A New Way To Restructure Corporate Debts

28 January 2021

INTRODUCTION

On 1 January 2021, the Corporations Amendment (Corporate Insolvency Reforms) Act 2020 took effect. The Reforms introduced a new, simpler and cheaper process for debt restructuring of small businesses.

WHAT DOES IT MEAN FOR SMALL BUSINESSES?

The new process allows eligible companies to continue trading in its ordinary way while a proposal for payment of its debts is formulated.

The Reform imposes a moratorium on collection actions to allow the development and presentation of that proposal without the distraction of Court proceedings.

In addition, the Reform leaves control of the company’s business affairs in the hands of directors while providing a safe harbour against personal liability for insolvent trading.

WHAT ARE THE ELIGIBILITY REQUIREMENTS?

A business is eligible to access this restructuring process if the business:

• is incorporated under the Corporations Act 2001;
• has paid substantially all employee entitlements;
• has lodged all its tax returns and activity statements;
• has other liabilities not exceeding $1 million.

There is a limit on how often a company can restructure its debts. A company will be ineligible if the company has resorted to the process within the preceding seven years.

WHAT IS THE PROCESS?

The debt restructuring process involves:

• a resolution by the board that the company is or is likely to become insolvent;
• agreement of a fee and engagement of a small business restructuring practitioner (a ‘SBRP’ for short);
• notification to ASIC and creditors of that appointment;
• development of a plan to restructure the company’s debts and
• submission of the detailed plan to creditors for their approval.

There is no need for the SBRP to take over management of the company, prepare lengthy reports about its business, property, affairs, and financial circumstances, convene physical meetings, or compare the outcome of any proposal with liquidation.  The SBRP is only required to confirm that the company is eligible and to certify the plan to creditors

If the plan is adopted in that way, the plan will bind all unsecured creditors. The SBRP will be responsible for supervising disbursements according to the plan.

If the creditors vote ‘no’ to the plan and the company is insolvent, then the directors must resort to normal insolvency processes such as the appointment of a voluntary administrator or liquidator.

If the plan is not followed, the plan will terminate, and any remaining debts that will become due and payable on the following day.

[A New Way To Restructure Corporate Debts]

CONTACT US

For more information, please contact us on (02) 82396500 or at excellence@kreisson.com.au.

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