Australia to overhaul bankruptcy laws to help firms over COVID-19

Australia on Thursday unveiled its biggest shakeup in bankruptcy laws in nearly three decades, allowing small businesses to trade while insolvent and take more control over debt restructuring, in a bid to help firms through the coronavirus crisis.

The new rules will help manage an expected avalanche of insolvencies when wage subsidies introduced to help companies survive the virus-triggered recession start to wind down early next year.

Meanwhile, Australia’s Westpac Banking Corporation has agreed to pay a record $923 million fine for more than 23 million breaches of money-laundering laws, the bank and regulators announced on Thursday.

Under the proposed rule changes in bankruptcy, businesses with liabilities of less than A$1 million ($708,000) will be able to keep operating for 20 business days while they come up with a debt restructuring plan, rather than be placed in the hands of administrators.

The changes, effective from January 1, 2021, 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.

The government would adopt some rules from the US-style Chapter 11 bankruptcy process, he said, which gives struggling companies a window to restructure debt while being protected from the threat of legal action by creditors.

“It is welcome news that there will be a quick and cheap process for small business to either rehabilitate or be wound up,” said Maria O’Brien, the Australian head of lawyer Baker McKenzie’s restructuring and insolvency practice.

However, unlike the Chapter 11 process, Australia’s new restructuring process will not be court-supervised, and she warned that the reforms, whose details have not been released, needed to ensure adequate oversight to avoid abuses.

Australia has largely escaped the high number of deaths from the coronavirus pandemic recorded in other developed nations, helped by strict lockdowns, but the curbs have taken a steep toll on the economy.

To lessen the impact, the government rolled out stimulus packages worth about A$314 billion, including wages subsidies, but it expects a wave of insolvencies when they expire. Westpac bank has agreed to pay a record AU$1.3 billion ($923 million) fine for more than 23 million breaches of money-laundering laws.

Australia’s financial intelligence watchdog, AUSTRAC, said the wrongdoing included Westpac failures to monitor international payments suspected of funding child exploitation.

“Our role is to harden the financial system against serious crime and terrorism financing and this penalty reflects the serious and systemic nature of Westpac’s non-compliance,” AUSTRAC chief executive Nicole Rose said in the statement.

Westpac acknowledged the breaches in a statement submitted Thursday to a federal court, which must now approve the fine, the largest civil penalty in Australian history.

The penalty exceeded a provision of $900 million Westpac budgeted earlier this year to cover the expected penalty.

“I would like to apologise sincerely for the bank’s failings,” Peter King, Westpac’s chief executive, said in announcing the agreement.

King said Westpac had beefed up its financial crime monitoring capabilities and undertaken a “reassessment of our culture, governance and accountability” to prevent future breaches.

“We are determined to continually lift our financial crime standards, comply with our obligations and uphold our customer, community and regulatory expectations,” he said in a statement.

The regulator accused Westpac in November 2019 of wholesale breaches of money-laundering and counter-terrorism regulations 23 million times, involving more than US$7 billion dollars in funds.

Among the most damaging allegations against Westpac, the regulator accused bank executives of “indifference” to evidence that some international transfers were being used to fund child exploitation.

AUSTRAC said the bank had been aware of heightened risks associated with frequent small payments destined for Southeast Asia since 2013 and had been “specifically briefed” on the risks with respect to one of its money transfer channels in June 2016.

Westpac’s chief executive, Brian Hartzer, subsequently resigned over the scandal, handing over to King, the bank’s chief financial officer at the time.

The company chairman, Lindsay Maxsted, also stepped down.

Agencies