COVID-19: Revolutionary variation of Australia’s insolvency system for coronavirus era – novel times certainly do lead to novel measures
With the prospect of huge numbers of businesses becoming insolvent and collapsing in the coming weeks and months due to the effects of Government-enforced travel bans and business ‘lock-downs’, the Australian Government has implemented a number of important measures to protect directors from Australia’s harsh insolvent trading laws, and to prevent creditors from bankrupting individuals or winding up companies over unpaid debts.
The measures announced yesterday include the following changes to the law which will last for six months, unless extended further:
- a moratorium against personal liability for ‘insolvent trading’, i.e. failing to prevent a company incurring debts while insolvent, for debts incurred in the ordinary course of business;
- an increase in the debt required for creditors to be able to issue a statutory demand on a company from $2,000 to $20,000 (a company’s failure to satisfy a statutory demand allows a creditor to apply to wind up the company in insolvency);
- an increase in the time to satisfy a statutory demand from 21 days to six months;
- an increase in the threshold for a creditor to serve a bankruptcy notice from a judgement debt of $5,000 to a judgement debt of $20,000 (an individual debtor’s failure to satisfy a bankruptcy notice allows a creditor to apply to bankrupt the individual); and
- an increase in the time period for individual debtors to respond to a bankruptcy notice from 21 days to six months.
In addition, the Australian Taxation Office has announced that it will enter into arrangements with taxpayers as necessary, including temporary reduction of payments or deferrals, or withholding enforcement actions.
Whilst these measures will give breathing space for the next six months, businesses and directors will need to start planning now how they will meet their obligations when the temporary measures come to an end.
Source: McCullough Robertson Lawyers | COVID-19: Revolutionary variation of Australia’s insolvency system for coronavirus era – novel times certainly do lead to novel measures
