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Insolvency Reform for Small Businesses in financial distress Posted on November 11, 2020

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The Federal Government has announced reforms to simplify the Voluntary Administration process in order to help financially distressed small businesses to efficiently restructure and survive the economic impact of COVID-19. The reforms will likely come into effect on 1 January 2021.

Small businesses are historically most at risk of insolvency, with 80% of corporate insolvencies involving less than 20 employees.

2020 has had its fair share of challenges, but we’ve actually seen around 50% fewer corporate insolvencies in Australian compared to the same period in 2019. This is largely because of the federal government stimulus measures.

As the Federal Government weans small business off stimulus measures such as JobKeeper, some small businesses may wish to restructure their financial affairs.

Here is how it will work…

  • Business owners with liabilities of less than $1 million will be allowed to stay in charge of the business while they deal with their debts.
  • A small business restructuring practitioner will deal with creditors.
  • The business owner would have 20 days to develop a plan to restructure the debts.
  • Once the plan is put in place, creditors have 15 days to vote on it and any percentage of disbursements that would be paid to the small business restructuring practitioner, adding to the original flat fee.
  • If the plan gains majority support in a vote of creditors by value, the business continues and the practitioner oversees the distribution of any funds to those who are owed money.
  • If a plan is rejected by creditors, the company would go into administration and insolvency under a modified version of the existing laws.
  • The insolvency regime will also be amended to waive the fees associated with registering a liquidator.

The reforms are designed to make restructuring a simpler and quicker process than the current system allows.

We work with many small businesses who suspect this may be a road they will need to take. In many cases, there are options to turn things around before it gets to that, or to position for greater financial resilience if it appears unavoidable.

If you would like to talk about your business’ financial structure, we offer a complimentary advisory session with a qualified accountant and business advisor. Call 02 4320 0500.

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Get in touch with our team today and learn how you and your business can grow to the next level. From structuring to sustainability, we'll help you reach your financial goals and live the lifestyle you deserve.

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