Small businesses across Australia that operate via a trust will now be considered for further protection, as the federal government contemplates further insolvency reforms as part of the May 2021 federal budget.

On Monday 3rd May, the Treasury announced that the Australian Government will be holding a consultation regarding how trusts are currently being treated under insolvency laws, with a goal to make sure that businesses who frequently use these structures are not disadvantaged.

The government also intends on reviewing insolvent trading safe-harbour provisions, introduced in 2017 to make sure that they still remain fit for purpose.

The government will also be consulting on the introduction of a moratorium on creditor enforcement whilst schemes of arrangement are being negotiated.

The Treasury says that the threshold for which creditors are allowed to issue a statutory demand on a company will double from $2,000 up to $4,000. The increase follows the Treasury’s consultation from February 2021 which originally hinted at a potential rise of up to $10,000 for statutory demands in order to align the amount with the current personal bankruptcy threshold.

As Australia’s economy recovers from covid-19 pandemic, the Australian government believes that it is important for as many businesses as possible have an opportunity to turn around, restructure and survive.

The Australian Government believes that these proposed insolvency reforms will prevent many businesses from permanently closing.

The latest measures are set to come into effect following recent reforms which were introduced on the 1st January 2021 and dubbed the biggest reforms to Australian insolvency laws in 30 years.

The reforms made it possible for small businesses experiencing financial distress to access a simplified debt restructuring process with the assistance of a small business restructuring practitioner, or enter into a simplified liquidation pathway which intended to make it possible for the business to undertake a faster and lower-cost liquidation process. The temporary restructuring relief ended on Wednesday 31st March 2021.

Australian Securities and Investments Commission (ASICS) has revealed that the list of published notices shows that only 37 companies have made a declaration of their eligibility for the governments temporary restructuring relief.

Earlier this year ASIC announced that from 18th February 2021 onwards there will be new requirements in regards to ceasing a company director in accordance with the Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 which was passed by Parliament in February 2020. 

The announcement which was made on 9th February 2021, outlines that companies are no longer able to cease the last remaining director on ASIC records, unless a replacement director has been appointed. The three exceptions to this rule are; if the last director has passed away, the officeholder never consented to the appointment or if the company is being wound up or under external administration.  

Furthermore, if a director’s date of cessation is notified to ASIC more than 28 days after the effective date, then the effective date will be replaced and overridden with the lodgement date. Late lodgement fees will still apply in this scenario, and an application fee will be charged should directors apply to ASIC or the Court to change the date of resignation. 

The purpose of these changes is to prevent illegal phoenix activity by holding directors accountable, preventing directors from inadequately backdating their resignation or leave their company without any directors.