Breaking news – Treasury unveils new SME insolvency reforms (overnight – twice)

In an extraordinarily unheralded development, it has been reported that overnight Treasury issued a press release to major publications – then retracted it until midnight. It has announced significant planned reforms, primarily a new SME restructuring mechanism to catch the wave of insolvencies projected to hit in 2021 when the current pandemic-linked protections end. It is a debtor-in-possession model which adopts aspects of the US Chapter 11 bankruptcy process. The laws are intended to be passed in the coming months so that they take effect from 1 January 2021.

Key elements include –

  • To be eligible, companies must have liabilities of less than $1million
  • They will be able to keep trading while they develop a debt restructuring plan
  • They will engage a specialist “small business restructuring practitioner” (SBRP) to help them prepare the plan, certify the plan to creditors, and oversee disbursements once the plan is in place
  • They will have 20 business days to develop the plan, during which there is a moratorium on unsecured and some secured creditors taking action against the company
  • As noted above, the SBRP “certifies” whether she/he considers the business can meet the proposed repayments and has properly disclosed its affairs (Note: this element could be significantly problematic. It will only be an opinion, and one that relies upon the information provided to the SBRP by those running the business. But it may be understood by creditors to be akin to a guarantee)
  • Creditors will then have 15 business days to vote on the plan, including the remuneration of the insolvency practitioner to deliver on the plan
  • Employee entitlements that are due and payable will be required to be paid in full before the plan is voted on by creditors (Note: this may exclude many failing SME’s from using this model)
  • It will require a vote of more than 50% of creditors by value to approve the plan
  • Related party creditors will be prohibited from voting on the plan
  • There will be a streamlined liquidation process for companies that cannot be revived

The announcement was made without consultation with industry (what could possibly go wrong?) It is hoped this will take place now. Whilst the aspirations are understandable, commentators are already pointing out the problems and risks with the proposed new model.

The Treasurer is expected to announce more detail later today.

In the meantime, Treasury has released a fact sheet with Q&A and case study – see here.

Three newsflashes (two ironically juxtaposed) and a hohoho

Yesterday saw two developments on the same day; both insolvency practitioner-related and, as you will see, that the two occurred on the same day was certainly ironic. First, the Parliamentary Secretary to the Federal Treasurer and Attorney-General released an exposure draft of the primary amendments to be included in the Insolvency Law Reform Bill. The Bill implements the first tranche of reforms previously released in a proposals paper directed at modernising and harmonising the regulatory framework applying to insolvency practitioners in Australia, and how they are registered, disciplined and regulated. The stated aims include to increase transparency and accountability, and improve communication, high professional standards and the community’s confidence in the effective regulation of insolvency practitioners. For more information and to read the exposure draft and its accompanying explanatory material, go to the Treasury’s webpage here. The closing date for submissions is 8 March 2013.

The second development yesterday was the revelation that accounting firm RSM Bird Cameron had issued proceedings against a former partner in the firm, an insolvency practitioner of 20 years standing, which included allegations of breaches of fiduciary duty and fraud. Yesterday Chief Justice Warren of the Victorian Supreme Court delivered judgment on an injunction application the liquidator had issued, seeking to restrain Fairfax Media Ltd from publishing the allegations. Her Honour, after reviewing the key principles derived from the authorities and considering the submissions made by the parties, refused the application.

The third newsflash, on a different topic, is the recent announcement by the Victorian Supreme Court as to changes to the procedure for appeals from a decision of an Associate Justice, to commence on 1 January 2013. The principal amendments are to Rule 77.06 et seq of the Supreme Court (General Civil Procedure) Rules 2005, are contained in the Supreme Court (Associate Judges Appeals Amendment) Rules 2012 (link). Essentially, appeals from Associate Judges to a Judge of the Trial Division will be by way of re-hearing (such that error must be shown), rather than by a re-hearing de novo. Procedures will include a requirement that Notices of Appeal be served within 14 days. For more information, click on the above link to the announcement, and see new Practice Notice 4 of 2012 (link).

The amendments include the addition of a new Rule 16.5 to the Supreme Court (Corporations) Rules 2003, to apply the new procedures also to appeals from Associate Judges in corporations matters. New Rule 16.5 will further provide that an appeal will lie to the Court of Appeal:

  • in an application under s 459G of the Corporations Act (applications to set aside statutory demands); and
  • in respect of any matter referred to an Associates Judge by a Judge of this Court under Rule 16.1(3).

Finally, Merry Christmas to all, and my wishes to you and your families for a happy and healthy 2013. My apologies that the busy demands of my practice have reduced my rate of writing on this site in recent months. May you all enjoy a wonderful and restful break in the weeks to come.

Newsflash #1: Release of draft regulations re publishing insolvency notices online

Today the Parliamentary Secretary to the Treasurer announced the release of draft regulations to implement a part of the Government’s plans to reform and modernise Australia’s insolvency framework.

The Secretary said that the establishment of a corporate insolvency notices website is aimed at reducing the costs borne by companies under external administration and provide a central repository for creditors with information on upcoming corporate insolvency events.

The draft Corporations Legislation Amendment Regulations 2012 set out the new requirements to lodge documents with ASIC for publication on the ASIC Insolvency Notices website. The draft regulations also contain details of the fees for lodgment. They have been released for consultation and may be viewed here.  The Explanatory Statement may be viewed here. The closing date for submissions is 1 June 2012 – a notably tight deadline.

The ASIC Insolvency Notices website is scheduled to go live on 1 July 2012, and is expected to replace 53,000 newspaper advertisements over the next 4 years. This is estimated to deliver approximately $15million in savings to industry over that period.