We considered this inquiry to be the first step in a holistic review of Australia’s insolvency laws, both corporate and personal.

The majority of corporations in Australia are small businesses that are often required to provide personal guarantees and their personal assets as security for finance for their business. Where personal guarantees and assets are linked to the business, and that business becomes insolvent, the owner/director often faces bankruptcy. Therefore, a holistic review is required with consideration given to a single insolvency regime.

Pending such a review we made the following recommendations which we believed would bring immediate benefits to all persons facing financial stress:

Raise the statutory demand to $10,000

The inability to meet a statutory demand will place that business into liquidation. Therefore, the threshold should ensure that a single, small-value creditor, cannot push a company into liquidation unless the debt they are seeking is more than the cost to undertake the minimum amount of work demanded by current insolvency laws, which is upwards of $7000. We recommended $10,000 to be in line with the current threshold to commence a bankruptcy action against an individual.

Raise the maximum default remuneration for liquidators to $10,000

Importantly, this does not mean the maximum will be drawn in small-value liquidations as liquidators can only draw the remuneration to cover costs for work undertaken. It does mean a reduction in costs to the liquation to the benefit of creditors as certain activities are not required when the remuneration is drawn under the default mechanism.

Allow restructuring practitioners to be appointed to a small business where employee entitlements are substantially up to date and will be satisfied as a priority under the restructuring plan.

Members have found that many small businesses that would otherwise be eligible for expert support to restructure have historical unpaid superannuation. We refer to the last statistics ASIC posted which indicates that just over 30 per cent of businesses that entered external administration had unpaid superannuation of less than $100,000. To de-risk expanding eligibility, we also seek the caveat that outstanding entitlements must be satisfied first in the restructuring plan.

Create a new status on the Company Register ‘Under restructuring’

A significant barrier for directors of small businesses to seek an expert to assist with restructuring is in doing so, the company status is changed to ‘Under external administration’. On this change, many contracts that underpin the operations of the business, such as workers’ compensation insurance, are made void. Yet this status is only temporary. If the restructuring plan is agreed to and made, the status reverts to ‘Registered’. If the plan is not made, it reverts to ‘Registered’. As the intent of the small business restructuring reforms is to keep the business operating, the status of the company should reflect that process.

The submission provides greater detail on these recommendations and proposes other changes for consideration. We thank our members for taking time out of their work to provide input to this consultation which we hope results in beneficial change for all parties in insolvencies.