The Government has announced that it will introduce insolvency reforms to help small businesses restructure in response to COVID-19, including:
- the introduction of a new debt restructuring process for incorporated businesses with liabilities of less than $1 million, drawing on key features from Chapter 11 of the US Bankruptcy Code;
- moving from a one-size-fits-all “creditor in possession” model to a more flexible “debtor in possession” model;
- providing a rapid 20-business day period for the development of a restructuring plan by a small business restructuring practitioner, followed by 15 business days for creditors to vote on the plan; and
- creating a new, simplified liquidation pathway for small businesses to allow faster and lower cost liquidation.
Safeguards will be included to prevent companies from using the new processes to undertake corporate misconduct, including firms seeking to carry out illegal phoenix activity.
The new insolvency processes are proposed to be available from 1 January 2021.