New Debt Laws in Australia

Wednesday, November 22, 2023

From 1 January 2021, there are new debt laws in Australia that will change the way businesses and creditors (people owed a debt) approach insolvency (where a company cannot pay its debt). Normally, you cannot trade when insolvent. However, under the new laws, businesses with a debt of less than $1 million may continue to trade whilst developing a plan to repay its debt.

Now if a business has a debt of less than $1 million, it can appoint a registered liquidator to develop a debt restructuring plan over 20 business days. The plan is submitted to the business’s creditors to vote on. If approved, a business owner can repay a debt whilst keeping control of the company instead of handing over control to administrators. Unsecured creditors, such as landlords, can’t sue during this period. Secured creditors – such as a bank that has given a loan secured by a mortgage – can still enforce a claim over a company’s property.

If a proposed restructuring plan is rejected by creditors, a company may consider voluntary administration (giving control of a company to someone else) or liquidation (closing a company and selling its assets). From 1 January 2021, the government introduced a simplified liquidation process for businesses with debts less than $1 million. The new process is more cost effective with fewer legal requirements. If a company liquidates, the process is now quicker, capital is saved, and dividends are maximized for creditors.

If you are a business owner or a creditor, we can provide you with advice about what these new debt laws mean for you.

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