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Parliament passes new insolvency laws

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Parliament has passed the legislation for new insolvency laws that could potentially impact trade credit insurers.

The new laws, which take effect on January 1, draw on key features from Chapter 11 of the US Bankruptcy Code.

The legislation introduces a new, simplified debt restructuring process for small businesses facing financial distress. The US-style process applies to incorporated small businesses with liabilities of less than $1 million, giving them control of their operations as they restructure their existing debts.

The reforms were announced in September by Treasurer Josh Frydenberg, who said the measures will help small businesses survive the economic impact of the pandemic.

However, Lockton Companies Australia has warned the measures could have ramifications for trade credit insurers in the form of increased claims.

National Manager Dean Jenkins has previously said the reforms would make it easier for companies with debts of under $1 million to enter into a new form of insolvency.

He says the reforms will also see a rise in requests to agree to repayment proposals from practitioners acting on behalf of client’s customers.

“There is a general consensus in the trade credit market that claims activity is going to rise after the January holiday period, but this is historically when we see a spike in activity anyway,” Mr Jenkins told insuranceNEWS.com.au.

“The question is, will these new reforms supercharge those normal numbers?

“The key to managing repayment plans and post repayment credit is going to be transparency of the debtors’ financial position, especially from a trade credit point of view.

“If a repayment plan is proposed and acceptable, insurers are only going to reconsider credit cover again if the financials stack up.  Traditionally these have not always been widely available or shared; so this needs to change.”