Australia’s landmark new rescue and liquidation processes for SMEs

  • Proposed reforms continue Australia’s adherence to the IMF’s three-phase approach to addressing the financial distress aspects of the pandemic.
  • The Government announced plans for new legislation, with effect from 1 January 2021, to introduce a new rescue process exclusively for SMEs.
  • SMEs with outstanding debts of less than $1 million are able to go through a much more cost effective and quicker liquidation process.

‘By adopting key aspects of the US Chapter 11 bankruptcy process, we will introduce a single, simpler, faster, more cost-effective insolvency process for small business. It will see our system move from a rigid, one-size-fits-all “creditor in possession” model to a more flexible “debtor in possession” model. This will enable small business owners to remain in control, provide them with an opportunity to restructure and ultimately increase their chances of surviving this COVID crisis.’

Treasurer J Frydenberg, 24 September 2020

Importance of the SME sector to the Australian economy

Having effective SME insolvency laws is important to the Australian economy:

  • 5 per cent of businesses in Australia employ less than 20 employees
  • Small businesses (< 20 employees) employ 4.7M people in Australia, representing 44% of the total number of people employed in the private, non-financial sector
  • SMEs have been particularly badly affected by the pandemic

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