The Commonwealth Government has announced that temporary insolvency and bankruptcy protections will be extended until 31 December.
Introduced in response to the Coronavirus in March, the amendments provided protection for businesses from insolvency and also protected Directors from personal liability while trading insolvent. There was concern that if the protections were not extended there would be a spike in insolvency and bankruptcy applications in October. This extension will provide additional time for business to recover.
For companies, a statutory demand must be for a minimum amount of $20,000 and the company has 6 months to respond. Prior to the temporary measures, the amount was $2,000 and there were 21 days within which to respond. This means that there is little point issuing a statutory demand now, which you cannot act on for 6 months.
For Directors, the personal liability that normally exists for insolvent trading is removed for the period to 31 December 2020. The aim is to avoid Directors placing companies into administration or liquidation prematurely, simply to avoid claims of insolvent trading.
These significant steps will help businesses improve their cash-flow position and give them a chance to trade out of the financial hit that they have taken from the Coronavirus downturn.
For creditors facing their own cash-flow problems, the extensions and further barriers to recovering outstanding debts may cause distress to smaller supplies with limited cash. For those businesses owed money, it is important to be proactive and attempt to negotiate a payment plan or some means of being paid before resorting to Court, where there are still avenues to obtain and enforce a judgment, such as garnishees, writ for property or land. These are however without the relative ease and effectiveness of a statutory demand, or for individuals, a bankruptcy notice.
Hopefully, these measures will see many more businesses recover, some of which would not have survived beyond October. The Treasurer said the "changes will help to prevent a further wave of failures before businesses have had the opportunity to recover."
For advice on your business, insolvency, or debt recovery, contact our team on 1800 650 656. We're here to help!
Angus Edwards | Principal