Corporations Amendment (Corporate Insolvency Reforms) Act 2020

The Corporations Amendment (Corporate Insolvency Reforms) Act 2020 is a Commonwealth Act that amended the Corporations Act 2001 and also made related amendments to other legislation. Its core changes sit across four schedules.

First, it inserted a new restructuring regime for eligible companies. The stated object is to provide a restructuring process that allows eligible companies to retain control of the business, property and affairs while developing a plan to restructure with the assistance of a small business restructuring practitioner, and then to enter into a restructuring plan with creditors.

Second, it introduced temporary relief connected with companies seeking a restructuring practitioner. Third, it created a simplified liquidation framework for eligible companies. Fourth, it added rules supporting virtual meetings and electronic communications for insolvency matters.

For business owners, the practical point is that this Act did not simply rename existing insolvency procedures. It created a distinct pathway aimed at smaller companies, with a different balance between director control, practitioner oversight and creditor protection.

The restructuring pathway is for eligible companies, not for every business structure. The Act is framed around a company appointing a restructuring practitioner. If your business is a sole trader, partnership or trust without a corporate trustee in the relevant role, this page is not a substitute for structure-specific advice.

Even for companies, access is limited. A company may appoint a restructuring practitioner only if the eligibility criteria are met on the day of appointment and the board has resolved that, in the opinion of the directors voting for the resolution, the company is insolvent or is likely to become insolvent at some future time, and that a restructuring practitioner should be appointed.

The Act also blocks appointment if the company is already under restructuring, has an existing restructuring plan that has not terminated, is under administration, has an uncompleted deed of company arrangement, or already has a liquidator, provisional liquidator or administrator appointed.

This means the process is aimed at companies that are in financial distress but have not already moved too far into another formal insolvency pathway.

The Act makes eligibility a central gatekeeping issue. A company can only appoint a restructuring practitioner if the eligibility criteria for restructuring are met on the appointment day. Those criteria are not all hard-coded in the Act.

The Act says the criteria are met if any liabilities-based test prescribed by regulations is satisfied, and if there are no disqualifying recent uses of restructuring or simplified liquidation by the company or by relevant directors, unless an exemption applies under the regulations. Importantly, the director history check extends not only to current directors but also to people who were directors of the company within the 12 months immediately before the appointment day.

That matters in practice. Before taking steps, directors should check the company's current liabilities against the regulations then in force, review whether the company has recently used restructuring or simplified liquidation, and review the recent insolvency history of all current directors and anyone who ceased being a director within the previous 12 months.

Because the liabilities cap and some exemptions are regulation-based, businesses should not rely on an old article, precedent or memory of the threshold. The correct question is what the regulations require at the time you are planning the appointment.

Under the Act, restructuring begins when a restructuring practitioner is appointed. The end point is dealt with by prescribed circumstances in the regulations, and the practitioner also has power to terminate the restructuring in certain situations.

The design of the regime is different from voluntary administration. The company remains in control of its business, property and affairs during the restructuring, subject to the limits imposed by the Act. The practitioner's statutory functions include providing advice to the company on restructuring matters, assisting the company to prepare a restructuring plan, making a declaration to creditors in accordance with the regulations in relation to a proposed plan, and carrying out any other functions given by the Act.

The practitioner may terminate the restructuring if they believe on reasonable grounds that the company does not meet the eligibility criteria, that it would not be in creditors' interests to make a restructuring plan, that it would be in creditors' interests for the restructuring to end, or that it would be in creditors' interests for the company to be wound up. The regulations may also prescribe other termination grounds.

So, while directors stay in the driver's seat operationally, the process is not informal. It is a supervised statutory process with clear entry conditions, practitioner oversight and creditor-focused decision points.

The practitioner is not a passive adviser. The Act gives the practitioner defined functions and imposes disclosure obligations. As soon as practicable after appointment, the practitioner must make a declaration of relevant relationships, give a copy to as many of the company's creditors as reasonably practicable, and lodge a copy with ASIC. If the declaration later becomes out of date or the practitioner becomes aware of an error, a replacement declaration must be made, provided to creditors as reasonably practicable, and lodged with ASIC.

The Act notes that failure to comply with these declaration obligations is an offence. This is designed to give creditors visibility over relationships that may bear on independence or conflicts.

The practitioner also acts as the company's agent when performing functions or duties or exercising powers as restructuring practitioner. For businesses, that means the appointment has legal consequences beyond simple consulting support.

If you are considering an appointment, make sure the proposed appointee is properly qualified to take the role. In practice, businesses should confirm that the practitioner is a registered liquidator and should review the practitioner's disclosures carefully.

The Act places direct obligations on directors once the company is under restructuring. A director must attend on the restructuring practitioner, give information about the company's business, property, affairs and financial circumstances, and allow the practitioner to inspect and take copies of the company's books, at the times and in the manner reasonably required by the practitioner.

A person must not fail to comply with those requirements. The Act sets a penalty of 120 penalty units, states that the offence is one of strict liability, and preserves a reasonable excuse exception.

The Act also gives the practitioner a right to inspect books held by someone other than the company. If another person holds the company's books, that person must permit the practitioner to inspect and copy them at any reasonable time.

For directors, the practical message is simple: do not treat the process as a shield while withholding records. The regime assumes prompt cooperation, accurate financial information and access to books.

One of the most important operational rules is that directors cannot freely cause the company to enter transactions or dealings affecting company property once restructuring has started. A contravention occurs if the company is under restructuring and a director approves the company entering such a transaction or purports to enter it on the company's behalf.

There are only limited pathways for the transaction to be valid. The transaction or dealing must either be in the ordinary course of the company's business, be consented to by the restructuring practitioner with any conditions met, or be entered under a court order. The regulations may also prescribe circumstances in which conduct is, or is not, treated as in the ordinary course of business.

A transaction entered in contravention is void unless the court orders otherwise. The practitioner may only consent if they believe on reasonable grounds that it would be in the interests of creditors for the company to enter the transaction or dealing. The court may also order compensation where a director is involved in a void transaction and loss or damage is suffered.

The Act separately protects things done in good faith by the practitioner, by the company with the practitioner's consent, or by the company in compliance with a court order. Those acts are valid and effectual for the purposes of the Act and are not liable to be set aside in a winding up.

In practical terms, directors should pause before selling assets, granting security, making unusual payments, entering major contracts or taking other non-routine steps. The first question should be whether the step is in the ordinary course. If not, written practitioner consent or a court order may be needed.

The Act also restricts changes at ownership level during restructuring. A transfer of shares made while the company is under restructuring is void unless the practitioner gives written consent, any conditions on that consent are satisfied, or the court authorises the transfer. The practitioner may only consent if they believe on reasonable grounds that the transfer is in the best interests of the company's creditors as a whole.

Similar rules apply to an alteration in the status of members. Again, consent or a court order is required, and the practitioner must refuse consent if the alteration would contravene Part 2F.2 of the Corporations Act 2001.

The court has an active supervisory role. Prospective transferors, transferees, members and creditors may apply to the court in the circumstances set out in the Act, including where consent is refused or where conditions are challenged. The practitioner is entitled to be heard in those proceedings.

For founders and closely held companies, this means cap table changes, internal restructures and member status changes should not be treated as business-as-usual during the restructuring period.

The Act gives the company breathing space by restricting many enforcement steps during restructuring. Secured parties generally cannot enforce their security interests. If the security interest is possessory and the secured party already lawfully possesses the property, the secured party may continue to possess it, but cannot sell the property or otherwise enforce the security interest.

Lessors and owners of property used or occupied by, or in the possession of, the company also face restrictions. Depending on the category, they may be prevented from carrying out distress for rent, taking possession, recovering property or otherwise enforcing a PPSA security interest.

These restrictions do not apply if the rights are exercised with the restructuring practitioner's written consent or with leave of the court. The Act also stays court proceedings against the company or in relation to its property during restructuring unless the practitioner consents in writing or the court grants leave.

There is also a specific interaction with winding up applications. If the company is under restructuring and the court is satisfied it is in creditors' interests for the company to continue under restructuring rather than be wound up, the court is to adjourn the winding up application. The court is likewise not to appoint a provisional liquidator in those circumstances.

For creditors and counterparties, the key point is that ordinary enforcement assumptions may no longer apply once restructuring starts.

The Act also introduced a simplified liquidation pathway for eligible companies. This is relevant where the business is not going to be rescued and a winding up is the realistic outcome, but a streamlined process may reduce cost and complexity.

The detailed operating rules for simplified liquidation sit in the legislative framework created by the Act and associated provisions. As with restructuring, eligibility is important and some settings are not fixed solely by the Act itself. Businesses should check the current regulations and ASIC guidance before assuming the pathway is available.

In practical terms, a simplified process is more likely to suit a relatively straightforward small company winding up. If there are signs of misconduct, disputed recoveries, unusual transactions, or complex asset tracing and recovery work, a business should be cautious about assuming a simplified liquidation will be available or appropriate.

If directors are weighing restructuring against liquidation, the real question is whether there is a credible basis for a creditor plan and continued trading, or whether an orderly winding up is the more realistic course.

Schedule 4 commenced shortly after Royal Assent and added provisions dealing with virtual meetings and electronic communications for insolvency matters. This is a practical reform for companies, practitioners and creditors who need to communicate quickly and efficiently during a restructuring or liquidation process.

For businesses, the benefit is obvious: notices, meetings and communications in insolvency contexts can be managed in a way that better fits modern operations, remote stakeholders and time-sensitive decision-making. But businesses should still check the current procedural rules and ASIC requirements for the relevant process, because the Act provides the framework rather than every operational detail.

The Act received Royal Assent on 15 December 2020. Schedule 1, which introduced the restructuring framework, commenced on 1 January 2021. Schedule 2, dealing with temporary relief for companies seeking a restructuring practitioner, commenced immediately after Schedule 1 on 1 January 2021. Schedule 3, which introduced simplified liquidation, also commenced on 1 January 2021. Schedule 4, dealing with virtual meetings and electronic communications, commenced on 16 December 2020.

The Act is in force. However, because some practical settings are left to regulations, businesses should confirm the current position when checking eligibility or process requirements.