A little tidying to achieve intended outcomes.
Only four months after it was introduced, the government is looking to make amendments to the small business insolvency reforms. Given the speed with which the reforms were proposed and passed, it’s unsurprising the government has sought to revisit and refine to ensure the reforms are functional in real-world scenarios.
The proposed amendments tidy up some issues with the legislation and expand eligibility. The main proposed amendments are to:
- ensure that employees can access the Fair Entitlements Guarantee (FEG) scheme where a company has been under small business restructuring prior to a simplified liquidation;
- clarify that entities subject to regulation by the Australian Prudential Regulation Authority (APRA) are ineligible for small business restructuring or simplified liquidation;
- clarify the role of the restructuring practitioner, including when they are required to make a declaration of independence, relevant relationships and indemnities (DIRRI), confirm they have qualified privilege, and apply section 128 and 129 of the Corporations Act 2001 to a company under small business restructuring;
- amend the superannuation and corporations laws to recognise a company under small business restructuring is insolvent;
- clarify that the Australian Securities and Investments Commission (ASIC) may investigate offences a liquidator reports in a simplified liquidation;
- allow creditors to approve a compromise of a debt in excess of $100,000 by way of a proposal without a meeting;
- allow Aboriginal and Torres Strait Islander corporations to access small business restructuring and simplified liquidation.
The proposed amendments would be to numerous Acts:
- Australian Securities and Investments Commission Act 2001
- Banking Act 1959
- Corporations (Aboriginal and Torres Strait Islander) Act 2006
- Corporations Act 2001
- Fair Entitlements Guarantee Act 2012
- Insurance Act 1973
- Life Insurance Act 1995
- Superannuation Industry (Supervision) Act 1993.
Essentially, the proposed amendments above resolve some of the issues identified during the initial consultation but were not addressed when the legislation was introduced; and seek to assist the reform’s intended outcomes, to provide more than one option to corporate SMEs experiencing financial distress. The proposed amendments would also expand eligibility to other entity types, namely Aboriginal and Torres Strait Islander corporations.
While there has been much industry discussion around the debt level eligibility criteria of $1m being too low and only catering to a certain percentage of the small business community, there has been no indication in these amendments that this threshold will be increased, although that may come at a later date. Any corporate entity concerned that their debt level may exceed the $1m threshold still have the voluntary administration regime available to them.
As with the original legislation, the government is seeking stakeholder input and has opened up a public consultation period, accepting submissions until the 7th of May.
For more information, please visit Need help: for your client or call us directly. Worrells is well positioned and ready to help!