On 7 October 2020, the Treasury released its draft bill for consultation, proposing foreshadowed insolvency law changes.
The substance of the changes are to move our current insolvency model of creditor in possession and “one size fits all” approach, to a director in possession model. The process will only be available for companies with liabilities of less than $1 million.
The bill is only in consultation phase, to end on 12 October 2020. It is likely to see refinement in the coming months before being passed. The current drafting relies heavily on regulations that are yet to be drafted, so many questions remain unanswered.
On a cursory review of the draft bill, however, a number of matters warrant notice:
it is unclear how long the proposed ‘restructuring’ process is to last;
a registered liquidator is required to be involved. This alleviates some concerns as to the process being used for phoenixing;
Tax and employee entitlement liabilities need to be up to date. It remains to be seen how many companies will be able to access the regime with this requirement;
the process is only available to companies with liabilities of less than $1 million, however, it is unclear how contingent creditors are to be treated in this assessment.
There is an overriding commercial issue as to how a company under restructuring will be able to trade i.e. will suppliers continue to supply on credit, and what will be the attitude of finance providers.
Henry William Lawyers will continue to update as more information becomes available.