15 October 2021

Clarifying the treatment of trusts under Australian insolvency law

The Morrison Government has today begun consultation on Clarifying the treatment of trusts under Australian corporate insolvency law.

Since the 2021‑22 Budget the Government has been making good on its commitment to find ways to improve Australia’s insolvency laws. The consultation paper released today explores ways to clarify how trusts, which are commonly used by small businesses, are treated under corporate insolvency law.

This paper on trusts follows recent consultations concerning schemes of arrangement, as well as the independent review of the insolvent trading safe harbour, expected to report by the end of the year.

Together, these processes are an important way for businesses, insolvency specialists and other stakeholders to contribute their expertise as the Government considers the next steps for Australia’s insolvency framework.

Measures arising from these consultations will build on the Government’s small business insolvency reforms, which came into effect on 1 January 2021. By establishing a new small business debt restructuring process and a simplified liquidation pathway, we strengthened our insolvency system and helped small businesses recover from the COVID‑19 crisis.

The Government has also doubled the minimum threshold at which creditors can issue a statutory demand on a company from $2,000 to $4,000 from 1 July 2021, to help prevent distressed but viable companies from being pushed into liquidation over relatively small debts.

We encourage all stakeholders to have their say on the next stage of reform. The consultation paper is available on the Treasury website and is open for submissions until 10 December 2021.

Continuing to enhance Australia’s insolvency framework for both small and large businesses is a key part of the Morrison Government’s economic recovery plan.