Debt Recovery & Insolvency
A hotline has been set up for clients to contact us and talk through the challenges you may be facing. If you are in a financial bind, we will provide some initial guidance in relation to credit & finance, supply chain, insurance, restructuring, real estate and construction related matters so together we can work out what your best options are. The number is (02) 8281 7980. You can also visit our online COVID-19 resource page.
On Sunday 6 September, the Federal Government announced its intention to extend until 31 December 2020 a number of the regulatory changes it put in place during March 2020 which were due to expire on 25 September 2020 under the Coronavirus Economic Response Package Omnibus Act 2020 (Cth).
The regulatory changes that the government has extended include:
The changes to Bankruptcy Notices which allow a person 6 months to comply with the minimum prescribed amount staying at $20,000 (Part 1 of Schedule 12 of the Act);
The changes to Statutory Demands which allow a company 6 months to comply with the minimum prescribed amount staying at $20,000 (Part 2 of Schedule 12 of the Act); and
Directors entitlement to take advantage of the safe harbor scheme, providing protection to directors from trading whilst insolvent (Part 3 of Schedule 12 of the Act).
While we cannot be sure of the impact that this extension will have on persons and businesses in the long term, we are sure that 2021 will be a very interesting year in the world of insolvency.
Watch this space for an update once the promised Regulation is released.
24 March 2020 - Gavin Stuart
Changes to Directors Personal Liability for Insolvent Trading
The government has announced changes to the regime that governs personal liability of directors for trading while insolvent, as part of the economic response to COVID19.
Ordinarily, a director can be personally liable for debts incurred by a company if at the time the debt was incurred there were reasonable grounds to suspect that the company was either insolvent or likely to become insolvent by incurring the debt. Now, directors have a six month period starting on the day of commencement of the new law during which this obligation will not apply.
The intention is that this temporary safe harbour will allow directors to make decisions to retain staff, pay their bills and continue trading through the COVID19 period. Hence, the moratorium will apply only to debts incurred in the ordinary course of the company’s business, and for which the company will still remain liable. What is in the ‘ordinary course of business’ will be different for each company and will need to be assessed on a case by case basis.
It is also worth noting that the director wishing to rely on this relief will need to prove that they were in the ‘safe harbour’ created by this new regime if they are ever pursued for insolvent trading in respect of relevant debts.
The economic impacts of COVID-19 are being felt far and wide and across all industries. The effects have already been seen causing otherwise profitable businesses to be placed into temporary financial distress. The Federal Government has recognised this issue and has increased threshold limits and time frames for debt recovery matters over the next six months to assist individuals and businesses who find themselves in financial distress. These changes are discussed below.
For businesses, a creditor is entitled to issue a Creditor’s Statutory Demand for Payment of Debt requiring a company to make payment of a debt (which exceeds $2,000 and is not in dispute) within 21 days. If the company fails to make payment, then there is a presumption of insolvency and the creditor can approach the Court seeking orders to wind up the company and appoint a liquidator. The below table sets out the usual regime in comparison to the COVID-19 regime.
In addition to the above, the Federal Government has indicated that there will be a hiatus and temporary relief for claims made against directors for trading whilst insolvent. This change will be in place for the next six months, to allow directors to attempt to assist their businesses trade out of the current economic climate caused by COVID-19.
For individuals, a judgment creditor is entitled to issue a Bankruptcy Notice requiring a judgment debtor to make payment of the judgment debt. If the judgment debtor fails to make payment within the required timeframe, then an act of bankruptcy has been committed and the judgment creditor is entitled to ask the Court to appoint a trustee in bankruptcy over the judgment debtor’s estate. The below table sets out the usual regime in comparison to the COVID-19 regime.
As always, our team are here to assist and our COVID-19 hotline is open on (02) 8281 7980 to help our clients navigate financial and social upheaval.