On 24 September 2020, the Federal Treasurer and Assistant Treasurer announced a package of reforms targeted at simplifying and streamlining the administration and liquidation processes for struggling small businesses. The reforms, touted as the largest shake-up of Australia’s insolvency framework in 30 years, are set to come into effect on 1 January 2021, pending the passage of legislation. In the meantime, all that we have is a fact sheet and a press release, so here is what we know so far.
The impact of COVID-19 on economic systems has been well-documented the world over. In Australia, this impact has been somewhat delayed. The advent of the Federal Government’s JobKeeper and JobSeeker schemes have ensured that the official unemployment rate has never strayed above 7.5%, but these schemes were initiated with a time limit in mind. Despite an extension to the schemes, most temporary relief will dry up in December 2020, leaving many businesses, particularly small and medium businesses, facing similar economic conditions as they faced in March 2020. Cognisant of this fact, the Federal Government is predicting large-scale small and medium business insolvencies in the New Year. In an insolvency framework geared towards dealing with large corporations and complex insolvencies, there is a risk that the widespread failing of small and medium businesses will leave many creditors and employees high and dry. The new insolvency reforms are a direct attempt to combat this likelihood through simultaneously simplifying the insolvency processes and providing further relief for businesses in the short term.
The Key Reforms
The key reforms mentioned in the government’s press release and fact sheet can be broadly split into three categories: administration, liquidation and complementary measures.