COVID-19 Response and Amendments to Bankruptcy and Corporations Act
While it has been difficult to follow all of the updates and Government announcements regarding COVID-19, among the recent updates was an announcement of temporary relief for financially distressed businesses by lessening the threat of actions that could be brought against them. That temporary relief is now law.
This means that, over the next 6 months, commencing on 25 March 2020:
directors of companies will be temporarily relieved of their duty to prevent insolvent trading. This will only apply in respect of debts incurred during the next 6 months if incurred in the ordinary course of their business;
the amount required to issue a creditor's statutory demand, the first step in a creditor winding up a company, will temporarily increase to $20,000 (from $2,000);
the time to comply with a creditor's statutory demand will temporarily increase to 6 months (from 21 days). This only applies to a creditor's statutory demand issued after 25 March 2020;
similarly, in respect of claims against individuals, the amount required to issue a bankruptcy notice will temporarily increase to $20,000 (from $5,000) and the time to comply with a bankruptcy notice issued after 25 March 2020 will also increase to 6 months (from 21 days).
The amendments will be repealed from 25 September 2020 unless they are otherwise extended.
While these amendments may provide some breathing space for debtors from enforcement by creditors (or liquidators down the track), it will likely be the owners of many small and medium sized businesses themselves that are making, or will shortly make, some very tough decisions on the future of their business.
For creditors, there remain other enforcement methods, such as garnishee notices, writs of execution and examination summons.
If you or your clients need help or advice during this period please do not hesitate to get in touch with our team.
The material in this article was correct at the time of publication and has been prepared for information purposes only. It should not be taken to be specific advice or be used in decision-making. All readers are advised to undertake their own research or to seek professional advice to keep abreast of any reforms and developments in the law. Brown Wright Stein Lawyers excludes all liability relating to relying on the information and ideas contained in this article.