InFocus February 2021 - Volume 30 Issue 1
- Insolvency reforms to support small business
- Combatting Illegal Phoenixing – changes from 18 February 2021
- News and media
- COVID-19 resources for small business
The Government announced changes to Australia’s insolvency framework to introduce new processes aimed at reducing complexity, time and costs for small businesses from 1 January 2021.
The reforms include a new:
- restructuring relief for incorporated small businesses
- simplified liquidation process for incorporated small businesses
- ‘class’ of registered liquidator who can only undertake the debt-restructuring process.
The changes will allow eligible small businesses to quickly restructure their debt while remaining in control of their companies and improving their opportunity to survive the economic impact of COVID-19.
These reforms apply to your small business if it:
- is a registered company, and
- has liabilities of less than $1 million.
If you are a sole trader or in a partnership, these reforms do not apply to your business.
The temporary restructuring relief provided by the reforms gives small business directors time to consider if your company can enter a restructuring process.
The restructuring process allows eligible companies to:
- retain control of the business, property, and affairs of the company while it develops a plan to restructure the company’s affairs with the assistance of a small business restructuring practitioner, and
- enter into a restructuring plan with creditors.
The temporary restructuring relief:
- Stops creditors who are owed less than $20,000 (up from $2,000) from issuing a statutory demand to wind-up your company.
- Gives you six months to respond to any statutory demand you receive (temporary increase from 21 days).
- Gives you a temporary safe harbour from personal liability for insolvent trading for debts incurred in the ordinary course of your company’s business.
Companies wishing to apply for temporary restructuring relief must do so by 31 March 2021.
You can find more information about how to access relief on our website.
Where debt restructure is not possible, businesses will have access to a streamlined liquidation process at a lower administrative cost, enabling greater returns for creditors and employees.
If you need help to understand the small business restructuring process, you should consider engaging a suitably qualified adviser, such as a financial counsellor, accountant, lawyer or registered liquidator.
The Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 was passed by Parliament in February 2020. Taking effect from 18 February 2021, this legislation introduces new offences and grants additional powers to ASIC and liquidators.
These reforms aim to prevent illegal phoenix activity by holding directors accountable, preventing them from improperly backdating their resignation or leaving their company with no directors.
Illegal phoenixing usually happens when company directors transfer the assets of an existing company to a new company without paying true or market value, leaving debts with the old company. Once the assets have been transferred, the old company is placed in liquidation. When the liquidator is appointed, there are no assets to sell so creditors cannot be paid.
Once the assets are transferred to a new company, the directors continue to operate the business. This gives the new business an unfair advantage when competing for work, because they carry less debt and have lower operating costs.
From 18 February 2021, companies will no longer be able to cease the last remaining director on ASIC records. To enforce this, lodgements submitted using a Form 484 Change to company details, or Form 370 Notification by officeholder of resignation or retirement, to cease the last appointed director without replacing that appointment will be rejected.
In addition, if a director’s cessation date is notified to ASIC more than 28 days after the effective date (e.g. director resigned on 1 April 2021, they notify ASIC on 1 November 2021), then the effective date will be overridden and replaced with the lodgement date (i.e. 1 November 2021).
More information about these changes will be made available on our website in coming weeks.
- 21-009MR ASIC consults on financial reporting and AGM deferral relief for companies in external administration
- 21-010MR ASIC warns investors of imposter bond scams
- Accellion cyber incident
To stay up-to-date with ASIC news, visit ASIC’s News Hub.
- ASIC’s News Hub is where you can find a range of small business resources and information, as well as stay up to date on the latest COVID-19 news from ASIC. Three informative articles were recently released titled Act now: temporary restructuring relief for small business directors, Insolvency laws for small business are changing and Is your small business insured for storms, floods, bushfires and other natural disasters?
- The COVID-19 Regulatory Information page on ASIC’s website contains information specific to small business operators regarding banking relief, financial distress and trading while insolvent, among many other things. It also contains links to various state based Small Business Commissioners, the ATO and the Australian Small Business and Family Enterprise Ombudsman (ASBFEO). If you are experiencing difficulties in meeting your obligations to ASIC at this time, please consider the information available on our website to apply for relief from certain obligations (conditions apply).
- ASIC’s MoneySmart website contains useful information if you are affected by COVID-19. It provides information on making financial decisions, obtaining free financial counselling and protecting yourself from scams as well as several other topics. You can also subscribe to a COVID-19 newsletter on this website.
- The small business page on ASIC’s website collates information from various ASIC sources in one location, covering many topics such as what is a small business, closing a small business, small business resources in other languages and indigenous corporations.
Business Australia is providing two free energy services to help you save on your energy costs and to become more energy efficient. 15 minutes with a Business Australia energy expert could be the best thing you do to reduce costs in 2021.
Business Energy Advice Program (BEAP) is an Australian Government initiative funded by the Department of Industry Science Energy and Resources and delivered by Business Australia. BEAP is a consultative service that has helped over 9,000 businesses to review their energy consumption and provide a detailed report tailored to their business so they can make positive changes.
Before engaging BEAP, over 86% of businesses did not know which rebates, grants or finance options were relevant to their energy efficiency projects. As part of the program you will receive information on which grants and rebates could help you on your energy management journey, along with tips on ditching expensive habits and applying new practices and technology. You’ll gain insights on reading your energy bills and have access to a wealth of resources including case studies and fact sheets.
BEAP is available to all small businesses of six to 20 employees, full time equivalent (FTE). Plus, zero to five FTE equivalent if the business self-assesses as being drought affected.
To register for the Business Energy Advice Program visit HERE.
Business Australia Energy (BAE)
Another initiative you could benefit from (regardless of business size) is the energy comparison and procurement service BAE. It follows an easy three-step process – compare, switch and save. The average annual potential saving identified for BAE customers which have switched to a better energy deal is over $1,400.
You simply nominate a good time to talk, upload an energy bill and BAE will do the rest. BAE will find the best energy rate available its panel of energy retailers and talk you through which energy deal works best for your business. If you decide to switch, you’ll be guided through the steps and paperwork will be kept to a minimum.
If you are a larger consumer of energy, the service is still free and will help you go to the energy market via a range of methods including tendering and arranging commercial and industrial contracts.
When faced with the pressure of trying to save a business that is facing financial difficulties, company directors run the risk of making poor decisions at the expense of others.
Find out about a number of steps a company director can take to respond to challenges within a small business.
A company director can be exposed to personal liability or may be found civilly liable, or even criminally convicted, for conduct relating to how they run a company or how they deal with company assets.
Find out more about why it’s important that company directors get proper advice to try to avoid what can be very serious consequences.
When a small business is facing financial pressure, there are a number of complex factors to consider. Find out more about why it’s important for small business owners to understand any underlying issues causing the financial pressure.