Canberra, Sep 24 (IANS): The Australian government on Thursday announced a major overhaul of insolvency rules to help small businesses struggling due to the coronavirus pandemic.

Treasurer Josh Frydenberg announced a new two-tiered system, saying it would allow viable businesses to survive the recession caused by the pandemic, reports Xinhua news agency.

Under the new system, large companies that declare bankruptcy will continue to operate under existing rules with creditors taking over to resolve debts.

Businesses with liabilities of less than A$1 million ($707,466) will instead be subjected to an American-style model whereby owners will remain in charge while they deal with their debts.

An insolvent small business will be given 20 days to come up with a restructuring plan and creditors would be given 15 days to vote on whether to accept it.

For those that cannot be saved, liquidators' investigative processes, reporting requirements and mandatory meetings will be cut to make the process quicker and easier.

"The Morrison government will undertake the most significant reforms to Australia's insolvency framework in 30 years as part of our economic recovery plan to keep businesses in business and Australians in jobs," Frydenberg said in a statement.

"The reforms, which draw on key features from Chapter 11 of the Bankruptcy Code in the US, will help more small businesses restructure and survive the economic impact of Covid-19.

"As the economy continues to recover, it will be critical that distressed businesses have the necessary flexibility to either restructure or to wind down their operations in an orderly manner," he added.

There has been a 46 per cent decline in the number of Australian companies that have entered administration in 2020 with many being propped up by the government's coronavirus wage subsidy, according to The Australian Broadcasting Corporation.

However, the government is expecting a wave of insolvencies when emergency protections begin to expire at the end of 2020.