New Stimulus Measures to Assist Small Business Owners

The global COVID-19 pandemic has affected the operations and financial stability of small and large-scale businesses in Australia. As a result, Australia’s labor force took a significant hit, with unemployment rates currently at 6.9%, based on reports from the Australian Bureau of Statistics. 

To mitigate the financial and economic impacts of the Coronavirus pandemic, the government enacted stimulus measures to support displaced workers and business proprietors alike. These measures include:

• Job Seeker subsidy, which provides unemployed individuals between 22 years old and pension age with financial support while they are looking for a new job.

• Temporary changes to the Bankruptcy Law, which includes the provisional increase to $20,000 of the debt threshold to allow creditors to apply for a Bankruptcy Notice, and the increase of time before a creditor can proceed with bankruptcy proceedings against a debtor from 21 days to six months.

• Extension of the mandatory code of conduct for landlords and tenants until 31 December 2020.

• While the reforms mostly benefit large-scale businesses, the government is fast-tracking the development of measures specifically tailored for small businesses, which they intend to introduce by January 1, 2021. These measures, which will replace the above-mentioned temporary initiatives, will focus on small business restructuring and simplified liquidation. 

Small Business Restructuring Package

Similar to the Voluntary Administration (VA) process, the small business restructuring package targets insolvent businesses that are looking to maintain the company’s structure and business model while developing a debt restructuring plan with a recognized restructuring practitioner. The entry into a debt restructuring process will be viewed as an act of insolvency. 

Under the proposed small business package, companies will be given 20 working days to create a sound and actionable plan to restructure and pay off its existing debts, while at least 50% of the company’s creditors have 15 working days to decide whether to accept or reject the proposal. To allow for and guarantee the integrity of the restructuring process between creditors and debtors, the former is prohibited from imposing court and enforcement proceedings against the latter during the debt restructuring process. 

In the event that creditors reject the debt restructuring proposal, they can utilize more traditional forms of administration, such as VA or Creditors Voluntary Liquidation (CVL).

As this package is still being finalized, the definition of a clearer criteria to qualify as a small business restructuring practitioner will remain open for the regulations.

Simplified Liquidation

The government is also contemplating the enactment of a simplified liquidation process, which intends to reduce liquidation costs for the benefit of small business owners while increasing potential returns for creditors. 

The process is somehow similar to the CVL process but without the following:

• Appointment of a reviewing liquidator by the creditors and the Australian Securities and Investments Corporation (ASIC);

• Creditor meetings;

• Investigations associated with a Section 533 report; and

• Involvement of Committees of Inspection.

Insolvent companies are eligible to apply for this relief package, provided that their liabilities do not exceed $1 million, and that any director of the organization has not applied for a debt restructuring or liquidation process in the past. The company’s tax lodgements must also be up to date. Also, a business cannot apply for a simplified liquidation process if more than 20 working days have passed since the appointment. 

The criteria of the simplified liquidation process also protects creditors, as a company cannot avail of such when they inform creditors less than 10 working days of their intent to undertake such, and 25% of the creditors vote against this.

These transitional measures are seen to be in effect until March 31, 2021. 

Please contact us on 3310 8716 or email if you wish to discuss the above further.