Sweeping Insolvency Reform Proposal Announced

On 23 September 2020, Treasurer of Australia Josh Frydenberg, announced the Federal Government will propose a sweeping law reform of insolvency and administration practices.

While no formal bill has yet been proposed, the Treasurer stated the key highlights of the proposed reform are to:

  1. Adopt key aspects of the US Chapter 11 bankruptcy process;

  2. Move from a “creditor in possession” to a “debtor in possession” model;

  3. Businesses with liabilities of less than $1 million will be able to keep trading for a period of 20 business days while they develop a debt restructuring plan, to be voted on by creditors and approved by more than 50 per cent of the creditors by value;

  4. Creditors will then have 15 business days to vote on the plan, and the remuneration of the practitioner to deliver it;

  5. A small business restructuring practitioner will help the business prepare the plan, certify it to creditors, and oversee disbursements once the plan is in place;

  6. Employee entitlements must be paid out in full before the plan is voted on by creditors; and

  7. If a plan is not approved, the business can go into a VA or liquidation process with simplified obligations.

The purpose of the proposal is said to streamline restructuring process and keep the debtor in control of the business to avoid the business assets being eaten up by practitioner and legal fees, with a genuine view of restructuring economically viable companies.


The Treasurer stated the new regime will start from 1 January 2021. It is expected a bill with more detailed specifics will be introduced to Parliament shortly.


The way in which the new laws will interact with existing safe harbour legislation and the recent insolvent trading protections under section 588GAAA of the Corporations Act, will be of interest.


Henry William Lawyers will provide updates on the reform as more information comes to hand.


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