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Changes to insolvency laws to assist small businesses commenced from 1 January 2021.
Small businesses with total liabilities of less than $1 million in financial distress considering restructuring or winding up can now access faster and less complex processes.
Options available include:
It is important that any business owner in financial distress seek expert financial and legal advice as soon as possible to understand their options and associated consequences before making a formal decision.
Builders should also be aware of requirements to report on their financial affairs/liquidation to the relevant building authority in their State or Territory and should seek professional advice on the impact this may have on builder’s registration/license.
The new simplified debt restructuring process allows eligible small businesses to work with a Small Business Restructuring Practitioner (SBRP) to develop a debt restructuring plan to be put forward to their creditors. The plan sets out information on how the business will pay its outstanding debts.
Under the process:
To be eligible, companies must:
Company directors must pass a resolution that the company is insolvent or is likely to become insolvent in the future and a SBRP needs to be appointed. A SBRP must be a Registered Liquidator. ASIC has a register of Registered Liquidators.
Small businesses should seek advice from their accountant about whether or not their businesses is insolvent.
Temporary relief is available for company directors who want to enter into a debt restructuring plan but cannot find a practitioner in early 2021.
To qualify for the relief, company directors must declare their intention to access the restructuring process between 1 January and 31 March 2021. Once the declaration is made, the company is relieved of any liability relating to trading while insolvent for up to 3 months and a possible further month where the directors have taken all reasonable steps but a SBRP still cannot be found.
More information on temporary relief.
The new simplified liquidation process is a streamlined winding up for companies that have liabilities less than $1 million.
The usual winding up process has been modified to have less reporting and investigative requirements by the liquidator to reduce time and cost for businesses already in financial trouble. A liquidator that has been appointed to wind up a company may choose to adopt the simplified liquidation process if certain criteria are met.
The simplified liquidation process:
More information on the simplified liquidation process.
To be eligible, companies must:
Once the liquidator is satisfied that all the criteria have been met, a notice must be given to all creditors explaining the simplified liquidation process. The liquidator has to do this at least 10 business days before adopting the streamlined process. Liquidators cannot adopt the process if 25% of creditors (by value of their debts) do not want the process followed.
National Debt Helpline offer free independent and confidential financial advice on managing debts and dealing with creditors.
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