There are a lot of temporary changes being made to Insolvency Law, whilst we navigate through the Covid-19 pandemic. In our latest article in The District Reporter, we discuss the impact of these changes for businesses and individuals.
As part of the ongoing federal government response to the COVID-19 health crisis, it has announced significant temporary changes to insolvency law in Australia. The changes are designed to give individuals and businesses a “safety net” to enable them to continue trading and manage their cash flow during the current period of uncertainty, as opposed to facing insolvency and likely closure.
The temporary changes had legal effect from 25 March 2020 and include the following:
A 6 month moratorium or period of grace, against directors who are alleged to have allowed a company to trade while it is insolvent. This measure does not extend to debts that were not incurred in the ordinary course of business, and does not remove the liability of businesses to pay their debts.
Creditor’s Statutory Demands – Issuing a statutory demand is the first step a creditor can take to wind up a company. Failure to comply with the statutory demand creates a presumption of insolvency which creditors can rely on to progress to the next stage of the process. Previously, one could be issued against a company that owed more than $2,000 and required them to respond within 21 days, failing which they were presumed to be insolvent. The amount owing has now been increased to $20,000 while the period for compliance has been extended to 6 months.
Bankruptcy – Individuals previously could be faced with bankruptcy proceedings if they owed a creditor a debt greater than $5,000. The proposed measures include increasing the threshold for a creditor to commence bankruptcy proceedings from $5,000 to $20,000.
The time for an individual to respond to a bankruptcy notice will also be increased, from 21 days to 6 months; as well as the period of protection for a debtor once they make a declaration of intention to present a debtor’s petition from 21 days to 6 months;
The government has stated that these reforms are not retrospective and that they will be in force for six (6) months, however, if the COVID-19 restrictions are still in place at that time, then the time frame may be extended.
If you are owed money by a company or an individual, you can still seek to recover the money owing by court proceedings, however there are also increasing delays in this regard, particularly if the debtor disputes the claim, owing to restrictions in court sittings resulting from the COVID – 19 pandemic.
Contact Geoff Lloyd of our Camden office on 4651 4800 to discuss these issues further.
