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Model Behaviour: the Australian version of America’s Chapter 11 Bankruptcy Scheme – Trustees & Creditors

By Jodie Rodrigues, solicitor at Matthews Folbigg in the Insolvency, Restructuring and Debt Recovery Group

On 24 September 2020, the latest instalment in Australia’s insolvency reforms was announced. These reforms have been branded “the most significant reforms to Australia’s insolvency framework in 30 years”.

For information about the proposed insolvency regulations, read Part 1 of this blog here.

 The proposed scheme has been developed to provide relief to small business in light of the economic impact of the coronavirus by way of the additional debt taken on to survive. However, the impact of the proposed mechanisms is wide reaching, and particularly in circumstances where no draft legislation has been released, no consultation has been undertaken, and the plan is to have these amendments in place by 1 January 2021, the reforms may be hazardous for creditors and insolvency practitioners. Read on to find how the insolvency reform will affect you.

Ramifications for Creditors

Aside from the implicit ramifications listed in Part 1, for at least thirty-five business days, creditors can do nothing to recover their debt. During the thirty-five day period, creditors are restricted from:
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Model Behaviour: the Australian version of America’s Chapter 11 Bankruptcy Scheme – Key Points

By Jodie Rodrigues, solicitor at Matthews Folbigg in the Insolvency, Restructuring and Debt Recovery Group

Part 1: The Key Points

On 24 September 2020, the latest instalment in Australia’s insolvency reforms was announced. These reforms have been branded “the most significant reforms to Australia’s insolvency framework in 30 years”.

And yet the plan, apparently, is to have these reforms in place in 3 months.

Under the Morrison government’s proposal, Australia would adopt a framework modeled on parts of Chapter 11 of America’s Bankruptcy Code. The proposed system would provide two alternative forms of insolvency administration for small businesses with liabilities of up to $1,000,000:

  1. A ‘debtor in possession’ restructuring plan, allowing thirty-five business days to obtain creditor approval for a debt restructure; and
  2. A simplified form of corporate liquidation, is restructure is not possible.

Restructuring Process

From 21 January 2021, small businesses with liabilities of less than $1,000,000 will have access to a debtor-controlled restructuring process in which there will be:
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Accountants Keeping Clients Afloat During COVID-19

By Ellen Ferris, a Solicitor in Matthews Folbigg’s Insolvency, Restructuring and Debt Recovery Group.

Accountants are being swamped by directors caught up in the effects of a global pandemic and the consequences of shutdowns and quarantine. Accountants’ own businesses are in the same boat.

How to advise clients during this time? The Australian Restructuring Insolvency and Turnaround Association (“ARITA”) has released helpful guidance for accountants seeking to help their clients at this time. These resources can be accessed via the below link:

Matthews Folbigg Lawyers has a legal team dedicated to Insolvency, Restructuring and Debt Recovery. All of the solicitors on this team are members of ARITA, and have been following the changes in this practice area closely.

Our team are ready to advise accountants with clients caught up in this complex area. If you have any questions about these changes, or would like to discuss these resources, please contact a Principal of Matthews Folbigg Insolvency, Restructuring & Debt Recovery Team:
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