The economic impacts of the Coronavirus and health measures to prevent its spread could see otherwise profitable and viable businesses temporarily face financial distress.
Temporary changes to insolvency laws mean these businesses have a safety net so they can resume normal operations when the crisis has passed.
The Government announced on 7 September 2020 that this temporary measure will be extended until 31 December 2020.
On 24 September 2020, the Government announced long term changes to our insolvency framework to better serve Australian small businesses, their creditors and their employees. The changes will introduce new processes suitable for small businesses from 1 January 2021, reducing complexity, time and cost, and helping more small businesses to survive.
Further information on the changes can be found on the Budget website.
If your business is facing financial difficulty talk to ATO about tailoring solutions for your circumstances, including temporary reduction of payments or deferrals, or withholding enforcement actions.
Steph, Mon and David own a small company that operates a chain of yoga studios in Sydney. Social distancing measures require the participants in the yoga class to be significantly reduced. As a result, their company incurs more debt and cannot pay when they become due and payable.
Under the provisions of the Corporations Act, the three owners would be personally liable if the business took on further debt without entering an insolvency procedure like voluntary administration or liquidation.
However, during the period in which the temporary relief is offered, their business can continue to open their yoga studios so that they can maintain their customers and quickly resume normal operations when the crisis has passed, and continue to incur debt.
When economic conditions improve, the company can pay back the debt incurred. From 1 January 2021, it may also be able to access the new debt restructuring process to support the business to recover.