SYDNEY: Australia on Thursday unveiled its biggest shakeup in bankruptcy laws in nearly three decades, allowing businesses to trade while insolvent and take more control over debt restructuring, in a bid to help firms through the coronavirus crisis.
Under the proposed rule changes, businesses with liabilities of less than A$1 million ($708,000) will be able to keep operating while they come up with a debt restructuring plan, rather than be placed in the hands of administrators.
The changes aim to move the system "from a rigid, one-size-fits-all 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 almost 30 years, and will help to keep more businesses in business and Australians in jobs."
Frydenberg said the government would adopt some rules from the U.S.-style Chapter 11 bankruptcy process,"allowing eligible small businesses to restructure their existing debts while remaining in control of their business."
The Chapter 11 bankruptcy code in the United gives struggling companies a window to restructure debt while being protected from the threat of legal action by creditors.
The new rules, which will become effective from Jan. 1,2021, follows 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 nations, helped by strict lockdowns.
However, the curbs have taken a steep toll on the economy, with tough restrictions forcing many small businesses to shut their doors.
To cushion the blow, Australia has so far rolled out stimulus packages worth about A$314 billion ($222 billion).
($1 = 1.4156 Australian dollars)- Reuters
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