On 25 March 2020, the Australian Federal Government implemented amendments to various Insolvency Legislations under the Coronavirus Economic Response Package Omnibus Act 2020 (the Act) in order to minimise or avert the potentially fatal effects that COVID-19 may have on businesses throughout Australia.
The intention of the Australian Government was to use the Act to provide temporary relief and avoid unnecessary insolvency action being taken against businesses and individuals during the pandemic.
What were the changes?
From 25 March 2020, for a period of 6 months (ending 25 September 2020) the legislative changes under the Act provide welcome temporary relief to Sole Traders, Individuals and Companies.
The main changes for each are:
Sole Traders and Individuals
Temporary changes have been made to the Bankruptcy Act 1966 (Cth) and the Bankruptcy Regulations 1996 (Cth) by:
- Increasing the Bankruptcy Notice minimum debt amount from $5,000.00 to $20,000.00.
- Increasing the time period for a Debtor (the person who owes money to a Creditor) to comply with a Bankruptcy Notice from 21 days to 6 months.
- Increase the minimum debt amount for which a Creditor can petition a Debtor to be made a bankrupt by Court Order to $20,000.00.
- Increasing the period of protection after a Debtor makes a declaration of intention to present a Debtor’s Petition (the mechanism by which an individual may make themselves a bankrupt) to 6 months.
Similarly, temporary changes have been made to the Corporations Act 2001 (Cth) and the Corporations Regulations 2001 (Cth) by:
- Increasing the Statutory Minimum for Creditors to issue Statutory Demands from $2,000.00 to $20,000.00.
- Increasing the time period for a Debtor Company (the Company who owes money to a Creditor) to comply with a Statutory Demand from 21 days to 6 months following valid service.
- Increasing protections for Directors under the Safe Harbour provisions, during the 6 month operation of the Act. This means that Directors will be temporarily relieved of their duty to prevent insolvent trading with respect to any debts incurred in the ordinary course of the company’s business (within reason).
What does this mean for you and your business?
Whilst the temporary relief afforded by the Act comes to the aid of those struggling due the pandemic, it may have an adverse effect on businesses seeking to recover money from Debtors who have been delinquent well before COVID-19 disrupted Australia.
The temporary relief under the Act applies during the 6 months period between 25 March 2020 and 25 September 2020 (Relief Period), which is aimed to protect those business hit with a downturn in cash flow from becoming insolvent. However, this will also protect those business that incurred debts prior to 25 March 2020 against legal action during the Relief Period.
Where court proceedings have been commenced (to bankrupt a person or wind up a company), these proceedings are unaffected by the Act and will proceed. Though, there have been some disruptions as a result of the pandemic that have delayed proceedings until later in 2020.
While the Act’s intentions were clearly intended to be positive and has been welcomed by those businesses genuinely struggling due to the COVID-19 pandemic, the Act can also be used by businesses seeking to delay or avoid obligations to pay debts until 25 September 2020. However, there are other means for businesses seeking to take action against delinquent Debtors who are using the temporary reliefs under the Act to avoid paying their debts during the Relief Period.
If you or your business are experiencing financial hardship and pending debt recovery action, we are able to assist you with advice and options on moving forward during this unprecedented time.
Our Dispute Resolution team can cater to the needs of individuals, sole traders, small businesses and corporations who are seeking to navigate this difficult time and avoid the unnecessary costs and distraction of litigation in circumstances where money could be better spent surviving the pandemic.
If you would like to discuss your matter and arrange a meeting, please do not hesitate to contact our Office on 02 9233 1133. Our Partners in Dispute Resolution, Aaran Johnson and Bharath Balasubramanian, and their team of solicitors are able to assist you with your needs.
Marsdens Law Group advises that this article is not legal advice and the views and comments are of a general nature only. This article is not to be relied upon in substitution for detailed legal advice. Should you require legal advice please contact our office and arrange a meeting with one of our solicitors.