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Small business insolvency reforms pass through Parliament

Adrian Flores
Adrian Flores
11 December 2020 1 minute readShare

The federal government has passed legislation through Parliament effectively overhauling the country’s insolvency framework to help businesses navigate the economic impacts of COVID-19.

The reforms stated in the Corporations Amendment (Corporate Insolvency Reforms) Bill 2020 were announced as part of the delayed 2020–21 federal budget.

The federal government introduced the legislation to Parliament in November and the reforms represent the most important changes to Australia’s insolvency framework in 30 years.


The legislation includes a new, simplified debt restructuring process that can be accessed by small businesses experiencing distress, which draws on key features of the Chapter 11 bankruptcy model in the United States and will apply to incorporated businesses with liabilities of less than $1 million.

The process is estimated to cover around 76 per cent of businesses subject to insolvencies today, 98 per cent of whom have less than 20 employees.


There will also be a move from a rigid one-size-fits-all “creditor in possession” model to a more flexible “debtor in possession” model, whereby eligible small businesses can restructure their existing debts while remaining in control of their business.

The new reforms also introduce new simplified liquidation pathway to allow faster and lower-cost liquidation, increasing returns for creditors and employees.

The new insolvency processes will be available for eligible small businesses from 1 January 2021.

Treasurer Josh Frydenberg said complementary measures to enable more practitioners to enter the profession are also being implemented.



“Together, these measures will reduce costs, cut red tape and ultimately help more small businesses to recover from the COVID-19 crisis,” Mr Frydenberg said.

Small business ombudsman Kate Carnell called the reforms a “landmark”, saying it will give otherwise viable small businesses a chance to recover and prevent a wave of unnecessary insolvencies.

“It’s an absolute game changer for small businesses, particularly those that have been heavily impacted by the COVID crisis,” Ms Carnell said.

“Instead of finding themselves on an express train to winding up with no control over the process, these changes will ensure small businesses have the option to turn their business around, giving them a fighting chance to survive.”

Small business insolvency reforms pass through Parliament
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Adrian Flores
Adrian Flores

Adrian Flores is the deputy editor of MyBusiness. Before that, he was the deputy editor for SMSF Adviser as well as features editor for ifa (Independent Financial Adviser), InvestorDaily, Risk Adviser, Fintech Business and Adviser Innovation.

You can email Adrian at [email protected].

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