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1 January 2021 saw the New Restructuring and Insolvency Process for Small Business come into effect.

A fact sheet in relation to this new process can be found on the Treasury website.

Some key points to consider are:

Eligibility

To be eligible to access this new process a small business must:

  • Be incorporated under the Corporations Act;
  • Have total liabilities (excluding employee entitlements) which do not exceed $1 million on the day the company enters the process.
  • Resolve that it is insolvent or likely to become insolvent at some future time and that a small business restructuring practitioner should be appointed.
  • Appoint a small business restructuring practitioner to oversee the process and work with you to develop a debt restructuring plan and proposal statement.

Before putting a plan to creditors the company must be in substantial compliance with the following:

  • Employee entitlements which are due and payable have been paid.
  • Tax lodgements (tax returns and activity statements) are up to date. Tax debts do not need to be paid for a plan to be put to creditors.

Grace period

The Government has recognised that it may take time to find a small business restructuring practitioner and as such has extended the temporary insolvency relief to 31 March 2021 which includes relief from liability for trading while insolvent.

To access this relief, a small business can declare its intention to access the process by publishing the declaration in ASIC published notices website.  You also need to notify ASIC within five business days of making the declaration by lodging Form EX07.

Restructuring Practitioner

Small business restructuring practitioners must be Registered Liquidators.  A new classification of Registered Liquidator can take on the role of restructuring practitioner only.  You can find a list of Registered Liquidators via the ASIC website.

The small business restructuring practitioner oversees the debt restructuring but the company’s directors remain in control of the business.

The restructuring practitioner assists the company to:

  • Prepare its restructuring plan and proposal statement; and
  • Circulate the restructuring plan and proposal statement to creditors within 20 business days of entering the process.
  • Certifies to creditors that the company is eligible for restructuring and is likely to meet its obligations under the plan.
  • Manages the disbursement on the terms set out in the plan if accepted by creditors.

Next Step

If you or a client is experiencing financial difficulty, contact What is Liquidation to assist with determining if you are eligible for this new process