On the 1st of January 2021, significant changes were introduced to insolvency law in Australia. The new laws provide for a simplified liquidation process. The new process allows small businesses the flexibility to restructure debts while company directors are still in control of the company, and also for a simplified liquidation process.
To be eligible for the process, the liabilities of the company must not exceed $1 million. Additionally, the company and the companies’ directors must not have been involved in a simplified liquidation process or under restructuring within the last 7 years.
Before the directors of a company consider proposing a restructuring plan to creditors, they should ensure they have substantially complied with the following two requirements:
- Paid entitlements of employees that are due and payable
- Supplied all notices, statements, applications and other documents as required by taxation laws
If the company is eligible for the SBR, the directors would pass a resolution to the fact that the company is (or is about to be) insolvent and that a small business restructuring practitioner (RP) should be appointed. For a person to act as an RP they must be registered with ASIC as a Registered Liquidator. The appointment of an RP cannot be revoked, removed or changed by creditors.
The role of an RP includes:
- Assisting in the preparation of a restructuring plan
- Making a declaration to the creditors about the plan
- Help the business comply with laws
- Provide advice
Once an RP is appointed the changes for creditors include:
- Cannot begin, continue or enforce claims against the company
- Court action is adjourned unless they find it is in the creditors interest to wind up the company
- Cannot exercise property rights without consent of RP
- Cannot enforce personal guarantees during the proposal process
There are a few rules regarding what must be included in a restructuring plan. The company’s restructuring plan must identify which company property is to be dealt with and how it is to be dealt with, there must also be remuneration for the RP for creating the plan and there must be a specific date at which the plan is to be executed by. The plan is then accompanied by a proposal statement, which is to be signed by the RP, stating that the practitioner believes on reasonable grounds that the company meets the eligibility criteria. The RP needs to make reasonable enquiries into the company’s affairs and take steps to verify information that is given by the directors.
A restructuring plan must:
- Last less than three years
- Treat all creditors equally
- Allow for only one dividend
Voting on the plan occurs when the RP invites all creditors, except those directly related to the company, to indicate in writing whether or not they would like to accept the plan and whether or not they dispute the debt that is stated in the plan. The period to accept the plan is fifteen business days from the end of the proposal period, although this can be extended if the creditor disputes the assessment of its claim in the proposal statement. Acceptance of the plan occurs if the majority of creditors have accepted the plan by the end of the acceptance period.
This information is of a general nature only. We recommend seeking advice from a qualified insolvency practitioner if you require further information.
