Debtor in Possession Reforms Commence with Not Much of a Bang

Photo by mark glancy on Pexels.com

The insolvency reforms aimed at helping small businesses through insolvency, passed in the The Corporations Amendment (Corporate Insolvency Reforms) Act 2020, commenced on 1 January 2021 without much take up.

On Monday 1 February 2021 I had the pleasure of speaking with the the CPA Insolvency & Reconstruction Discussion Group in Melbourne, at the invitation of Hugh Milne, about my thoughts on the reforms now they have commenced.

So far no one has actually commenced an insolvent administration under the new part 5.3B, but it’s only been a month.

Five companies have lodged declarations under section 458E of the Act in which they indicate an intention to appoint in the future, and gained the advantage of temporary restructuring relief against winding up and insolvent trading claim through to the end of March.

Hardly the flood of insolvencies that the part was introduced as a cheap and quick way to disperse.

In the discussion I pondered:

  • if political rather than reform imperatives were involved in the rush to legislate, perhaps explaining why submissions from the industry bodies, lawyers and accountants were largely ignored
  • is the typical company eligible to use the part as rare as a unicorn: whether the barriers to qualify for using the part (tax lodgement and employee entitlements) will leave it largely unused
  • will directors will have the credit or cash available to trade through the reconstruction period of at least 35 days, given that trade-on creditors of the company will have no recourse to company assets during the reconstruction period
  • whether the $1 million debt threshold is really too low given that contingent and future claims appear to be captured within it, in the final set of regulations.

A copy of the presentation powerpoint slides can be found here:

and a copy of the accompanying paper here:

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s