The federal government has passed legislation to simplify the liquidation and winding up processes for small businesses.
The parliament passed reforms to the Corporations Act 2001 and the Bankruptcy Act 1966 to establish a debt restructuring process for eligible small businesses and provide temporary relief for those seeking to enter the process, as well as establish a simplified liquidation process.
The reforms come into effect from 1 January 2021 after the bill was passed by parliament yesterday, 10 December. It was first introduced to the lower house on 12 November.
The Australian Small Business and Family Enterprise Ombudsman Kate Carnell welcomed the passage of the legislation.
“These landmark reforms will give otherwise viable small businesses a chance to recover and prevent a wave of unnecessary insolvencies,” Carnell said.
“It’s an absolute game-changer for small businesses, particularly those that have been heavily impacted by the COVID crisis.”
In the announcement, Carnell cited modeling from Deloitte Access Economics, which estimated that some 240,000 small businesses are at risk of failure.
Carnell said the reforms would ensure small businesses have the option to turn their business around instead of finding themselves “on an express train” to winding up with no control over the process.
“Crucially, by moving to the ‘debtor in possession’ model, small businesses can restructure their debts while remaining in control of their business,” she said.
“For those businesses that sadly need to wind up, the liquidation process will be simpler, faster and cheaper.”
Carnell suggested affected small business owners sit down with their trusted and accredited financial adviser for a viability assessment “as a matter of urgency”.
“That’s why my office continues to advocate for the establishment of a small business viability program, providing small business owners facing financial stress with a grant valued up to $5,000 to access tailored advice on the state of their business,” she said.
“Ultimately this legislation represents the most progress we have seen in decades, much to the benefit of the small business sector.”