Lifeline for struggling small businesses facing bankruptcy as JobKeeper is wound down – here's what it means for you
Struggling small businesses are being thrown a lifeline as JobKeeper wage subsidies are wound back.
Treasurer Josh Frydenberg has unveiled new laws allowing firms to trade while insolvent if they owe less than $1million to creditors.
The new rules, modelled on the American Chapter 11 bankruptcy code, will cover around three-quarters of businesses that can't pay all their bills.
The announcement is being made just four days before JobKeeper subsidies are being significantly scaled back.
Thousands of small and family-run businesses will be thrown a lifeline as the Morrison Government prepares to introduce new bankruptcy laws. Pictured is a deserted Cavill Avenue mall at Surfers Paradise on the Gold Coast
The reforms, which will be unveiled by Treasurer Josh Frydenberg on Thursday, will cover around three-quarters of businesses subject to insolvencies
Instead of having to appoint administrators, struggling small businesses will be allowed to restructure their existing debts while remaining in control of their business.
They will have 20 business days to develop a restructuring plan with a specialist accountant before creditors are given 15 days to vote on the plan.
Costly administrators will be removed from the process unless the creditors refused to accept a debt restructure.
Josh Frydenberg said the new laws will apply a key feature of the US Chapter 11 laws that allows company directors and owners to maintain control of their business as they seek to restructure and trade out of insolvency
Moving from a one-size-fits-all 'creditor in possession' model to a more flexible 'debtor in possession' model will allow eligible small businesses to restructure existing debts while remaining in control of their business
Key elements of the reforms include:
* The introduction of a new debt restructuring process for incorporated businesses with liabilities of less than $1 million
* Moving from a one-size-fits-all 'creditor in possession' model to a more flexible 'debtor in possession' model, allowing eligible small businesses to restructure existing debts while remaining in control of their business
* A period of 20 business days to develop a restructuring plan by a small business restructuring practitioner, followed by 15 business days for creditors to vote on the plan
* A simplified liquidation pathway for small businesses
* Red tape cuts for the insolvency sector.
The changes follow the extension earlier this month of temporary insolvency and bankruptcy protections to support small businesses impacted by the COVID crisis.
As the temporary relief expires at the end of December, the number of companies being put into external administration is expected to increase.
Reserve Bank governor Philip Lowe warned of the wave of business failures in August.
'There will be insolvencies. There will be bankruptcies. There will be some businesses that will not recover. That's the harsh reality of an economic downturn that's the worst in 100 years,' he told parliament's economics committee.
The longer-term reforms are earmarked to start on January 1, subject to parliament passing legislation.
'These are the most significant reforms to Australia's insolvency framework in almost 30 years, and will help to keep more businesses in business and Australians in jobs,' Mr Frydenberg said.
He said the government was also providing support totalling $314 billion to cushion the blow for households and businesses as part of its economic recovery plan.
How are the support payments changing from September?
JOBKEEPER
* The $1,500 fortnightly wage subsidy will continue until September 27 - covering 3.5million workers
* From the end of September to December 31, JobKeeper will be reduced to $1,200 for full-time workers and $750 for people working 20 hours or less - with 1.4million workers eligible
* From January to March, the full-time rate will be $1,000 and part-time will reduce to $650 - with the scheme covering 1million workers
* Businesses turning over less than $1billion will have to requalify for the program at both stages through showing a 30 per cent drop in revenue.
* Businesses with more than $1billion in turnover have to demonstrate a 50 per cent fall
JOBSEEKER
* The elevated unemployment benefit will remain at $1,100 a fortnight until September 24
* From that date until the end of the year the $550 coronavirus supplement will be cut by $300 to make the overall fortnightly payment $800
* People will be able to earn up to $300 without having their payment reduced
* The mutual obligation rules requiring people to search for four jobs a month will restart on August 4
* Penalties for people refusing a job offer will be reintroduced
* Job search requirements will increase in September when the assets test will also return
* The permanent JobSeeker rate to take effect from January next year will be announced in the October 6 budget.