Insolvency reforms a boost to small business owners

NATIONAL

MGA welcomes new Business Insolvency laws that are to be introduced from 1 January 2021. The Insolvency reforms will impact small incorporated businesses (i.e. Pty Ltd entities) with liabilities of less than $1 million. They will enable a company to continue to trade under the control of its directors while a debt restructuring plan is developed and voted on by creditors.

This legislation will make it easier for small businesses to restructure or wind up.

Basically, the reforms will enable; 1. a new insolvency process for small businesses whereby financially distressed but viable companies can restructure their existing debts and continue to trade; and 2. a simplified liquidation process which will allow for faster and lower-cost liquidation. The company will be required to appoint an “insolvency practitioner” to assist with the restructuring of the company over a 20 day trading period and will prohibit creditors from taking actions against the company and its Directors.

Once a plan is developed, the “small business restructuring practitioner” will circulate the plan and supporting documents to creditors for their approval within 15 days; if the plan is not approved, the company may then be placed into liquidation or voluntary administration.

This is fundamentally different from the current situation involving companies, in which once a liquidator is appointed, the liquidator takes control of the company, and the control is removed from the director.

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