The Treasurer says he expects the reforms to cover around 76% of businesses facing insolvency today – 98% of whom who have less than 20 employees.

Taking elements from the United States’ Bankruptcy Code, the measures – which have yet to be legislated but will start on 1 January 2021 – will see a shift from the current ‘creditor-in-possession’ regime to a ‘debtor-in-possession’ system.

Incorporated entities with liabilities of less than $1 million will be able to access the scheme with the aim to help more small businesses keep trading while they restructure or wind down their operations.

As we covered here, the Government had introduced a six-month temporary safe harbour regime to protect directors from being found personally liable for insolvent trading in March.

These had been due to end last Friday on 25 September, but the Government announced that the scheme would be extended until 31 December 2020 – giving businesses more time to get their house in order.

Will the scheme prove successful however?

The new regime depends on businesses having debts of less than $1 million which does not fit the profile of the majority of aged care providers – as discussed in the Murchison aged care home story above, that home had debts between $3 and $4 million.

The reduction in insolvency fees could also encourage more businesses to ‘wave the white flag’, knowing that their costs will be lower if they do close their doors.

There is also the risk that the banks may be more reluctant to lend to smaller operators – a fact already pointed out by witnesses from the Big 4 Banks during the Royal Commission’s recent funding and financing hearings.

Could we then see more smaller aged care operators exiting the sector?