Readers will no doubt have heard of ‘Chapter 11’ being talked about in the context of changing Australia’s insolvency laws.  What is being referred to are the 95 provisions of the US Bankruptcy Code 1978 which are considered the most liberal and debtor-friendly.

They certainly place great emphasis on corporate rescuing but from a different angle to our own experience in Part 5.3A of the Corporations Act which has been our corporate rescue legislation since 1993.  Chapter 11 is used as a model for insolvency law reforms in several other countries and more so since governments have needed to respond to COVID-19.

What does it mean for you/your business?

Mandatory Comprehensive Credit Reporting (“CCR”) came into effect on 1 July 2018, which required the big four banks to fully participate in the credit reporting systems.

It is often important in corporate insolvency to consider the enforcement of director personal guarantees and the rights of creditors.

It is commonplace for directors of a company, particularly in the SME sector, to give a personal guarantee to persuade banks and other financial institutions to lend money to the company.

The Federal Government’s new ‘Small Business Restructuring’ and ‘Simplified Liquidation’ processes for companies commenced on 1 January 2021.

For further details, see: New insolvency processes The New Debt Restructuring Procedure – A Case Study

Legislation has recently been introduced into Parliament for the new debt restructuring process.  The new process, which is only available for companies with debts less than $1 million, is intended to commence from 1 January 2021.

The new process will involve a “small business restructuring practitioner”, who must be a Registered Liquidator, helping the business prepare the plan, certify the plan to creditors and oversee disbursements once the plan is in place.

When exercising their commercial judgment during the COVID-19 pandemic, Registered Trustees in Bankruptcy walk a fine line between fairness to bankrupt individuals and maximising returns to creditors.

The economic turbulence triggered by the COVID-19 pandemic has caused our Government to put buffers in place to delay the potential onset of bankruptcy.

Next year there will be new regime for company directors – it is aimed at ensuring that all Australian company directors are accurately identified and that when promoting and operating a company no false names and identities will be used.

This has long been a problem for accountants, particularly those engaged in insolvency.  The problems have not just been in the use of fictitious identities to facilitate illegal phoenix activities but also generally in trying to ensure that there is integrity and reliability of the public record for matters like the details of current and former directors of all registered companies.

Many have likened the removal of insolvency protection measures to the economy dropping off the edge of a cliff. That will happen on 1 January 2021. But the Government has a plan!

Remember March 2020? A long time ago wasn’t it? The world was full of panic, there were suddenly long queues at Centrelink and businesses were in crisis.  Nobody was calling their accountant, because the discussion would be a difficult one – and nobody wanted to lodge the March quarter BAS as it would crystallise a further debt which not be able to be paid.