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Insolvency reforms to support small business

by OnDeck Australia,   Sep 28, 2020


The Government is making changes to our insolvency framework in a bid to better serve Australian small businesses, their creditors and their employees.


On 24th September 2020 the Treasurer announced the Federal Government’s plans to significantly reform the insolvency regime for small businesses, including:

  • a new debt restructuring process to give viable small businesses a better chance of survival;
  • a new, simplified liquidation process to reduce the cost and time of the winding up process where that is the only option for small business; and
  • a series of complementary measures, including use of technology and relaxing registration requirements for insolvency practitioners involved in small business restructuring and liquidations.


These reforms are due to commence on 1 January 2021, the day after expiry of the Government’s current measures that limit creditor enforcement action during the COVID-19 crisis.


The legislation which implements these reforms is yet to be published, but a paper outlining the new measures has been released by the Treasurer. Here are the key take-aways:


What’s the criteria for the new proposed debt restructuring process?

  • Must be an incorporated business (not a personal sole-trader);
  • Liabilities of less than $1 million (it is not yet clear whether this includes secured debt and/or related party debt);
  • Must have paid any employee entitlements – this may lead to requests for funding of outstanding entitlements to enable access to the new regime.

What are the key features of the new proposed debt restructuring process?

  • The company’s existing directors remain in control of the business and it can continue to trade in the ordinary course;
  • A Small Business Restructuring Practitioner (SBRP) is appointed by the company to advise on the restructuring process and its implementation;
  • Once the SBRP is appointed, creditors are notified by a ‘technology neutral means’ that a debt restructuring process has commenced;
  • Upon commencement of the process, certain protections and moratoria (similar to those that apply in a voluntary administration) apply;
  • The existing management/directors (working with the SBRP) have 20 Business Days to develop a plan to restructure the business’s debts;
  • Creditors are provided with information concerning the plan;
  • The SBRP must certify the plan, including that the business can meet the proposed repayments under the plan and that it has properly disclosed its affairs;
  • Creditors have 15 Business Days to vote on the plan (including the proposed remuneration for the SBRP);
  • To be approved, 50% of creditors by value must vote in favour of the plan;
  • Secured creditors are bound by the plan only to the extent their debt exceeds the realisable value of their security interest;
  • Related party creditors are not entitled to vote on the plan;
  • If the plan is approved, the business continues and the SBRP administers the plan;
  • The SBRP will have power to stop the process where misconduct is identified;
  • If the plan is not approved, then the company owners may opt to go into a traditional voluntary administration or use the proposed simplified liquidation process.

What are the key features of the new proposed small business liquidation process?

  • The liquidator’s regulatory obligations will be simplified to be more appropriate for the asset base, complexity and risk profile of a small business;
  • The reduced obligations are expected to reduce cost and therefore increase returns to creditors, including employees;
  • The circumstances in which a liquidator can seek to claw back unfair preference payments from creditors (where they are not related-party creditors) will be limited;
  • The proof of debt and dividend payment processes will be simplified through the increased use of technology;
  • The existing order of priority (including rights of secured creditors and employees) will be maintained.


For full details of the proposed reforms, read the paper here.


As a reminder, these current Government measures for financially distressed customers will remain in place until 31 December 2020:

  • The threshold at which creditors can issue a statutory demand has increased from $2,000 to $20,000
  • Time to respond to statutory demands has increased from 21 days to 6 months
  • Temporary relief for directors from any personal liability for trading while insolvent with respect to any debts incurred in the ordinary course of the company’s business.


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Prepared by OnDeck Capital Australia Pty Ltd ABN 28 603 753 215 (“OnDeck”) for general information purposes only. Content may belong to or have originated from third parties and OnDeck takes no responsibility for the accuracy, validity, reliability or completeness of any information. Information current as at September 2020. You should not rely upon the material or information as a basis for making any business, financial or any other decisions. Loans issued in Australia are subject to the terms of a loan agreement issued by OnDeck. Loans are subject to lender approval. OnDeck® is a Registered Trademark. All rights reserved.


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