing your business is a huge decision to make. We understand how difficult this can be for you, so we are here to help you make the best decision for you. We’ll help you carefully assess if you have exhausted all possible solutions or work out a plan with you for your business recovery.
If you need expert advice, feel free to book a consultation with us.