Australia to overhaul bankruptcy laws to help businesses weather COVID-19

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SYDNEY (Reuters) – Australia on Thursday unveiled its biggest overhaul of bankruptcy laws in nearly three decades, allowing companies to trade insolvent and better control debt restructuring, in a bid to help businesses through the coronavirus crisis.

Under proposed rule changes, companies with liabilities of less than A$1 million ($708,000) will be able to continue operating while they work out a debt restructuring plan, rather than being placed between the hands of administrators.

The changes are intended to move the system “from a rigid, single creditor-in-possession model to a more flexible debtor-in-possession model,” Federal Treasurer Josh Frydenberg said in a statement.

“These are the most significant reforms to Australia’s insolvency framework in nearly 30 years, and will help keep more businesses in business and more Australians in jobs.”

Frydenberg said the government would adopt some US-style Chapter 11 bankruptcy process rules, “allowing eligible small businesses to restructure their existing debt while maintaining control of their business.”

Chapter 11 of the US bankruptcy code gives struggling companies a window to restructure their debt while being protected from the threat of lawsuits by creditors.

The new rules, which will come into force on January 1, 2021, follow the government’s decision earlier this month to extend its temporary insolvency and bankruptcy protection rules until the end of this year.

Australia has largely avoided the high number of deaths from the coronavirus pandemic recorded in other developed countries, helped by strict lockdowns.

However, the restrictions have weighed heavily on the economy, with severe restrictions forcing many small businesses to close.

To cushion the blow, Australia has so far rolled out stimulus packages worth around A$314 billion ($222 billion).

Reporting by Renju Jose; edited by Richard Pullin

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