The impact of the Coronavirus and the health measures in place to limit its spread, in particular social distancing, is giving rise to unprecedented issues for businesses, and forcing many to the wall.
Companies and sole traders are faced with a need to make very quick business decisions in the context of very uncertain trading conditions. To encourage business to make the hard decisions as and when needed, it is important that the Government can provide regulatory certainty and provide it as quickly as possible. On 22 March 2020, the Federal Government announced its intention to temporarily relax insolvency laws as part of a broad suite of legislative amendments intended to reduce the economic effect of the Covid-19 pandemic on financially distressed individuals and businesses.
The changes, which are expected to be in place for 6 months, include:
- increasing the minimum debt for which a statutory demand can be issued from $2,000 to $20,000;
significantly extending the time for compliance with statutory demands from 21 days to 6 months;
increasing the minimum debt for a bankruptcy notice from $5,000 to $20,000;
- Extending the time for compliance with bankruptcy notices from 21 days to 6 months; and
- Temporarily relieving directors from personal liability for insolvent trading with respect to any debts incurred in the ordinary course of a company’s business. This will relieve the director of personal liability that would otherwise be associated with the insolvent trading and will apply for six months.
- The changes have not yet come into effect, and it is not clear when they will commence or whether they will operate retrospectively. Whilst the need for businesses and customers to work together in these challenging times goes without saying, creditors should be mindful of these proposed amendments and the effect that they may have on recovering debts, particularly those that pre-date the Coronavirus pandemic, which look to be captured by the proposed legislative amendments. We anticipate that many businesses will soon operate on a cash on delivery basis as a means of avoiding bad debts.
For advice on these developments or to discuss your debt recovery options, please contact us.