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Aussie ‘Chapter 11’ provision may help smaller travel firms

September 25, 2020 Headline News 1 Comment Email Email

For some smaller travel companies struggling to contend with the pandemic and subsequent collapse of air transport, Australia’s planned new insolvency rules (which will resemble the US “Chapter 11” bankruptcy protection provisions), could be a lifesaver.

Announcing Federal Government plans to overhaul insolvency rules, Treasurer Josh Frydenberg said the changes would help viable businesses survive the recession caused by the Covid-19 pandemic.

“Rather than going into a liquidation process where they lose control of the company, we want those businesses to stay in control, to restructure their balance sheet, to work out an agreement with the creditors and then to get out on the other side of this virus,” Frydenberg said.

Chapter 11 is a fairly familiar term in the travel industry, because many American airlines have been in and out of it over the decades. It affords some protection from creditors and administrators while a company tries to trade itself out of its difficulties.

Australia is devising a simplified system to suit smaller businesses, facing liabilities of less than $1 million. Smaller companies proliferate in Australia’s travel, tourism and hospitality industries. The new provisions may offer firms in dire straits a lifeline to survival, as they look forward to borders reopening, planes starting to fly again and the economy gradually reviving.

Large companies will have to work under existing insolvency rules.

Australia’s treasurer Josh Frydenberg

Key points of the new system, as outlined by ABC News yesterday, are:

  • Finance bodies expect a wave of insolvencies when emergency protections for business owners expire at the end of the year.
  • The reforms will allow small businesses to restructure their debts while remaining in control of their business, the Treasurer says.
  • The cost of putting a business into administration or liquidation can be so expensive it consumes the remaining assets of small businesses.

The changes will entail small business owners retaining control of their company and assets, rather than being placed immediately in the hands of administrators or creditors.

An insolvent small business will have 20 days to come up with a restructuring plan. Within 15 days of such a plan being presented, creditors will vote on whether to accept it.

If a small business is too far gone and simply can’t be saved, liquidation should be swifter and easier.

The Federal Government wants to cut red tape, such as protracted liquidators’ investigations,  mandatory meetings and reporting requirements.

Written by Peter Needham

Currently there is "1 comment" on this Article:

  1. James Spencer says:

    Too little too late as always . Bankruptcy and insolvency laws should have been updated years ago

    Also the Royal Commission that was mooted sometime ago into the practices of the big insolvency companies should have gone ahead but never did and probably never will now due to the unfair, corrupt practices and greed of such organisations and their affiliates .

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