The recent decision of Quin v Vlahos [2021] VCSA 205 (Quin) in the Victoria Supreme Court of Appeal has provided important commentary on when third party funds can be considered in determining a company’s solvency, as well as relying upon unreconciled accounts to prove solvency.

The Federal Government has recently announced that from 1 July 2021 the statutory minimum amount to serve a creditor’s statutory demand will increase from $2,000 to $4,000. The 21 day period within which a debtor must respond to a statutory demand and the personal liability on Directors for insolvent trading will remain the same.

In the recent decision of Badendoch Integrated Logging Pty Ltd v Bryant, in the matter of Gunns Limited (in Liquidation) (receivers and managers appointed) [2021] FCAFC 64 (Badendoch) the Full Court of the Federal Court of Australia effectively abolished the “peak indebtedness” rule for liquidators pursuing unfair preference claims.

introduction

A further element of the announcement made on 3 May 2021 by the Treasurer and Assistant Treasurer of Australia was in relation to the possible reform of the law relating to the “safe harbour” for Directors, protecting them from liability for insolvent trading. The announcement foreshadowed a “review whether the insolvent trading safe harbour provisions, which were introduced in 2017 and designed to promote a culture of entrepreneurship and innovation by providing breathing space for distressed businesses, remain fit for purpose.”

2017 safe harbour provisions

Introduction

On 3 May 2021, the Treasurer and Assistant Treasurer of Australia announced that, as part of Australia’s economic recovery plan, the Government would be reviewing further aspects of the insolvency laws including to “consult on improving schemes of arrangement processes to better support businesses, including by introducing a moratorium on creditor enforcement whilst schemes are being negotiated.”

Intellectual property (IP) is a valuable asset in any liquidation or bankruptcy. However, it presents unique legal and practical challenges for insolvency practitioners.

These challenges include:

As part of the Federal Government’s suite of reforms to insolvency laws in response to the COVID-19 pandemic, directors of insolvent companies with total debts not exceeding $1 million are eligible to appoint a Small Business Restructuring Practitioner (SBRP).

This new regime allows directors of eligible companies to retain control of their business while working alongside an SBRP to develop a proposed restructuring plan for approval by the company’s creditors.

The Federal Government recently made changes to insolvency law which removed the insolvency moratorium and returned most limits back to pre-COVID-19 levels. The below sets out the new limits and discusses how to utilise them to enforce your debts.

insolvency moratorium

In recent decisions involving accessories retailer Colette Group and Virgin airlines, the Federal Court of Australia found that the extraordinary circumstances of COVID-19 warrant a grant of relief for the administrators from personal liability for rent.

In both cases, the Court acknowledged the uncertainty caused by COVID-19 and found that the rent reprieve for the administrators was in the best interests of the creditors as a whole.

colette group

On 22 March 2020, the Australian Federal Government announced a raft of proposed temporary changes to insolvency laws in light of the financial distress and challenges COVID-19 has caused to Australian businesses.

The proposed changes are summarised below:

companies

Statutory demands