Back

NEW REFORMS PROVIDES A LIFELINE TO FINANCIALLY DISTRESSED BUSINESSES

8 January 2021

NEW REFORMS PROVIDES A LIFELINE TO FINANCIALLY DISTRESSED BUSINESSES

“When you reach the end of your rope, tie a knot in it and hang on…”

Franklin D. Roosevelt

Author: Michael Brennan

With the dawning of a new year, COVID-19 related government stimulus drying up and a ‘return to normal’ all but impossible in the current climate, owning a small business has never been more challenging for many operators.

We are seeing more and more businesses suffering from weakened balance sheets, decreased sales, increased uncertainty, competitor innovation and in some cases, changing client expectations.

Steering a clear course in the dark and stormy waters that are the ripples of the COVID pandemic is treacherous at best.

But it’s not all doom and gloom.

With the introduction of new insolvency law reforms on the 1st January 2021, came the setting free of long-held shackles that have traditionally turned business owners off in their droves from seeking assistance.

The changes are aimed at reducing the time, cost and complexity involved for those small business suffering from financial distress, allowing businesses the opportunity to restructure with more ease, or in the instances where the business can’t be saved, streamline the liquidation process.

A key area of reform is that the Director of a debtor company can remain in place during the relevant moratorium period, meaning they no longer have to hand over control of their business to an external insolvency practitioner.

That allows Directors to retain their say over the direction of their business, supported by the appointment of a Small Business Restructuring Practitioner, which in effect is an industry professional with the expertise and experience to support the business owner to make much needed changes.

The areas of reform include:

Debt restructuring for businesses facing financial distress

  • Small business Director appoint a Small Business Restructuring Practitioner to assist with the restructure of the company’s debt;
  • Director’s will remain in control for a period of 20 days to prepare a debt restructuring plan (if the business is deemed eligible). The plan must be certified by the Small Business Restructuring Practitioner; and
  • The plan will then be made available to the creditors, who will have 15 days to vote on whether the plan is approved or not approved*.

*The business must pay all employee entitlements and taxes which are due and payable before a plan can be put to creditors.

 

Small business simplified liquidation

  • The liquidation process for small business has been streamlined to reduce the time, cost and complexity involved for those small business suffering from financial distress and to allow assets to be quickly reallocated;
  • This applies only where the Director chooses to enter voluntary liquidation, aiming to the process faster and cheaper – ultimately allowing more funds to be returned to creditors and employees;
  • Investigative requirements, requirements to call meetings and reporting functions have all been reduced, along with increasing technology neutrality to allow for more convenient communications; and
  • A registered liquidator must be appointed. They will then confirm if the business is eligible.

Focus on enhanced technology

  • The reforms include new measures to increase the use of technology in respect to the registration requirements and creating an online portal for creditors to access information; and
  • This has been done so the external administration process can be carried out more efficiently.

With many industries hit hard by COVID-19 and conditions unlikely to return to pre-pandemic levels in the near future, it is vital that business owners take action swiftly and decisively if they are in financial distress.

Early intervention is critical if businesses are to avoid long-term damage to their operations and reputations; this new legislation will allow them to do that with much more dignity than has previously been afforded.

[ENDS]

The trusted Offermans team can support you to navigate the new world order and will work alongside you to help your business to recover from the challenges and preserve its value. For more information go to www.offermans.com.au

 

About the Author:

Michael has worked in the solvency and business improvement field for over two decades.

As a business owner himself, he is passionate about supporting business owners to achieve peace of mind, less stress, greater confidence and more resilient operations.