During the better part of 2020, the federal government has injected an unprecedented level of stimulus into the Australian economy in an attempt to mitigate the economic impact of COVID-19. As a result, despite a significant contraction in the Australian economy, roughly half as many Australian companies are entering insolvency processes today compared with the same time last year. As that stimulus is wound back, it seems inevitable that the number of insolvencies will rise.
In an attempt to address the anticipated rise in insolvencies, the federal government has announced a number of reforms intended to assist small businesses to restructure and has released draft legislation for comment.
The focus of the reforms appears to be on ensuring that businesses and jobs survive, potentially at the cost of unsecured creditors and suppliers. The federal government has provided very limited detail regarding the reforms, and the information that has been provided raises many questions and issues, relating both to how the reforms will work and whether they will have the intended effect.
In this White Paper, we summarize the proposed reforms, some of the key issues and questions arising, and the likely impact on creditors.
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