The Australian Government has announced that it is undertaking an important process to simplify the rules governing “unfair preference” claims by liquidators. 

Assistant Treasurer Michael Sukkar believes that creditors who act honestly and at arm’s length should not be pursued for small payments when a company they dealt with enters liquidation.

Under the planned reforms, transactions that amount to less than $30,000 or were made more than three months prior to the company entering external administration will no longer be subject to clawback, just as long as those transactions involve unrelated creditors and are within the ordinary course of business. 

“These changes are consistent with the unfair preference rules which apply under the simplified liquidation process which the Government implemented in 2021,” says Assistant Treasurer Michael Sukkar.

To make sure that the liquidations with insufficient assets can proceed, as of 1 July 2023 the government is providing an additional $20 million in funding over two years to the Assetless Administration Fund, a grant administered by the ASIC. 

Liquidators would be able to apply for a maximum grant of $5,000 per assetless liquidation, without needing to provide evidence of potential misconduct.

Michael Sukkar outlined that the government was also clarifying the treatment of trusts with corporate trustees under Australia’s insolvency law by introducing a legislative framework for the external administration of trusts. 

“The framework will allow for greater efficiency of the external administration of corporate trusts, ultimately supporting better outcomes for distressed companies and their creditors. The reform reflects the outcomes of the government’s 2021 consultation, which demonstrated there is broad stakeholder support for reform,” says Michael Sukkar.

These measures will add to recent insolvency reforms that provide greater certainty for company directors seeking to save financially distressed but viable companies as part of the government’s response to the Review of the Insolvent Trading Safe Harbour.

The ATO Reveals That There Is A Large Number of Unpaid Construction Tax Bills

The Australian Tax Office (ATO) has revealed that over the duration of the covid-19 pandemic, Construction-related businesses have built up a mountain of unpaid tax bills.

This means that there is the potential for a huge number of business failures to occur in 2022 that could take otherwise-healthy creditors down with them, insolvency practitioners warn.

Last year outstanding debts to the ATO increased by almost one-third to $58.8 billion last year over the two years affected by the pandemic, while over the same time court wind-ups of businesses – half of which are typically triggered by the ATO – fell by three-quarters.

The covid-19 pandemic has generated a huge headache for the ATO, which has tried to assist companies through tough trading conditions. In its 2021 annual report the ATO said it collected $11.5 billion in revenue, below its own $15 billion target, for reasons including a cautious approach to compliance.

However, for industries such as building, where ATO enforcement plays a big role in weeding out poorly run companies and supporting the health of the industry as a whole, this was a problem, said John Winter, chief executive of the Australian Restructuring Insolvency & Turnaround Association.

“It is a huge moral hazard issue. It provides no mechanism to signal to the market that you shouldn’t build up debts you can’t pay,” says John Winter, chief executive of the Australian Restructuring Insolvency & Turnaround Association.

The team at C&D Restructure and Taxation Advisory are here to help. As part of the Vault Group we can offer the full suite of financial products and advice to help you navigate the business landscape. Schedule a meeting here via Calendly or give us a call on 1300 1 VAULT (1300 182 858)

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Craig is the principal consultant of C&D Restructure and Taxation Advisory and has been working in the industry since 1999. Having established C&D Commercial Partners in 2015 the precursor to the current business.

Post Author: Craig Dangar

Craig is the principal consultant of C&D Restructure and Taxation Advisory and has been working in the industry since 1999. Having established C&D Commercial Partners in 2015 the precursor to the current business.

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