“So, … Where to from here?”
Unless you’ve spent 2020 living under a rock, you’re more than aware that from an economic viewpoint, last year has been a total write-off, financially and emotionally. Australia, along with over 90% of the world’s economies, was plunged into recession because of the COVID-19 pandemic – one of the biggest economic slumps in modern history.
With great fortune and hard work Australia has weathered this storm better than most. In fact, many from overseas that I have spoken with have been very blunt in their view that “Australian’s don’t actually appreciate how lucky they have been”. Interestingly the same statements were made during the 2008 Global Financial Crisis! Notwithstanding, in the interests of endeavouring to pull society back together and returning economic growth and stability to normal there have been consistent attempts made by many, using a variety of tools, seeking to restore order and normality.
So, what many potentially aren’t aware of however, are the changes made to Australia’s insolvency framework that have now been in effect since January 1 of this year. These reforms coincide with the end of temporary insolvency protections that were introduced in response to the pandemic way back in March 2020. It’s clear that fewer businesses went into administration last year as a result of the Government support programs … but that level of support is now in the process of ending.
The new processes are available to businesses with liabilities of less than $1 million; and the Government is hoping that businesses experiencing financial distress (of which there are many), will now be able to access either a simplified debt restructuring process, or in the alternative, a faster and lower-cost liquidation process.
This “relief” is designed to give company directors time to consider if their business can undertake a restructuring process. Registering for it, will prevent Creditors who are owed less than $20,000 from issuing statutory demands to wind up the company; it allows directors up to six months to respond to statutory demands, and provides (temporary) “safe harbour” from personal liabilities associated with insolvent trading.
At this time these new processes are essentially untested, and there are some very ‘practical business’ issues that mean that success is far from guaranteed. However, this is intended as temporary restructuring relief and may only be available for a limited time – effectively meaning businesses must apply whilst they are available to access the provisions. At this time it is expected for at least the relief requests to lapse on 31 March 2021.
I agree with many industry experts who believe it’s critical for businesses to be evaluating their own circumstances right now. Analysing the future based on both an upbeat, as well as a catastrophic, alternative. This assists in preparing for the worst should it eventuate. Because there’s no “blueprint” to follow, getting professional advice and support early is now even more important – so please don’t hesitate to contact our office to discuss any situation. You have nothing to lose, and everything to gain.