Insolvency
New insolvency laws bring small business funding needs into focus By Craig Michie* With new insolvency laws in play in 2021 small businesses have broader options around restructuring – but they need the right funding in place as the new options may exacerbate pressure on their cashflow.
Craig Michie
Blair Pleash
When asked what was required for small business to rebound from the COVID-19 recession, one of the key factors named by Australia’s SME owners was insolvency law reform. In ScotPac’s late 2020 SME Growth Index research, small business leaders identified that permanent insolvency changes were required outside of the rushed and temporary safe harbour rulings put in place to handle the unique circumstances of the pandemic in 2020. The Federal Government delivered, with new insolvency laws coming into effect on January 1 2021. Aware that these changes would have an impact on many small businesses, ScotPac partnered with Blair Pleash, insolvency and restructuring partner at Hall Chadwick, to run information sessions for business owners and their advisors outlining the implications of the new laws.
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What SME directors and their advisors need to know In 2020 temporary protections around insolvency safeguarded directors from personal liability during insolvent trading, with the law being hastily changed so that creditors had to be owed $20,000 (not $2,000) before they could make a statutory demand. Under these temporary rules debtors had a full six months, not 21 days, to comply with a statutory demand. Effectively what the government has done in the legislation in effect from January 1 2021 is to remove these temporary measures and replace them with a more permanent framework designed to assist the small business sector with COVID recovery. Under these new laws companies can formally restructure, with the option of small business restructuring for those companies that may not be able to afford the voluntary administration process.
