The Australian Government has announced a temporary increase to the threshold at which creditors can issue a statutory demand on a company and the time companies have to respond to statutory demands they receive. This includes temporary relief for directors from any personal liability for trading while insolvent and providing temporary and targeted relief from the provisions of the Act.
The elements of the package are:
• A temporary increase in the threshold at which creditors can issue a statutory demand on a company and the time companies have to respond to statutory demands they receive;
• A temporary increase in the threshold for a creditor to initiate bankruptcy proceedings, an increase in the time period for debtors to respond to a bankruptcy notice, and extending the period of protection a debtor receives after making a declaration of intention to present a debtor’s petition;
• Temporary relief for directors from any personal liability for trading while insolvent;
• Providing temporary flexibility in the Corporations Act 2001 to provide targeted relief for companies from provisions of the Act to deal with unforeseen events that arise as a result of the coronavirus health crisis.
The Australian Taxation Office (ATO) will tailor solutions for owners or directors of businesses that are currently struggling due to the coronavirus, including temporary
reduction of payments or deferrals, or withholding enforcement actions including Director
Penalty Notices and wind-ups.
A creditor issuing a statutory demand on a company is a common way for a company to enter liquidation. The Government is temporarily increasing the current minimum threshold for creditors issuing a statutory demand on a company under the Corporations Act 2001 from $2,000 to $20,000. This will apply for 6 months.
Not responding to a demand within the specified time creates a presumption that the company is insolvent. The statutory time frame for a company to respond to a statutory demand will be extended temporarily from 21 days to 6 months. This will apply for 6 months.
To assist individuals, the Government will make a number of changes to the personal insolvency system regulated by the Bankruptcy Act 1966. The threshold for the minimum amount of debt required for a creditor to initiate bankruptcy proceedings against a debtor will temporarily increase from its current level of $5,000 to $20,000. This will apply for 6 months.
Failure to respond to a bankruptcy notice is the most common act of bankruptcy. The time a debtor has to respond to a bankruptcy notice will be temporarily increased from 21 days
to 6 months. The extension will give a debtor more time to consider repayment arrangements before they could be forced into bankruptcy. This will apply for 6 months.
When a debtor declares an intention to enter voluntary bankruptcy by making a declaration of intention to present a debtor’s petition there is a period of protection when unsecured
creditors cannot take further action to recover debts. This period will be temporarily extended from 21 days to 6 months. This will give debtors more time to consider the options that are best for them. This will apply for 6 months.
Creditors, many of whom are themselves small businesses, will still have the right to enforce debt against companies or individuals through the courts.
If you are unsure of your rights or responsibilities, please do not hesitate to contact us.