COVID-19 Insolvency Relief ending on December 31st

As suppliers and creditors, there is nothing more frustrating than chasing your customer for payment of goods or services you have provided in good faith and then receiving notification from an insolvency practitioner that they have been placed into Receivership, Voluntary Administration or Liquidation. The temporary COVID-19 relief measures announced by the Government on the 25th of March 2020 which were extended to 31st of December 2020 made the recovery of debts even more difficult.

The good news for many is that the Australian Government announced major proposed insolvency law reforms to commence on the 1st of January 2021, which will include two new insolvency procedures for small businesses which have liabilities of less than $1 million.

The new insolvency process will be known as:

(1) Small Business Restructuring Proposal (SBRP); and
(2) Simplified Liquidation.

Small Business Restructuring Proposal

The SBRP involves a small business restructuring practitioner, who is a registered Liquidator, working with the business for 20 days to develop a restructuring plan. During this time, all creditors are notified and prohibited from taking any action against the company or enforcing guarantees against directors or relatives. The plan will then be sent to creditors, who are given 15 days to vote on the plan. Where the plan is approved, secured creditors will be bound by the plan to the extent that their debt exceeds the value of their security. However, if the plan is vetoed, the company will be placed in Voluntary Administration or the new proposed streamlined liquidation.

Eligibility for the SBRP includes:

(1) The business must be incorporated, not a sole trader; and
(2) Its liabilities must not exceed $1m.

Small Business Liquidation

Simplified liquidation will generally be the same as before, however with some cost savings such as:

● Lesser possibility of a liquidator seeking to clawback unfair preference payments from a creditor who is not related to the company;
● Certain requirements to call creditor meetings and forming committees of inspection are removed;
● The dividend process and proof of debt is simplified;
● Technology use will be maximised in voting and other communications.

Creditor rights and safeguards during Small Business Liquidation

The legal rights afforded to creditors such as employees will not change. Safeguards will be included to prevent companies from using the process to undertake corporate misconduct such as illegal phoenix activity.

As can be seen from the above there are many new and complex issues suppliers and creditors will need to address in the future.

However, if you have any questions or require assistance in dealing with your debtors, customers, financiers or suppliers, please do not hesitate in contacting Australian Company Liquidations on 1800 981 070. We are registered company liquidators who offer free expert advice 24/7 to help you with your financial issues.