Thursday, 12 November 2020
Corporations Amendment (Corporate Insolvency Reforms) Bill 2020; Second Reading
That this bill be now read a second time.
This bill implements the most significant reforms to Australia's insolvency framework in almost 30 years and is part of the government's economic recovery plan to keep businesses in business and Australians in jobs.
The changes will help more Australian small businesses to restructure and increase their chance to survive the economic impact of the coronavirus.
These reforms form part of the government's JobMaker plan to ensure Australia emerges from the pandemic with a stronger, more resilient and more competitive economy. As the economy continues to recover, it will be critical that distressed businesses have the necessary flexibility to either restructure or to wind down their operations in an orderly manner.
The package of reforms features three key elements.
Firstly, a new formal debt restructuring process for small businesses to provide a faster and less complex mechanism for financially distressed but viable firms to restructure their existing debts, increasing the chance of them surviving and contributing to economic and jobs growth. Unlike the current voluntary administration regime the new process adopts a 'debtor in possession' model where the small business owner will remain in control of their business, while a debt restructuring plan is developed and voted on by creditors. The plan will be developed by the business owner in conjunction with an independent small business restructuring practitioner.
Safeguards are included to prevent the process from being used to facilitate corporate misconduct such as illegal phoenix activity. They include a bar on the same company or directors using the process more than once within a prescribed period and the provision of a broad power for the insolvency practitioner to stop the process. Additional mechanisms are also included as part of the restructuring process to ensure that creditor interests are represented and protected.
The second part of the package is a new, simplified liquidation pathway for small businesses to allow faster and lower-cost liquidation, increasing returns for creditors and employees. Unfortunately, due to the impact of the coronavirus not every business will survive. Often in liquidation the costs of the liquidation can consume all or almost all of the remaining value of a company, leaving little return for creditors. The simplified liquidation process will retain the general framework of the existing liquidation process, with modifications to reduce time and cost.
Thirdly, the bill introduces complementary measures to ensure the insolvency sector can respond effectively both in the short and long term to increased demand and to the needs of small business.
The new insolvency processes will come into effect from 1 January 2021. This coincides with the ending of the government's temporary measures to support businesses to get through the coronavirus outbreak. The temporary measures had a positive impact on allowing businesses to survive, with around a 50 per cent decrease in the number of companies that have gone into external administration over the period from April to August 2020 (inclusive) compared to the same period the previous year.
For businesses wanting to access the new restructuring process, a temporary mechanism will be put in place allowing a company to announce its intention to access the restructuring process. Upon this announcement the company will have access to the existing temporary insolvency relief for up to three months while it arranges to access the new process.
Together, these measures will reform our insolvency system to reduce access costs for small business, reduce the time they spend during insolvency processes, ensure greater economic dynamism, and ultimately help more small businesses to survive.
The Legislative and Governance Forum on Corporations was consulted in relation to the bill and has approved it, as required under the Corporations Agreement 2002.
Full details of the measure are contained in the explanatory memorandum. I commend the bill to the House.