Bankruptcy law changes to keep businesses open

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Thousands of companies have resisted insolvency or liquidation under a temporary regime announced by Mr Frydenberg in March and extended until December 31, raising questions about the number of companies that crumble when the rules end.

The government is announcing a 46 percent drop in the number of companies that started from March to July compared to last year.

But CreditorWatch chief executive Patrick Coghlan has warned of an increase in failures next year.

Borrowing from the U.S. regime, the government will provide a new avenue for companies with liabilities below $ 1 million to bring in a small business restructuring practitioner to deal with creditors.

Once approved by the board of directors, the business owner would benefit from protection against unsecured creditors and certain secured creditors, who would not be able to assert personal guarantees against the directors or their relatives. .

The business owner would have 20 days to develop a plan to restructure the debts while retaining control, a big change from existing laws that give control to outside directors or receivers.

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Once the plan is in place, creditors have 15 days to vote on it and any percentage of the disbursements that would be paid to the small business restructuring practitioner, in addition to the original fixed costs.

If the plan wins majority support in a vote of creditors in value, the business proceeds and the practitioner oversees the distribution of all funds to those who owe money.

If a plan is rejected by creditors, the company would go into receivership and bankruptcy under an amended version of existing laws.

Promising to speed up the process, the government is considering a “streamlined liquidation path” that reduces investigation and reporting requirements for liquidators.

The insolvency regime will also be amended to waive the fees associated with registering a liquidator.

While the government’s goal is to provide businesses with a faster and cheaper way to restructure, the sweeping changes have yet to be submitted to the insolvency industry for comment on the details.

Mr Frydenberg aims to submit the reforms to the federal parliament within a few weeks and have them passed so that the rules can take effect on January 1.

The Australian Chamber of Commerce and Industry has called for insolvency provisions to be phased out rather than reverting to normal all at once. The Council of Small Business Organizations of Australia also said some companies are choosing to stay open only to receive JobKeeper for their employees.

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