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

For further details, see:

But there has been little uptake of these new processes.

ASIC maintains weekly statistics of National insolvency appointments.  In the first 3 weeks of January, there have been no Small Business Restructuring appointments.

Further, only 3 companies applied for the new temporary restructuring relief (see below).

This is disappointing news for the Government, as the existing creditors’ voluntary liquidation and voluntary administration processes continue to be the preferred choice for companies in financial distress.

Bankruptcy notices

During the period 23 March to 31 December 2020, as part of the Government’s response to the COVID-19 pandemic, the minimum threshold for bankruptcy notices issued to individuals was increased from $5,000 to $20,000; and the period within which debtors had to comply was increased from 21 days to 6 months.

From 1 January 2021, bankruptcy notice thresholds reduced (but not quite to their pre-Covid-19 levels), to:

  • minimum debt of $10,000
  • 21 days to comply

The new $10,000 threshold is announced as a permanent measure – a response to consumer advocate groups pressing for increases in bankruptcy thresholds.

Statutory demands and safe habour protection for director’s personal liability

During 23 March to 31 December 2020, the minimum threshold for statutory demands against companies was increased from $2,000 to $20,000; and the period within which debtor companies had to comply was increased from 21 days to 6 months.

In addition, there was an extension of the “safe harbour” provisions, preventing company director’s personal liability for insolvent trading – for debts incurred after 23 March 2020 and if an insolvency appointment was made within 6 months.

From 1 January 2021, the statutory demands thresholds returned to their pre-Covid-19 levels, ie:

  • minimum debt of $2,000
  • 21 days to comply

However, these thresholds are modified for companies “eligible for temporary restructuring relief”.

Temporary restructuring relief

This temporary relief applies from 1 January to 31 March 2021.  For eligible companies, the statutory demand thresholds are the same as last year, ie:

  • minimum debt of $20,000
  • 6 months to comply

In addition, directors gain the temporary safe harbour protection from liability for insolvent trading for debts incurred before any appointment of an administrator or liquidator.

To access the temporary restructuring relief, company directors must:

  • make a required declaration about the company’s eligibility for temporary restructuring relief (including that the company is insolvent, or likely to be, and has debts, other than employee entitlement debts, < $1 million);
  • lodge a copy of the declaration with ASIC, within 5 business days; and
  • publish notice of the making of the declaration on ASIC’s ‘Published Notices’ website.

No ASIC lodgement fees apply.  The temporary relief is effective from when the notice is published.

The temporary relief applies for 3 months, but can be extended for 1 further month in certain circumstances.

Directors have a responsibility to withdraw the declaration and notice if they become aware that the company is not eligible for the temporary relief.

The temporary relief ends if any of the following occurs:

  • the initial declaration expires;
  • the directors fail to lodge a copy of their declaration to ASIC within 5 business days after making the declaration;
  • an insolvency practitioner is appointed to the company;
  • the directors make a declaration that the company is not eligible, or should not be treated as eligible, for temporary restructuring relief; or
  • a Court orders that the company is not to be treated as eligible for temporary restructuring relief.  A creditor or ASIC can apply to the Court for this order, or the Court can make the order on its own initiative.
Nick Cooper
Nick Cooper Managing Partner
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