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Govt streamlining insolvency law so financially struggling SMEs can restructure more easily

The Morrison government will further simplify and streamline insolvency law, so that viable businesses encountering economic challenges have the opportunity to restructure and continue trading.

The government is acting to simplify and make fairer the rules governing ‘unfair preference’ claims by liquidators.

Assistant Treasurer Michael Sukkar MP said creditors who acted honestly and at arm’s length shouldn’t be pursued for small payments when a company they dealt with entered liquidation.

“Under the reforms, transactions that either amount to less than $30,000 or are made more than three months prior to the company entering external administration will no longer be able to be clawed back, provided those transactions involve unrelated creditors and are within the ordinary course of business,” he explained.

“These changes are consistent with the unfair preference rules which apply under the simplified liquidation process which the government implemented in 2021.”

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To ensure that liquidations with insufficient assets can proceed, from 1 July 2023 the government is also providing an additional $20 million in funding over two years to the Assetless Administration Fund, a grant administered by ASIC. Liquidators will be able to apply for a maximum grant of $5,000 per assetless liquidation, without needing to provide evidence of potential misconduct.

Mr Sukkar said the government was also clarifying the treatment of trusts with corporate trustees under Australia’s insolvency law by introducing a legislative framework for the external administration of trusts.

“The framework will allow for greater efficiency of the external administration of corporate trusts, ultimately supporting better outcomes for distressed companies and their creditors. The reform reflects the outcomes of the government’s 2021 consultation, which demonstrated there is broad stakeholder support for reform,” he said.

“Finally, the government is backing reforms that provide greater certainty for company directors seeking to save financially distressed but viable companies as part of the government response to the Review of the Insolvent Trading Safe Harbour.”

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