House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon. Josh Frydenberg MP)

Chapter 1 - Debt restructuring

Outline of chapter

1.1 Schedule 1 to the Bill inserts Part 5.3B in the Corporations Act to establish a formal debt restructuring process for eligible small companies. This process enables financially distressed but viable firms to restructure their existing debts so that they can continue to trade.

Summary of new law

1.2 Schedule 1 inserts a new Part 5.3B into the Corporations Act to establish a formal debt restructuring process for eligible companies. This process enables financially distressed but viable firms to restructure their existing debts.

1.3 The intention of the debt restructuring process is to provide an alternative to the 'one-size-fits-all' voluntary administration regime for small businesses with non-complex debt. It reduces the complexity and cost of the administration process, providing a greater role for the company directors during the process and allowing them to retain control over the company throughout. These changes are intended to encourage more small businesses to seek debt restructuring earlier, increasing their chances of regaining viability.

1.4 The ultimate aim of restructuring is to have a plan in place which sets out an approach to repayment of the company's existing debts, thereby enabling the company to stay in business and avoid being wound up. The restructuring process covers the period during which a plan is being developed by the business owners, following the appointment of a small business restructuring practitioner. The restructuring process may also be referred to as the period where the company is 'under restructuring' or 'during restructuring'. The restructuring process ends once the plan is in place.

1.5 Schedule 1 provides the requirements for accessing the debt restructuring process, including the criteria that the directors and company must meet.

1.6 Only the board of company directors can choose to enter the company into the debt restructuring process. Creditors and other third parties cannot commence the process or force the company to enter the process. To enter the debt restructuring process a company must be insolvent, or likely to become insolvent, with total liabilities lower than the amount to be prescribed in the Corporations Regulations.

1.7 Safeguards apply to protect against illegal phoenixing activity or other forms of corporate misconduct. A company is not eligible to use the debt restructuring process if a director of the company or the company itself has previously been through this process or the simplified liquidation process (described in Chapter 3). The regulations may prescribe circumstances in which a director or company is exempt from the requirement that they have not previously used either the debt restructuring or simplified liquidation process. Regulations may also prescribe additional safeguards which must be met before a plan can be put to creditors. For example, regulations could require the business to ensure that payments to employees and tax lodgements are up to date before the plan could be put to creditors.

1.8 The new debt restructuring process draws heavily on the established voluntary administration framework in Part 5.3A of the Corporations Act and shares many of its features. For example, secured creditors' rights under the debt restructuring process are consistent with existing voluntary administration processes. The moratorium that applies to a third party's ability to enforce rights against the company is also consistent with the moratorium employed during voluntary administration.

1.9 At the end of the restructuring process, creditors vote to accept or reject the plan. To ensure this process is fair, related entities are unable to vote on the plan. No creditor meetings are required during the debt restructuring process, with voting on the plan occurring electronically or via technology. If the plan is rejected, the restructuring process ends, and the company can seek to use an alternative formal insolvency process (such as liquidation or voluntary administration).

1.10 Much of the detailed requirements relating to debt restructuring plans is to be prescribed in regulations, including some features of the Corporate Insolvency Reforms announced by the Government on 24 September 2020. For example, once the plan is accepted and made, creditors whose debts are included in the plan would be bound by that plan in respect to those debts.

Comparison of key features of new law and current law

Detailed explanation of new law

Debt restructuring process

1.11 The existing voluntary administration process outlined in Part 5.3A of the Corporations Act (in conjunction with the Insolvency Practice Schedule of the Corporations Act, Chapter 5 of the Corporations Regulations and the Insolvency Practice Rules) provides a means for financially distressed companies to seek an arrangement with creditors to enable the company to survive. Under voluntary administration, an independent registered liquidator (the administrator) takes control of the company's business. The administrator investigates the company's activities and directors before providing their opinion to creditors on whether:

•

the administration should end and control be returned to the company directors;

•

the company should execute a deed of company arrangement; or

•

the company should be wound up.

1.12 The creditors then vote to pass a resolution to decide what action the company takes.

1.13 The new debt restructuring process established in new Part 5.3B of the Corporations Act draws heavily on the established voluntary administration framework, as well as the debt agreements framework in Part IX of the Bankruptcy Act.

1.14 The object of the new Part 5.3B and the corresponding amendments to the Insolvency Practice Schedule is to provide for a restructuring process for eligible companies that allows the companies to:

•

retain control of the business, property and affairs while developing a plan to restructure their debt with the assistance of a small business restructuring practitioner; and

•

enter into a restructuring plan with creditors.

[Schedule 1, item 1, section 452A of the Corporations Act]

Restructuring

Entering the debt restructuring process

1.15 A debt restructuring process begins with the appointment of a small business restructuring practitioner. [Schedule 1, item 1, section 453A(a) of the Corporations Act]

1.16 This appointment is made in writing by the company entering into the debt restructuring process. The company may appoint a small business restructuring practitioner if:

•

the eligibility criteria are met; and

•

the board of the company has resolved that:

-

in the opinion of the directors the company is insolvent, or is likely to become insolvent at some future time; and

-

a small business restructuring practitioner should be appointed.

[Schedule 1, item 1, section 453B(1) of the Corporations Act]

1.17 The eligibility criteria is described at paragraphs 1.19 to 1.27.

1.18 The debt restructuring process is not available to a company if it is already under restructuring or administration, has in place a restructuring plan or a deed of company arrangement that has not yet terminated, or where a liquidator or provisional liquidator has been appointed to the company. This reflects the intention that the debt restructuring process is for companies that are experiencing financial difficulties but have not already commenced one of these external administration processes. [Schedule 1, item 1, section 453B(2) of the Corporations Act]

Eligibility criteria for entering the debt restructuring process

The liabilities test

1.19 The eligibility criteria requires that if the regulations prescribe criteria that must be satisfied in relation to the liabilities of the company on the day that the small business restructuring practitioner is appointed, then those criteria must be satisfied. [Schedule 1, item 1, section 453C(1)(a) of the Corporations Act]

1.20 The Corporations Regulations may specify, for example, the upper limit of a company's liabilities to be eligible to enter the debt restructuring process, and how these liabilities are to be calculated. [Schedule 1, item 1, section 453C(2) of the Corporations Act]

1.21 The criteria to be prescribed in the regulations about the liabilities of the company reflects the intention that the debt restructuring process is most appropriate for small businesses with non-complex liabilities.

1.22 Allowing the threshold amount to be prescribed in regulations is necessary to ensure that the debt restructuring process is available to companies whose liabilities are of a size for which this process is appropriate. This flexibility allows the debt restructuring process to remain appropriate over time.

1.23 A company seeking to enter a simplified liquidation process must also satisfy criteria to be prescribed in regulations regarding its liabilities. For simplicity, it is intended that the relevant criteria for the debt restructuring process and the simplified liquidation process are consistent to the extent that is appropriate. The eligibility criteria for entering the simplified liquidation process is described in Chapter 3.

The company and its directors have not previously used a debt restructuring process or a simplified liquidation process

1.24 The eligibility criteria requires that, subject to any exceptions prescribed in the regulations, a company and its directors are ineligible to use the debt restructuring process if:

•

the company has previously used the debt restructuring process or a simplified liquidation process, during the period prescribed in the regulations; or

•

any director of the company, or any person who was a director of the company within the preceding 12 months, has been a director of a company that has been the subject of a debt restructuring process or a simplified liquidation process during the period prescribed in the regulations.

[Schedule 1, item 1, sections 453C(1)(b) and (c) of the Corporations Act]

1.25 This is an important safeguard for both processes and is targeted at preventing a pattern of behaviour from directors that could indicate illegal phoenixing activity or another form of corporate misconduct.

1.26 The regulations may prescribe circumstances in which a company or director is exempt from the requirement to have not previously used either the debt restructuring process or simplified liquidation process, and may also prescribe the period of time in which a previous use is relevant for the purposes of the rule. Allowing regulations to prescribe these matters is necessary to ensure that the rule is appropriately targeted and captures the sorts of behaviour that are intended to be excluded from the simplified processes. [Schedule 1, item 1, sections 453C(2)(b) and (c) of the Corporations Act]

1.27 The requirement that the company and its directors have not previously used a simplified process is consistent with the criteria for entry into the simplified liquidation process and is described in relation to those amendments in Chapter 3.

The small business restructuring practitioner

1.28 The small business restructuring practitioner provides advice to the company to ensure that it meets the requirements of the debt restructuring process. The small business restructuring practitioner also assists the company in the preparation of the restructuring plan, makes a declaration to creditors in relation to the proposed plan in accordance with the regulations, and any other relevant functions provided for under the Corporations Act. [Schedule 1, item 1, section 453E(1) of the Corporations Act]

1.29 Additionally, the regulations may provide for and in relation to the functions, duties and powers of the small business restructuring practitioner for a company under restructuring. The regulations may also provide for the rights and liabilities of a current or former small business restructuring practitioner for a company under restructuring arising out of the performance of their functions and duties or the exercise of their powers in that capacity. [Schedule 1, item 1, section 453E(2) of the Corporations Act]

1.30 A person cannot be appointed as a small business restructuring practitioner for a company or for a restructuring plan unless the person has consented in writing to the appointment, and as of the time of their appointment, the person has not withdrawn their consent. [Schedule 1, item 1, section 456A of the Corporations Act]

1.31 Only a registered liquidator can consent to be appointed, and act as, a small business restructuring practitioner. Where a person is not a registered liquidator and they consent to an appointment - the person commits an offence of strict liability. In proceedings brought against the person, the person bears an evidential burden in proving that they were a registered liquidator. The penalty for the offence is 50 penalty units. [Schedule 1, items 1 and 110, section 456B and the table in Schedule 3 to the Corporations Act]

1.32 The imposition of an offence is necessary to ensure that a person who consents to be appointed as small business restructuring practitioner has the requisite qualifications, knowledge and experience necessary to support a distressed small business through the debt restructuring process and to develop a debt restructuring plan to put to creditors.

1.33 Strict liability offences reduce non-compliance, which bolsters the integrity of the new debt restructuring process. The reversal of the evidential burden of proof is appropriate in this instance as the information - relating to the defendant's registration as a liquidator - is peculiarly within the knowledge of the defendant. Further, the reversal of the evidential burden is proportionate as record keeping in this instance does not unduly burden the defendant.

1.34 In considering the imposition of this offence, regard has been had to the Guide to Framing Commonwealth Offences.

1.35 To ensure the independence of the small business restructuring practitioner, a person who is connected with a company must not seek or consent to be appointed as, or act as, the small business restructuring practitioner for that company. This rule does not apply if the Court gives leave to the person. A person is connected with a company and subject to this disqualification if the person:

•

is indebted in an amount greater than $5,000 to the company (unless the debt is owed in the specified circumstances described in paragraph 1.38);

•

has substantial holdings in a body corporate which is indebted in an amount greater than $5,000 to the company (unless the debt is owed in the specified circumstances described in paragraph 1.37);

•

is a creditor of the company or of a related body corporate in an amount exceeding $5,000 (not including in the person's capacity as an administrator, liquidator, or small business restructuring practitioner for the company or a related company);

•

is a director, secretary, senior manager or employee of the company or of a body corporate that is a secured party in relation to property of the company;

•

an auditor of the company, or a partner or employee of the auditor; and

•

a partner, employer or employee of an officer (excluding a liquidator) of the company, or a partner or employee of an employee of an officer (excluding a liquidator) of the company.

[Schedule 1, item 1, sections 456C(1)and (5) of the Corporations Act]

1.36 A person is taken to be a director, secretary, senior manager, employee or auditor of a company if the person has held one of those roles in the company or a related body corporate within the last two years, and ASIC has not directed otherwise. [Schedule 1, item 1, section 456C(4) of the Corporations Act]

1.37 A person is not disqualified if they are a creditor of the company for an amount in excess of $5,000 due to a previous appointment as an administrator, small business restructuring practitioner or liquidator to the company or a related body corporate. [Schedule 1, item 1, sections 456C(1)(b) of the Corporations Act]

1.38 Certain debts do not disqualify a person from consenting to act as the small business restructuring practitioner for a company. If the company is an Australian ADI or a body corporate registered under section 21 of the Life Insurance Act 1995 and has made a loan to the person (in their capacity as a natural person) to purchase a private residential premises in the ordinary course of the company's business, that debt is to be disregarded. [Schedule 1, item 1, section 456C(3) of the Corporations Act]

1.39 Seeking or consenting to be appointed or acting as a small business restructuring practitioner where a relationship exists with the company as per the above is an offence of strict liability. The penalty for the offence is 50 penalty units. The imposition of an offence of strict liability is necessary to reduce non-compliance and bolster the integrity of the small business restructuring practitioner, the debt restructuring process and the debt restructuring plan. [Schedule 1, items 1 and 110, section 456C(2) and the table in Schedule 3 to the Corporations Act]

1.40 Strict liability offences are appropriate in these circumstance, as it is necessary to strongly deter misconduct that can have serious detriment for creditors.

1.41 In considering the imposition of this offence, regard has been had to the Guide to Framing Commonwealth Offences.

1.42 To ensure transparency of the process, a small business restructuring practitioner and/or a replacement small business restructuring practitioner, other than by court appointment, is required to make a declaration of relevant relationships when appointed and provide it to the company's creditors and ASIC. [Schedule 1, item 1, sections 453D(1) to (3) and 456F(1) to (4) of the Corporations Act]

1.43 This information must be accurate, complete and kept up-to-date throughout the debt restructuring process. Any amendments to the declaration are to be provided to creditors and ASIC as soon as practicable. Failure to update the declaration for changes of circumstances or to correct an error is an offence with a penalty of 20 penalty units. [Schedule 1, item 1, sections 453D(4) to (6) and 456F(5) to (6) of the Corporations Act]

1.44 A small business restructuring practitioner and/or a replacement small business restructuring practitioner commit an offence if they do not make a declaration as soon as practicable after being appointed. The penalty for this offence is 20 penalty units. This penalty is appropriate, as failure to comply can raise doubts about the independence of the small business restructuring practitioner or replacement small business restructuring practitioner and undermine the integrity of the debt restructuring process. [Schedule 1, items 1 and 110, sections 453D(1), 456F(2) and the table in Schedule 3 to the Corporations Act]

1.45 A failure to distribute the declaration to as many of the company's creditors as reasonably practicable and a failure to lodge it with ASIC are also offences. The penalty for each of these offences is 20 penalty units. [Schedule 1, items 1 and 110, sections 453D(2) to (3), 456F(3) to (4) and the table in Schedule 3 to the Corporations Act]

1.46 A defence is available where the small business restructuring practitioner and/or the replacement small business restructuring practitioner made reasonable enquiries and, on the basis of those enquires, has no reasonable grounds to believe that the matter should be included in the declaration. [Schedule 1, items 1, sections 453D(7) and 456F(7) of the Corporations Act]

1.47 The small business restructuring practitioner is taken to be a company's agent when they perform a function or duty or exercise a power as the company's restructuring practitioner while the company is under debt restructuring. [Schedule 1, item 1, section 453H of the Corporations Act]

1.48 For example, the practitioner acts as an agent of the company where they sell company property to raise funds to pay debts or make an application to the Court on behalf of the company.

1.49 Where more than one person is appointed as a small business restructuring practitioner for a company or to administer a restructuring plan, the functions, duties and powers of the position may be performed or exercised by all appointed small business restructuring practitioners equally or as provided for in the instrument of appointment. [Schedule 1, item 1, sections 456J and 456K of the Corporations Act]

Removal and replacement of a small business restructuring practitioner

1.50 The appointment of a small business restructuring practitioner for a company or a restructuring plan cannot be revoked. [Schedule 1, item 1, section 456D of the Corporations Act]

1.51 The company may appoint a different small business restructuring practitioner if the original restructuring practitioner dies, becomes prohibited from acting as small business restructuring practitioner for the company, or resigns. The appointment of the replacement practitioner is to be made by resolution of the company's board. [Schedule 1, item 1, sections 456E(1) to (3) of the Corporations Act]

1.52 If the Court appointed the restructuring practitioner then the Court can appoint a replacement practitioner. [Schedule 1, item 1, section 456E(2) of the Corporations Act]

1.53 Additionally, the Court may, on the application of ASIC, a company officer, member or creditor, appoint a small business restructuring practitioner to a company that is under debt restructuring if that company does not have an acting practitioner. [Schedule 1, item 1, section 456E(4) of the Corporations Act]

Features of the debt restructuring process

Role of the small business restructuring practitioner

1.54 Given that the company directors retain control of the company during restructuring, the role of the small business restructuring practitioner is largely advisory and supportive in nature - providing advice to the company directors during the debt restructuring process and assisting the company directors to develop a restructuring plan (see paragraphs 1.28 to 1.29). This is a key difference between the new restructuring regime and the existing voluntary administration regime, where the administrator takes control of the company under voluntary administration. [Schedule 1, item 1, sections 453E(1)(a) and (b) of the Corporations Act]

1.55 While primarily a supportive role, the small business restructuring practitioner has additional functions which are vital to ensure the integrity of the restructuring process and to ensure that the creditors are not disadvantaged by the process.

1.56 A key function of the small business restructuring practitioner's role is to make a declaration to creditors (in accordance with the regulations) in relation to the restructuring plan proposed by the company directors. This declaration is a critical component of the new restructuring process. Creditors need to be able to rely on the small business restructuring practitioner's declaration in order to have confidence that the process has been conducted appropriately, that the proposed debt restructuring plan meets the prescribed requirements, and ultimately to decide whether the proposed plan is the best way forward. [Schedule 1, item 1, section 453E(1)(c) of the Corporations Act]

1.57 To enable the small business restructuring practitioner to undertake their role effectively, they also have the right to inspect company books held by persons outside the company. [Schedule 1, item 1, section 453G of the Corporations Act]

1.58 To further ensure the integrity of the restructuring process, the small business restructuring practitioner may terminate the restructuring process in certain circumstances prior to a plan being made (see paragraphs 1.142 to 1.146) and may give consent to the company to enter into transactions not in the ordinary course of business (see paragraphs 1.72 to 1.74). This provides the small business restructuring practitioner with appropriate oversight powers to protect creditors against potential misuse of the debt restructuring regime. [Schedule 1, item 1, sections 453J and 453L of the Corporations Act]

1.59 To ensure that the small business restructuring practitioner is not restricted in their ability to make such decisions, the small business restructuring practitioner is protected against any action or proceeding arising out of the practitioner's decision to:

•

terminate, or not to terminate, the restructuring of a company under section 453J; or

•

give, or refuse to give, an approval or consent under Division 4 of new Part 5.3B.

[Schedule 1, item 1, section 456H of the Corporations Act]

1.60 As long as the small business restructuring practitioner acts in good faith and without negligence in performing their functions and duties and exercising their powers, they have a right of indemnity in relation to their remuneration, and any debts or liabilities incurred and damages or losses sustained. This is consistent with the indemnity provided for administrators under the existing voluntary administration regime. [Schedule 1, item 1, section 456J of the Corporations Act]

1.61 This right of indemnity has priority over other debts, consistent with the existing voluntary administration regime. [Schedule 1, item 1, section 456K of the Corporations Act]

1.62 The small business restructuring practitioner has a lien on the company's property to secure a right of indemnity, consistent with the existing voluntary administration regime. [Schedule 1, item 1, section 456HC of the Corporations Act]

Role of company directors in the debt restructuring process

Conduct of the company during restructuring

1.63 The company directors retain control of the company's business, property and affairs during the debt restructuring process. The company directors are responsible for ensuring that they comply with the legislative requirements of the debt restructuring process. [Schedule 1, item 1, section 453K(1) of the Corporations Act]

1.64 A director of a company under restructuring must help the small business restructuring practitioner by attending to them, providing information on the company's business, property, affairs and financial circumstances and giving the practitioner access to inspect and make copies of company books. Failure by a director to do so is an offence of strict liability without reasonable excuse. The penalty for the offence is 120 penalty units. [Schedule 1, item 1, section 453F of the Corporations Act]

1.65 The imposition of an offence is appropriate in this instance as a failure of the directors of a company to attend on and provide the specified information to the small business restructuring practitioner may prevent the practitioner from making an accurate declaration to creditors in relation to a proposed plan. Strict liability offences are appropriate in these circumstance, as it is necessary to strongly deter misconduct that can have serious detriment for creditors.

1.66 In considering the imposition of this offence, regard has been had to the Guide to Framing Commonwealth Offences.

1.67 Regulations may provide for additional rights, obligations and liabilities that the company, its officers and former officers have in relation to the small business restructuring practitioner for the company or the restructuring plan. [Schedule 1, item 1, section 456G of the Corporations Act]

Running the company - ordinary course of business

1.68 Generally, while the company is under restructuring, the company or the directors on behalf of the company, must not purport to enter into a transaction or dealing affecting the property of the company. A director who fails to comply with this requirement commits an offence, the penalty for which is six months imprisonment. [Schedule 1, items 1 and 110, section 453L(1) and the table in Schedule 3 to the Corporations Act]

1.69 This penalty is consistent with existing penalties in the Corporations Act for similar offences in the voluntary administration framework. The imposition of an offence is necessary to reduce non-compliance and bolster the integrity of the debt restructuring process.

1.70 In considering the imposition of this offence, regard has been had to the Guide to Framing Commonwealth Offences.

1.71 If a director is found guilty of such an offence, the Court may order the director to pay compensation to the company or to a person for loss or damage suffered because of the act or omission constituting the offence. This order may be enforced as if it were a judgement of the Court. The Court has the power, under section 1318 of the Corporations Act, to relieve the person from the liability created by the order to pay compensation. [Schedule 1, item 1, section 453M of the Corporations Act]

1.72 However, there are circumstances in which the prohibition against entering into, or purporting to enter into, transactions or dealings does not apply. The prohibition does not apply if:

•

entering into the transaction or dealing was in the ordinary course of the company's business;

•

the small business restructuring practitioner has consented to the transaction or dealing and, if any conditions are imposed on that consent, those conditions are met;

•

the transaction or dealing was entered into under an order of the Court.

[Schedule 1, item 1, section 453L(2) of the Corporations Act]

1.73 The regulations may prescribe circumstances in which entering into a transaction or dealing is, or is not, to be treated as 'in the ordinary course of business' for a company. For example, the company would need to make payments for products and services supplied to the business while it continues to trade after entering the restructuring process (while the company directors develop a restructuring plan to put to creditors). However, payments relating to debts incurred by the company prior to entering the restructuring process would not be in the ordinary course of business, as all pre-existing debts would be dealt with in the debt restructuring plan to be put to creditors. [Schedule 1, item 1, section 453L(4) of the Corporations Act]

1.74 In relation to the small business restructuring practitioner giving consent to a transaction, the practitioner may only give consent if the practitioner believes on reasonable grounds that it would be in the interests of the company's creditors to enter into the transaction or dealing. The practitioner may give consent subject to conditions. [Schedule 1, item 1, sections 453L(6) and (7) of the Corporations Act]

1.75 Further, the prohibition does not apply to a payment made:

•

by an Australian ADI out of an account kept by the company with the ADI;

•

in good faith and in the ordinary course of the ADI's banking business; and

•

after the restructuring began and on or before the day on which (whichever happens first):

-

the small business restructuring practitioner gives to the ADI written notice of the appointment that began the restructuring; or

-

publishes a notice of the appointment that began the restructuring in accordance with the regulations.

[Schedule 1, item 1, section 453L(3) of the Corporations Act]

1.76 Generally, a transaction that is in contravention of the prohibition is void. However, the transaction is not void if otherwise ordered by the Court. [Schedule 1, item 1, section 453L(5) of the Corporations Act]

1.77 A director who votes in favour of a resolution approving, or who otherwise approves, the company entering into a transaction or dealing affecting the property of the company is taken to have approved the company purporting to take that action. [Schedule 1, item 1, section 453L(8) of the Corporations Act]

1.78 Further, certain acts done during the course of the restructuring process are not liable to be set aside in a winding up of the company and remain valid and effectual for the purposes of the Corporations Act. This applies in relation to payments, transactions and acts undertaken by the small business restructuring practitioner, by a company director with the consent of the small business restructuring practitioner, or under an order of the Court. [Schedule 1, item 1, section 453N of the Corporations Act]

1.79 The intention is that a person who acquires property of the company during the restructuring process (in accordance with this provision) can rely on this provision to ensure the validity of that transaction.

Effect of debt restructuring on the company

1.80 A company under debt restructuring must give notice of such in all public documents and negotiable instruments by adding the expression '("restructuring practitioner appointed")' after the company's name. Failure to give this notice is an offence of strict liability attracting a penalty of 20 penalty units. [Schedule 1, item 1, section 457B and the table in Schedule 3 to the Corporations Act]

1.81 This requirement exists for the duration of the restructuring process.

1.82 Activities that alter the ownership control of the company, such as transferring shares or altering the status of members during debt restructuring are void unless the small business restructuring practitioner:

•

provides unconditional, written consent; or

•

gives written consent that is subject to conditions and those conditions have been met; or

•

it is ordered by the Court.

[Schedule 1, item 1, sections 453P(1) and (8) of the Corporations Act]

1.83 The small business restructuring practitioner may only give consent to a transfer of shares or an alteration in the status of members if the practitioner believes on reasonable grounds that the transfer or alteration is in the best interests of the company's creditors as a whole. [Schedule 1, item 1, sections 453P(2) and (9) of the Corporations Act]

1.84 The Court may also make an order to authorise a transfer of shares or an alternation in the status of members. The Court must be satisfied that the transfer or alteration is in the best interests of the company's creditors as a whole. [Schedule 1, item 1, sections 453P(4) and (12)(a) of the Corporations Act]

1.85 In relation to an alteration in the status of members, the small business restructuring practitioner or the Court, as the case may be, must not consent to an alteration or order alteration if the alteration would contravene class rights covered in Part 2F.2 of the Corporations Act. [Schedule 1, item 1, sections 453P(10) and (12)(b) of the Corporations Act]

1.86 An alteration to the status of members that is made while a company is under restructuring may not be void if it is made for the purposes of the conversion and write-off provisions determined by APRA (see Subdivision B of Division 1A of Part II of the Banking Act 1959, Division 2 of Part IIIA of the Insurance Act 1973 and Division 1A of Part 10A of the Life Insurance Act 1995). [Schedule 1, item 1, note to section 453P(8) of the Corporations Act]

1.87 If the small business restructuring practitioner gives conditional consent or refuses to give consent to a transfer of shares, the transferor, transferee or creditors of the company can apply to the Court to set aside the conditions or authorise the transfer. [Schedule 1, item 1, sections 453P(3) and (5) of the Corporations Act]

1.88 The Court may set aside any or all of the conditions in relation to consent to transfer shares if satisfied that any or all of the conditions in the application to the Court are not in the best interests of the company's creditors as a whole. [Schedule 1, item 1, section 453P(6) of the Corporations Act]

1.89 The small business restructuring practitioner is entitled to be heard at the proceedings. [Schedule 1, item 1, section 453P(7) of the Corporations Act]

1.90 Where the practitioner has given conditional consent or refused to consent to an alteration in the status of members, the members and the company creditors can apply to the Court to have the conditions set aside or authorise the alteration to member status. [ Schedule 1, item 1, sections 453P(11) and (13) of the Corporations Act]

1.91 The Court may set aside any or all of the conditions in relation to consent by the small business restructuring practitioner to alter the status of members, if satisfied that any or all of the conditions in the application to the Court are not in the best interests of the company's creditors as a whole. [Schedule 1, item 1, section 453P(14) of the Corporations Act]

1.92 The small business restructuring practitioner is entitled to be heard at such proceedings. [Schedule 1, item 1, section 453P(15) of the Corporations Act]

1.93 If a company enters the debt restructuring process, the Court is to adjourn the hearing of an application to wind up the company and is not to appoint a provisional liquidator if the Court is satisfied that it is in the best interests of the company creditors for the company to continue under restructuring. [ Schedule 1, item 1, section 453Q of the Corporations Act]

1.94 During the restructuring of a company, an application to wind up the company remains as a lis pendens over the company and may affect purchases or mortgages of the company. [ Schedule 1, item 1, section 453V of the Corporations Act]

Effect of debt restructuring process on third party property rights

1.95 As a general rule, property rights cannot be exercised by third parties in relation to property of the company or property used, occupied by or in the possession of the company during the debt restructuring period. These restrictions do not apply where the small business restructuring practitioner has given written consent or leave is granted by the Court to exercise such a right. These restrictions also do not apply in relation to secured creditor rights as specified in Schedule 1. [Schedule 1, item 1, section 453R of the Corporations Act]

1.96 The restriction on the exercise of third party rights, unless otherwise specified are as follows:

•

A secured third party (other than a secured party in relation to a possessory security interest in company property, a lessor or owner of property used by the company, and a PPSA secured party) cannot enforce a security interest in relation to company property.

•

The third party cannot sell the property or otherwise enforce the security interest in relation to a possessory security interest in the property of the property.

•

A lessor of property used or occupied by, or in possession of the company, including a secured party (a PPSA secured party) in relation to a PPSA secured interest, is restricted from applying distress for rent against the property; the third party cannot take possession of the property or otherwise recover it; if third party is a PPSA secured party they cannot otherwise enforce the security interest.

•

An owner (other than a lessor) of property used or occupied by the company, or in the possession of the company including a secured party in relation to a PPSA security interest in property is restricted from taking possession or otherwise recovering it; if the third party is a PPSA secured party they cannot otherwise enforce the security interest on the property.

[Schedule 1, item 1, items 1 to 4 of the table at the end of section 453R of the Corporations Act]

1.97 In this Schedule property includes any PPSA retention of title property of the company. [Schedule 1, item 1, section 452B of the Corporations Act]

1.98 Court proceedings and enforcement processes are stayed and cannot begin or proceeded with during the debt restructuring period, except with written consent from the small business restructuring practitioner or leave of the Court. The stay does not apply to prescribed or criminal proceedings. [Schedule 1, item 1, sections 453S and 453T of the Corporations Act]

1.99 Restrictions also apply to personal guarantees in relation to a company under restructuring. Entering the debt restructuring process is not to trigger liability of directors or relatives for guarantees of the company's liabilities. Creditors are prevented from enforcing the guarantee or commencing proceedings, without leave of the Court. A guarantee includes a relevant agreement, as defined in section 9 of the Corporations Act, where a person or relative incurs liability in respect to a company liability. A liability includes a debt, liability or other obligation. [Schedule 1, item 1, section 453W of the Corporations Act]

1.100 This is in addition to and does not limit the Court's ability to make orders under section 1323 of the Corporations Act. The action for a guarantee during the debt restructuring period is as if under a civil proceeding and the creditor is the only aggrieved person. [Schedule 1, item 1, section 453W of the Corporations Act]

Secured creditor rights are consistent with voluntary administration

1.101 During the debt restructuring period, the rights of secured parties, owners or lessors are consistent with those applying to the existing voluntary administration process under Division 7 of Part 5.3A of the Corporations Act. [Schedule 1, item 1, Subdivision F of Division 2, sections 454A to 454M of the Corporations Act]

1.102 If a company's property is subject to a possessory security interest, and the property is in the lawful possession of the secured party, the secured party can continue to possess the property during the restructuring of the company. However, the secured party in possession cannot sell or otherwise enforce the security interest over the property. [Schedule 1, item 1, section 453R(3) of the Corporations Act]

1.103 Property subject to a banker's lien is exempt from the restrictions which generally apply to third party property rights during debt restructuring. For the exemption to apply, the property must be subject to a possessory security interest by an ADI or the operator of a clearing and settlement facility (within the meaning of section 768A of the Corporations Act). Property that may be exempt consists of:

•

cash;

•

negotiable instruments;

•

securities; or

•

derivatives.

[Schedule 1, item 1, section 453X of the Corporations Act]

1.104 A security interest over perishable property is exempt from the restrictions which generally apply to third party property rights during debt restructuring. The secured party, receiver or controller can enforce security rights over perishable property and recover such property. [Schedule 1, item 1, sections 454E and 454L of the Corporations Act]

1.105 A secured party with a security interest over the whole or substantially the whole of the company's property, either in one or multiple securities, can enforce their security interest if they act before or during the decision period. [Schedule 1, item 1, section 454C of the Corporations Act]

1.106 The decision period begins when the secured party receives notice of the debt restructuring process or when the restructuring process begins. The decision period ends thirteen business days from the day it begins. [Schedule 1, item 4, section 9 of the Corporations Act]

1.107 Where the enforcement of a security interest begins before the debt restructuring process begins, nothing in new Part 5.3B prevents the secured party, receiver or other person from enforcing that security interest. This applies if the secured party, receiver or other person had commenced enforcement action by:

•

entering into possession or assuming control of the property;

•

entering into an agreement to sell the property;

•

making arrangements for the property to be offered for sale by public auction;

•

publicly inviting tenders for the purchase of the property; or

•

exercising any other power in relation to the property.

[Schedule 1, item 1, section 454D of the Corporations Act]

1.108 Certain provisions relating to recovery of property do not apply where the enforcement of a right, or the performance or exercise of a function or power is authorised by a transaction or dealing that gives rise to a security interest in property. For example a transaction or dealing that is a commercial consignment of personal property giving rise to a PPSA security interest. [Schedule 1, item 1, section 454J of the Corporations Act]

1.109 Where a receiver or other person takes action to enforce the rights of the owner or lessor before the debt restructuring process begins, they are not prevented from performing a function or exercising a power in relation to the property. [Schedule 1, item 1, section 454K of the Corporations Act]

1.110 The functions and powers of a receiver or controller, appointed for the purposes of Part 5.2 of the Corporations Act, may only be performed or exercised during the debt restructuring period if:

•

the party with a security interest acts before or during the decision period;

•

the enforcement is under a security interest that begins before the debt restructuring process;

•

the recovery of property on behalf of the owner or lessor begins before the debt restructuring process; or

•

the recovery of property or enforcement of a security interest is in relation to perishable property.

[Schedule 1, item 1, section 453K(2) of the Corporations Act]

1.111 The Court may limit the powers of a receiver or other person acting to enforce a security interest over the property of a company during restructuring. The Court may order a secured party, receiver or other person not to perform specified functions or exercise specified powers in relation to secured property, except as permitted by the order. The small business restructuring practitioner may apply to the Court for such an order. The Court may only make an order if satisfied that the secured party's interests are adequately protected during the restructuring process. An order has effect even if the secured party begins enforcement or recovery of secured property before the company begins restructuring, or if the security interest relates to perishable property. However, this provision does not apply in relation to a security interest over the whole or substantially the whole of the company's property, where that security interest is enforced before or during the decision period. [Schedule 1, item 1, section 454F of the Corporations Act]

1.112 Similarly, the Court may limit the powers of a receiver or other person acting to enforce the rights of an owner or lessor in relation to property that is used or occupied by, or is in the possession of, the company. Following an application by the small business restructuring practitioner, the Court may order the person not to perform specified functions or exercise specified powers in relation to the property, except as permitted by the order. The Court may only make an order if satisfied that the interests of the owner or lessor are to be adequately protected during the restructuring process. An order has effect even if the secured party begins enforcement or recovery of secured property before the company begins restructuring, or if the security interest relates to perishable property. The order is only effective during the restructuring process. [Schedule 1, item 1, section 454M of the Corporations Act]

1.113 If the company is under restructuring and a secured party with a possessory security interest is in possession of the relevant property and sells that property, the net proceeds of the sale may be retained by the secured party in some circumstances. Where there is no other security interest with an equal or higher priority, the secured party with the possessory security interest is entitled to retain the proceeds of the sale as follows:

•

if the net proceeds is equal to or less than the debt secured, the secured party can retain the net proceeds; or

•

if the net proceeds exceed the debt secured, then the secured party is entitled to retain so much of the net proceeds as equals the debt secured and must pay the excess to the small business restructuring practitioner on behalf of the company.

[Schedule 1, item 1, section 454H of the Corporations Act]

1.114 A PPSA security interest is only enforceable if the security interest is perfected, within the meaning of the PPSA, when the enforcement starts. [Schedule 1, item 1, sections 454B of the Corporations Act]

1.115 Section 453U outlines the duties of a court officer in relation to the property of a company, where they receive written notice that the company is under restructuring. A court officer is a sheriff, registrar or other appropriate officer of the court. [Schedule 1, item 1, section 453U(1) of the Corporations Act]

1.116 The court officer cannot take action to sell company property under a process of execution. In relation to funds obtained under a process of execution, the court officer is not to pay to any person (other than the small business restructuring practitioner) the proceeds from the sale of property, money of the company that is seized, or money paid to avoid seizure or sale of property. The court officer must pay to the small business restructuring practitioner all such proceeds or money in their possession or that have been paid to the court and have not since been paid out. The court officer may retain so much of the proceeds or money as they think is necessary to address charges relating to costs of execution. [Schedule 1, item 1, sections 453U(2)(a) and (b) and (4) to (6) of the Corporations Act]

1.117 The court officer is not to take action in relation to the attachment of a debt due to the company while it is under restructuring. Any money received by the court officer because of the attachment of such debt, is to be paid to the small business restructuring practitioner. [Schedule 1, item 1, section 453U(2)(c) to (d) and (4) of the Corporations Act]

1.118 Any company property in the court officer's possession under a process of execution must be delivered to the small business restructuring practitioner. [Schedule 1, item 1, section 453U(3) of the Corporations Act]

1.119 However, the Court may permit a court officer to take action or make a payment to a third party that would otherwise not be permitted under section 453U, if it is satisfied that it is appropriate to do so. [Schedule 1, item 1, section 453U(7) of the Corporations Act]

1.120 A person who buys property in good faith under a process of execution gets good title to the property against the company and the small business restructuring practitioner. [Schedule 1, item 1, section 453U(8) of the Corporations Act]

Effect on enforcement rights triggered by entry into the debt restructuring process

1.121 A right that arises by express provision of a contract, agreement or arrangement, entered into after 1 July 2018, for one of the following reasons cannot be enforced during the stay period for that reason:

•

the company is under restructuring;

•

the financial position of the company while under restructuring;

•

a reason prescribed in the regulations, if the company later comes under restructuring; or

•

a reason that, in substance, is contrary to this provision.

[ Schedule 1, item 1, section 454N(1) of the Corporations Act]

1.122 The stay period starts when the debt restructuring process begins and ends when:

•

the restructuring ends; or

•

if one or more orders are made as a result of applications before restructuring ends, then when the last order ceases to be in force; or

•

if an extension is granted by the Court, then when that extension ends; or

•

if the company ceases to be under restructuring because of a resolution or order for the company to be wound up, then when the company is fully wound up.

[ Schedule 1, item 1, section 454N(2) of the Corporations Act]

1.123 The Court may order the stay period be extended if the Court is satisfied it is in the interests of justice. Before deciding an application to extend the stay period, the Court may grant an interim order but the applicant must not be required to give an undertaking as to damages as a condition of doing so. [Schedule 1, item 1, section 454N(3) of the Corporations Act]

1.124 Provisions in new Part 5.3B relating to stays on enforcement, and powers of the Court in relation to stays, also apply to self-executing provisions in contracts, agreements or arrangements in the same way that they apply to other rights. Self-executing provisions that are triggered by the company entering the restructuring process are stayed and cannot start to apply against the company unless leave of the Court is obtained. Regulations may prescribe modifications to the relevant provisions in new Part 5.3B as are necessary to ensure they apply appropriately to self-executing provisions. [Schedule 1, item 1, section 454R of the Corporations Act]

1.125 Rights that are created under a contract, agreement or arrangement entered into before 1 July 2018 or entered into after the company begins restructuring are not stayed. Rights of a prescribed kind, or in a prescribed type of contract, agreement or arrangement, are not subject to the stay. The Minister may, through legislative instrument, declare the kinds of rights (either in general or in specific circumstances) or the kinds of contracts, agreements or arrangements referred to in a specified Commonwealth law that are not stayed. [Schedule 1, item 1, sections 454N(5) to (6) of the Corporations Act]

1.126 To the extent that a right arises in a contract, agreement or arrangement after the stay period ends because of the company's financial position during the stay period, the use of the restructuring process, or for a reason prescribed in the regulations, it is not enforceable against the company indefinitely. Unless the small business restructuring practitioner, administrator or liquidator of the company has consented in writing to the enforcement of such a right. [Schedule 1, item 1, sections 454N(4) and (7) of the Corporations Act]

1.127 A person who is or has been a small business restructuring practitioner for a company under restructuring is not liable to an action or other proceedings for damages in respect of a decision to give, or refuse consent to an entity to enforce rights in relation to the company's property. [Schedule 1, item 1, section 456H of the Corporations Act]

1.128 If an entity cannot enforce one or more rights against the company due to the stay period, a company cannot enforce a right for a new advance of money or credit from that entity during the same period. [Schedule 1, item 1, section 454N(8) of the Corporations Act]

1.129 The Court may order that a stay on the enforcement of rights does not apply for one or more rights if satisfied it is appropriate in the interests of justice. A rights holder may apply to the Court for such an order. [Schedule 1, item 1, section 454P of the Corporations Act]

1.130 The Court may make an order that, for a specified period, rights are only enforceable with the leave of the Court and in accordance with such terms imposed by the Court (if any). The Court may make such an order if the rights are being or are likely to be exercised, or there is a threat to exercise the rights. The small business restructuring practitioner may apply to the Court for such an order. [Schedule 1, item 1, sections 454Q(1) to (3) of the Corporations Act]

1.131 The Court's powers to make such orders do not apply where:

•

the right is under a contract, agreement or arrangement entered into after the company begins restructuring;

•

the right is of a kind, or contained in a kind of contract, agreement or arrangement, prescribed by the regulations or declared by the Minister for the purpose of this provision; or

•

the small business restructuring practitioner, or an administrator or liquidator (if applicable), has consented to the enforcement of the right.

[Schedule 1, item 1, section 454Q(4) of the Corporations Act]

1.132 The Court may grant an interim order prior to deciding on an application by the small business restructuring practitioner on the enforcement of rights. The Court must not require the applicant for such an order to give an undertaking as to damages as a condition of granting an interim order. [Schedule 1, item 1, sections 454Q(5) and (6) of the Corporations Act]

1.133 While the company is under debt restructuring, nothing prevents a person from giving a notice under the provisions of an agreement or instrument under which a security interest is created or arises. [Schedule 1, item 1, section 454G of the Corporations Act]

1.134 If there is any inconsistency between the stay period and self-executing provisions in new Part 5.3B and one of the following Acts, these Acts prevail to the extent of the inconsistency.

•

Payment Systems and Netting Act 1998;

•

International Interests in Mobile Equipment (Cape Town Convention) Act 2013.

[Schedule 1, item 1, section 454S of the Corporations Act]

1.135 The time for doing an act does not run while prevented by this Schedule (for example, during the stay period). Where an act must or may be done before or within a particular time period, and it is prevented from doing so by this Schedule, the period of time to do the act is extended or deferred according to how long it is prevented by this Schedule. [Schedule 1, item 1, section 458C of the Corporations Act]

Providing information in relation to restructuring

1.136 Regulations may make provision for giving information, documents or reports to the small business restructuring practitioner, ASIC or any other person (including creditors), during the debt restructuring process and after a plan is made. [Schedule 1, item 1, sections 457A(a) to (c) of the Corporations Act]

1.137 Regulations may also make provision for publishing information, documents and reports. [Schedule 1, item 1, section 457A(d) of the Corporations Act]

1.138 A contravention of these requirements does not affect the validity of anything done or omitted under Part 5.3B unless otherwise ordered by the Court. [Schedule 1, item 1, section 457C of the Corporations Act]

Powers of the Court

1.139 The Court has a general power to make orders about how the debt restructuring process and restructuring plan is to operate in relation to a particular company, consistent with the powers conferred on the Court under voluntary administration. The Court may make orders subject to conditions. [Schedule 1, item 1, sections 458A(1) and (2) of the Corporations Act]

1.140 The Court may make orders following an application by:

•

the company under restructuring or subject to a debt restructuring plan;

•

a creditor of the company;

•

the small business restructuring practitioner for the company or the restructuring plan for the company;

•

ASIC; or

•

any other interested person.

[Schedule 1, item 1, section 458A(3) of the Corporations Act]

1.141 The regulations may confer additional powers on the Court, including the power to vary or terminate a restructuring plan or to declare a plan void. The regulations may also prescribe whether the powers are to be exercised on the initiative of the Court or on the application of a prescribed person. [Schedule 1, item 1, sections 458B of the Corporations Act]

Terminating a debt restructuring process

1.142 The circumstances under which the debt restructuring of a company ends may be prescribed by the regulations. [Schedule 1, item 1, section 453A(b) of the Corporations Act]

1.143 The small business restructuring practitioner for a company under restructuring may terminate the debt restructuring process, at any time, if they believe on reasonable grounds that:

•

the company does not meet the eligibility criteria for restructuring;

•

it would not be in creditors' interests to make a restructuring plan;

•

it would be in the interests of creditors for the restructuring to end;

•

it would be in the interests of creditors for the company to be wound up; or

•

any other grounds prescribed by the regulations.

[Schedule 1, item 1, section 453J(1) of the Corporations Act]

1.144 For the termination to have effect, the small business restructuring practitioner must give notice of the termination, in writing, and including all information prescribed in the regulations, to the company and as many of its creditors as reasonably practicable. [Schedule 1, item 1, sections 453J(2) to (3) of the Corporations Act]

1.145 Termination takes effect on the day on which the notice is given by the small business restructuring practitioner to the company. [Schedule 1, item 1, section 453J(4) of the Corporations Act]

1.146 A person who is or has been a small business restructuring practitioner for a company under restructuring is not liable to an action or other proceedings for damages in respect of a decision to terminate, or not terminate, the restructuring of a company under new section 453J. [Schedule 1, item 1, section 456H of the Corporations Act]

1.147 However, the small business restructuring practitioner retains a duty of care and diligence as an officer of the corporation, in accordance with Chapter 2D of the Corporations Act. [Schedule 1, item 9, section 9 of the Corporations Act]

Restructuring plan

Overview

1.148 Schedule 1 provides a range of regulation-making powers that may provide for matters relevant to a restructuring plan. This approach provides the Government with the appropriate and necessary flexibility to make timely changes to support small business restructuring practitioners and small business owners to engage in debt restructuring processes that are cost and time efficient. These regulations would be subject to disallowance, and therefore, subject to the appropriate parliamentary scrutiny.

Developing a restructuring plan

1.149 The regulations may provide for matters relevant to developing a restructuring plan.

1.150 Specifically, the regulations may provide for and in relation to:

•

making a restructuring plan and the consequences of doing so; and

•

varying a restructuring plan and the consequences of doing so.

[Schedule 1, item 1, section 455B(2)(a), (b), (c) and (e) of the Corporations Act]

Proposing a restructuring plan to creditors

1.151 A company may propose a restructuring plan to its creditors. [Schedule 1, item 1, section 455A(1) of the Corporations Act]

1.152 A company is taken to be insolvent if it proposes a restructuring plan to its creditors. [Schedule 1, item 1, section 455A(2) of the Corporations Act]

1.153 The regulations may prescribe the time at which the company is taken to have proposed the plan for the purposes of determining when the company became insolvent. [Schedule 1, item 1, section 455A(3) of the Corporations Act]

1.154 The regulations may prescribe the requirements in relation to proposing a restructuring plan. [Schedule 1, item 1, section 455B(1)(a) of the Corporations Act]

1.155 This may include criteria which must be met before the company can put a plan to creditors. For example, consistent with the eligibility criteria for the simplified liquidation process (described in Chapter 3), the regulations may require that the company's tax lodgements are up to date before the company may propose a plan to its creditors. As another example, the regulations could also require the company to pay any employee entitlements which are due and payable before it can put a plan to its creditors.

1.156 The regulations may also prescribe the process by which creditors may accept and reject a proposal for a restructuring plan. [Schedule 1, item 1, section 455B(1)(c) of the Corporations Act]

1.157 The regulations may also prescribe the circumstances in which a proposal for a restructuring plan lapses and the consequences of a plan lapsing. [Schedule 1, item 1, sections 455B(1)(d) and (e) of the Corporations Act]

Content of a restructuring plan

1.158 In order for the new debt restructuring regime to work effectively, the restructuring plan needs to provide sufficient information so that creditors can decide whether to accept or reject the plan.

1.159 The regulations may make provision for the following information that may or must be included in a restructuring plan:

•

The debts and claims that must or may be dealt with;

•

The payment of those debts under a plan. This could include, for example, the quantum of payments to be made, and to whom they must be made; and

•

The period within which those debts and claims must be paid under a restructuring plan.

[Schedule 1, item 1, sections 455B(1)(b) and (3)(a), (e) and (f) of the Corporations Act]

Terminating, contravening and voiding a restructuring plan

1.160 The regulations may provide for the circumstances in which a restructuring plan is terminated, contravened, or when all or part of a restructuring plan is void. Likewise, the regulations may provide for the consequences of these matters. [Schedule 1, item 1, sections 455B(2)(d) and (e), (5) and (6) of the Corporations Act]

Identifying contributories of a company entering restructuring

1.161 The regulations may make provision for identifying contributories of the company and their rights, obligations and liabilities in relation to a restructuring plan. [Schedule 1, item 1, section 455B(4) of the Corporations Act]

The small business restructuring practitioner

1.162 The regulations may provide for matters relevant to appointing a small business restructuring practitioner for a restructuring plan. Specifically, the regulations may provide for the practitioner's appointment, their functions, duties and powers in relation to the restructuring plan, and the rights, obligations and liabilities of the small business restructuring practitioner arising out of the performance of their functions and duties and the exercise of their powers. [Schedule 1, item 1, section 455B(7) of the Corporations Act]

Miscellaneous

1.163 The regulations may make provision for and in relation to any information, report or other document that must or may be created or given in relation to a restructuring plan or a proposal for a restructuring plan. [Schedule 1, item 1, section 455B(8) of the Corporations Act]

1.164 The regulations may also provide for the following in relation to a restructuring plan:

•

how the value of debts and claims under a restructuring plan are to be calculated;

•

the proof and ranking of those debts and claims under a restructuring plan;

•

the company property that must or may be used in payment of debts to and claims against the company;

•

how those debts and claims are to be treated if the company property is not sufficient to satisfy them in full;

•

the nature and duration of any moratorium on the enforcement of debts and claims against a company under restructuring; and

•

the effect of a restructuring plan on rights, obligations and liabilities in relation to debts of and claims against a company.

[Schedule 1, item 1, sections 455B(3)(b) to (d) and (g) to (i) of the Corporations Act]

Corporations Regulations

1.165 The Bill includes a range of regulation-making powers to provide flexibility and specificity for the new debt restructuring process.

1.166 For entry into the debt restructuring process, the regulations may provide for:

•

criteria that must be satisfied in relation to the liabilities of the company (see paragraph 1.19); and

•

the period of time in which a director of a company must not have been through a simplified liquidation or debt restructuring process, and circumstances in which a director is exempt from this requirement (see paragraph 1.26).

1.167 For the debt restructuring process itself, the regulations may provide for:

•

additional functions, duties, powers, rights and liabilities of a small business restructuring practitioner for a company under restructuring (see paragraph 1.29);

•

the rights, obligations and liabilities of a company and its officers in relation to the small business restructuring practitioner (see paragraph 1.67);

•

powers of the Court (see paragraph 1.141);

•

further reasons for indefinite stays on enforcing rights (see paragraph 1.126);

•

circumstances in which a transaction or dealing is, or is not, to be treated as in the ordinary course of business (see paragraph 1.73);

•

circumstances in which the safe harbour provision does not apply (see paragraph 1.180);

•

giving information, reports or documents to the small business restructuring practitioner, ASIC or creditors (see paragraph 1.136); and

•

publishing information, reports or documents (see paragraph 1.137).

1.168 For exiting the debt restructuring process (described at paragraphs 1.142 to 1.144), the regulations may prescribe:

•

the circumstances in which the debt restructuring process ends;

•

any other reasonable grounds that the small business restructuring practitioner may terminate the restructuring process; and

•

the information to be included in a notice of termination.

1.169 Detailed requirements relating to debt restructuring plans are prescribed in regulations (described at paragraphs 1.148 to 1.164). In summary, the regulations may prescribe detailed requirements in relation to:

•

proposing a restructuring plan;

•

making, varying and terminating a restructuring plan;

•

debts and claims in relation to a restructuring plan;

•

contributories in relation to a restructuring plan;

•

circumstances in which the restructuring plan is void and the consequences if all or part is void;

•

circumstances that constitute a contravention of a restructuring plan and the consequences;

•

the small business restructuring practitioner for a restructuring plan;

•

information, reports or other documents in relation to a restructuring plan; and

•

powers of the Court in relation to a restructuring plan.

1.170 The range of regulation-making powers provides the Government with the appropriate and necessary flexibility to make timely changes to support small business restructuring practitioners and small business owners to engage in debt restructuring processes that are cost and time efficient. The economic uncertainty of the COVID-19 pandemic places particular pressure on small businesses, and providing specificity in regulations allows the process to respond quickly to developments that occur from the expected increase in the number of financially distressed businesses seeking to restructure debt. In this way, regulations are appropriate to ensure that the debt restructuring process best reflects the needs of small businesses.

1.171 The regulations would be subject to disallowance, and therefore, subject to the appropriate parliamentary scrutiny.

Consequential amendments

1.172 Part 2 of Schedule 1 to the Bill sets out consequential amendments to the Corporations Act and other Acts, to reflect the new debt restructuring regime in Part 5.3B of the Corporations Act.

Corporations Act 2001

1.173 The dictionary at section 9 of the Corporations Act is amended to insert new definitions, and amend existing definitions, to reflect the debt restructuring process. A note is added to the definition of insolvency in section 95A(2) of the Corporations Act, to clarify that where a company proposes a restructuring plan to creditors it is taken to be insolvent. [Schedule 1, items 3 to 12 and 20, sections 9 and 95A of the Corporations Act]

1.174 Additional items are added to the table in section 91 of the Corporations Act which sets out the meaning of relation back day in the Act to reflect the debt restructuring process. [Schedule 1, item 19, section 91 of the Corporations Act]

1.175 Section 513CA is inserted to provide that the section 513CA day in relation to the restructuring of a company is the day on which the restructuring of the company began. The term is used in a range of instances in the Corporations Act to identify the day on which the restructuring of the company began. [Schedule 1, items 19, 42 to 45, 62, 76 and 77, sections 91, 513A, 513B, 513C, 513CA, 588FL, 596A and 597A of the Corporations Act]

1.176 Section 553 is amended to ensure that debts incurred when a company is under restructuring are provable if the company is subsequently wound up. This differs to the approach in the voluntary administration regime. Debts incurred by the administrator in control of a company under voluntary administration are not provable if the company is subsequently wound up, as the administrator is personally liable for these debts. This does not apply to restructuring, as the company directors remain in control of the company. These amendments ensure that creditors who provide credit to a company while it continues to trade in the ordinary course of business (while the company directors develop a restructuring plan to put to pre-existing creditors) have the right to claim that debt as part of any subsequent winding up. [Schedule 1, items 47 to 50, section 553 of the Corporations Act]

1.177 The small business guide in Part 1.5 is amended to provide guidance on when the debt restructuring process can be used and the potential consequences of such an action. [Schedule 1, item 22, section 12.1A of the small business guide in Part 1.5 of the Corporations Act]

1.178 Amendments to section 157A in the Corporations Act provide that the small business restructuring practitioner can apply to ASIC if a company wishes to change its name during the debt restructuring period or under a plan. The small business restructuring practitioner should only make such an application to ASIC if it is in the interests of the company creditors as a whole to do so. The company must continue to use its former name in all public documents and negotiable instruments, if the name change occurred in the six months before the debt restructuring process began. Leave of the Court may be sought to use the new name on such documents. [Schedule 1, items 23 to 27, sections 157A and 161A of the Corporations Act]

1.179 Section 601FH is amended to ensure that indemnity rights of the company under restructuring are consistent with those applying to companies under administration. [Schedule 1, item 83, section 601FH of the Corporations Act]

1.180 Safe harbour provisions are amended to ensure that certain director actions undertaken while the company is under restructuring are not in breach of insolvent trading laws, consistent with those applying to companies under administration. Regulations may prescribe the circumstances in which the safe harbour provisions do not apply. [Schedule 1, items 63 to 69, sections 588GAB, 588GAC, 588GAAA, 588GAAB, 588GB and 588H of the Corporations Act]

1.181 Priority payments provisions are amended to ensure that debts and expenses of the small business restructuring practitioner are given the same priority as those of an administrator of a company under administration. [Schedule 1, items 51 to 55, section 556 of the Corporations Act]

1.182 Provisions relating to voidable transactions are amended to reflect that transactions undertaken by the company while the company is under restructuring or subject to a restructuring plan are voidable if the company is subsequently wound up, unless those transactions were made:

•

in the ordinary course of business, or by or with the consent of the small business restructuring practitioner during the restructuring process; or

•

on behalf of the company by or under the authority of the small business restructuring practitioner for the plan.

[Schedule 1, items 56 to 62, sections 588FE, 588FGB and 588FL of the Corporations Act]

1.183 Minor consequential amendments are made to insert references to the debt restructuring process and small business restructuring practitioner in the Corporations Act. [Schedule 1, items 13 to 18, 21, 28 to 41, 46, 70 to 75, 78 to 82, 84 to 85, sections 53, 60, 109X, 198G, 206D, 250PAA, 250PAB, 420, 422, 425, 438D, 448C, 468, 482, 533, 589, 595, 596AB, 596AC, 600AA, 600F, 600H, 911A and 1317S of the Corporations Act]

1.184 Subdivision DA is added to Division 60 of the Insolvency Practice Schedule to enable the Insolvency Practice Rules to provide for the remuneration of the small business restructuring practitioner. [Schedule 1, item 94, Subdivision DA of Division 60 of Schedule 2 to the Corporations Act]

1.185 Section 75-21 is added to the Insolvency Practice Schedule to reflect that the small business restructuring practitioner is not required to hold creditor meetings. However, creditor meetings may be held if the small business restructuring practitioner is satisfied that there are exceptional circumstances and it is in the interests of the creditors to do so. [Schedule 1, item 100, section 75-20 of Schedule 2 of the Corporations Act]

1.186 Minor consequential amendments to insert references to the debt restructuring process and small business restructuring practitioner are made to the Insolvency Practice Schedule. [Schedule 1, items 86 to 93, 95 to 99, 101 to 108, sections 1-5, 5-5, 5-15, 5-20, 60-1, 60-2, 70-5, 70-6, 70-10, 75-1, 80-1, 80-5, 90-1, 90-23 and 90-24 of Schedule 2 to the Corporations Act]

1.187 The table of penalties at Schedule 3 of the Corporations Act is amended to include the penalties for contraventions of the debt restructuring provisions as described in this Chapter. [Schedule 1, item 109, Schedule 3 of the Corporations Act]

Amendments to other Acts

1.188 The definition of external administrator in section 5 of the Banking Act 1959 is amended to include the small business restructuring practitioner. This amendment requires that ADIs notify APRA at least one week prior to the appointment of a restructuring practitioner of the intention to do so as per section 62B of the Banking Act 1959. [Schedule 1, item 2, section 5(1) of the Banking Act 1959]

1.189 The definition of external administrator under section 3(1) of the Insurance Act 1973 is amended to include the small business restructuring practitioner. This amendment requires that ADIs notify APRA at least one week prior to the appointment of a restructuring practitioner of the intention to do so as per section 62ZQ of the Insurance Act 1973. [Schedule 1, item 110, section 62ZQ of the Insurance Act 1973]

1.190 The definition of external administrator in the Life Insurance Act 1995 is amended to include the small business restructuring practitioner. This amendment requires that ADIs notify APRA at least one week prior to the appointment of a restructuring practitioner of the intention to do so as per section 179C of the Life Insurance Act 1973. [Schedule 1, item 111, Schedule to the Life Insurance Act 1995]

1.191 Section 5 of the Payments Systems and Netting Act 1998 is amended to incorporate the new debt restructuring process into the definitions of external administrator, specified provisions and voidable. This ensures that the existing protections under the Payments Systems and Netting Act applying to voluntary administration - namely, to enable netting out of debts for multilateral contracts or agreements - also apply to debt restructuring. [Schedule 1, items 112 to 114, section 5 of the Payments Systems and Netting Act 1998]

1.192 Section 267 of the PPSA is amended to include references to the restructuring process and the small business restructuring practitioner. This ensures consistency between the new debt restructuring process and voluntary administration in the treatment of vesting interests in PPSA property. [Schedule 1, items 115 to 117, section 267 of the PPSA]

1.193 The provisions in the Tax Administration Act 1953 relating to Director Penalty Notices are amended to ensure that directors are not liable to a penalty under Division 269 of that Act, where they have caused a small business restructuring practitioner to be appointed under section 453B of the Corporations Act. The amendments apply in relation to an amount of PAYG withholding non-compliance tax, whether or not the withholding payment to which the amount relates was made before, on or after the commencement 1 January 2021. [Schedule 1, items 118 to 127, sections 18-130 and 18-135 and Division 269 of the Tax Administration Act 1993]

Commencement provisions

1.194 Schedule 1 to the Bill commences on 1 January 2021. [Section 2 of the Bill]