Temporary Restructuring Relief (TRR) was extended when the insolvency law reforms occurred earlier this year from 1 January 2021. When the COVID-19 pandemic hit, part of the Australian government’s emergency response to the crisis was to protect businesses from collapsing. As we know, the health crisis has not only tested the resilience of healthcare, it has also shaken businesses. So, this is when temporary restructuring relief came in during March 2020. Keep reading as we take you through how businesses can access temporary restructuring relief right now.
What is it?
New insolvency laws came into place to support financially distressed businesses during COVID-19 through the Corporations Amendment (Corporate Insolvency Reforms) Act 2020. It’s important to note that this is a temporary insolvency regime. The TRR was designed to give company directors of small companies time to decide whether their business should undergo a restructuring process. What this ‘restructuring’ process involves is brainstorming how a business can be more profitable. In order to do this, some structural changes within the business need to occur.
How Businesses Can Access TRR
You must be an incorporated company with liabilities of less than $1 million dollars to be eligible for TRR. Directors must make a declaration to ASIC, which they must publish here within 5 business days. In the declaration, they must state that they believe the company is insolvent or likely to become insolvent before the declaration expires. Note that this must be done between the period of 1 January 2021 to 31 March 2021. You’ll need to get a restructuring practitioner on the same day, or before the expiration date at the latest. Of course, the board has to agree on having a restructuring practitioner first, which is also part of the eligibility requirements. To access a practitioner, you can’t have an external administrator currently appointed.
How it Works
In a nutshell, TRR allows those who are eligible to:
- Keep control of the business, property and finances while directors come up with a plan to restructure business operations. A Small Business Restructuring practitioner also assists with the process (SBRP); and
- Enter into a restructuring plan with creditors, who the company usually owes money to when insolvency happens.
- Increase the amount owed to creditors from $2,000 to $20,000 before creditors can file legal action to the company, such as a statutory demand. Additionally, companies can respond to this statutory demand within 6 months (increase from the 21 day timeframe).
- Give directors a temporary ‘safe harbour’ from being personally liable for insolvent trading for debts. This applies to debts incurred during the ordinary course of business before appointing an administrator.
Applying for TRR? Don’t Wait
If you’re a director of a company, you must act before 31 March 2021 if you want to access TRR. Exceptions do apply to companies who took reasonable steps to appoint a restructuring practitioner and were unable to. Companies who fall under this category may be eligible for an extension. Below we’ve summed up the 4 simple steps for you to take, so your business doesn’t miss out on accessing TRR:
- Make a declaration (director) stating the company’s eligibility for TRR through this form;
- Publish the notice of the declaration on the ASIC ‘Published Notices’ site;
- Give a copy of the notice to ASIC within 5 business days of publication through either of the following portals: the company portal or the registered agents portal; and
- Seek further professional advice on the small business restructuring process and TRR if you need help. You can speak with a Lawpath consultant today for all your business and legal needs. Should you wish to speak with a lawyer, you can also find one here.
