On Friday 15.10.2021, our Federal Treasury released a consultation paper entitled Clarifying the application of corporate trusts in insolvency. Following insolvency reforms which came into effect on 1 January 2021, the Government is now exploring further insolvency reform where the treatment of trusts under corporate insolvency law has been identified as one area for improvement.
The Government is committed to facilitating the successful restructure of companies, including those impacted by COVID-19, so that they can survive and go on trading.
In September 2020, the Government announced changes to Australia’s insolvency framework to better serve Australian small businesses, their creditors and their employees.
These reforms, which came into effect on 1 January 2021, introduced new insolvency processes suitable for small businesses, reducing complexity, time and costs. Complementary measures were also enacted to ensure the insolvency sector can respond effectively to any increased demand and to the needs of small businesses.
Following the commencement of the small business reforms, the Government is exploring further insolvency reform to help companies in distress to reorganise and survive, while further reducing regulatory burden for business. The intent is to complement the Government’s existing small business reforms, ensuring more companies can benefit from improvements to insolvency law.
The treatment of trusts under corporate insolvency law has been identified as one area for improvement. Australia’s current corporate insolvency regime does not expressly cover how companies which structure themselves through a trust, or businesses which have a corporate trustee (‘corporate trusts’) are to be dealt with during insolvency. This differs from companies who do not employ a trust structure, which benefit from a clear statutory regime established under Chapter 5 of the Corporations Act 2001 (Cth).
Reforms to clarify the treatment of trusts under Australia’s insolvency regime could help to reduce the costs and complexities associated with dealing with an insolvent business where a corporate trust is involved. In turn, this could provide greater certainty to creditors and other parties, and support businesses to turnaround, restructure and survive. Reform could also support more businesses to access the new small business insolvency processes.
This consultation will explore whether the treatment of corporate trusts in Australia’s insolvency law needs to be clarified, as well as the benefits that this could deliver. Stakeholders’ views are also sought on the most appropriate way to extend Australia’s statutory insolvency regime to these entities, should a case be made for legislative change.
The Government remains committed to further simplifying and streamlining insolvency law so that viable businesses that do encounter economic challenges have the opportunity to restructure and go on trading. To achieve this, the Government is also consulting on improving schemes of arrangement processes to help companies restructure. The Government has also:
- Increased the minimum threshold at which creditors can issue a statutory demand on a company, from $2,000 to $4,000; and,
- Commenced an independent review of the insolvent trading safe harbour.
These will build on the progress of the small business reforms, promoting a flexible and streamlined insolvency system. These other measures are being progressed separately to this consultation process.
SUBMISSIONS are due by 10 December 2021.
[Treasury website: Consultation Page, Consultation Document; Assistant Treasurer’s website: Media Release; LTN 199, 15.10.21]
[Tax Month – October 2021] 17.10.21 [Previous Tax Month]