Statutory demands and bankruptcy notices are powerful tools used by businesses seeking payment. For 6 months they will be much weaker. What options remain?
The Government has announced proposed changes to personal and corporate insolvency laws to provide temporary relief to debtors in connection with compulsory insolvency processes.
Changes to statutory demands and bankruptcy notices
The Australian Government has passed the "Coronavirus Economic Response Package Omnibus Bill 2020". The new legislation was announced on Sunday 22 March 2020 and was fast tracked through parliament as part of the Australian Government's response to the economic impact of COVID-19.
The Federal Government has announced a package of changes to Australian insolvency and bankruptcy laws to provide some relief to businesses and individuals who may face financial distress from the economic impacts of the current health crisis.
The package is expressed to provide a safety net to ensure that when the crisis has passed, profitable and viable businesses can resume normal operations. This is in the form of changes to the Corporations Act to provide temporary relief to assist companies to manage through the current economic climate.
As part of its second stimulus package in response to the developing novel coronavirus pandemic announced on 22 March 2020, the Australian Government has extended a lifeline to individuals and businesses facing financial distress by way of temporary changes to the laws of insolvency. There are four key features of the changes.
1. Temporary changes to creditor's statutory demands laws
The Government has announced significant temporary measures to ensure that our insolvency laws and processes do not expose companies and individuals to undue risk. This will hopefully avoid a potentially unprecedented wave of insolvencies.
Key takeouts
The Government announced a six month suspension of insolvent trading laws.
The relevant debts will still be due and payable by the company in the normal way.
The Australian Government has announced temporary measures to curtail the impact of COVID-19 on Australian businesses by lessening the threat of otherwise viable businesses being placed into external administration. In part, these measures seek to prevent the winding up of companies which are experiencing short term financial distress and protect company directors from potential personal liability in order to incentivise continued trade through the COVID-19 health crisis. Similar temporary relief measures extend to individuals in financial difficulty.
Directors will soon be free to make decisions to trade on even insolvent entities, and incur debts in the ordinary course of business, with the passing of the Coronavirus Economic Response Package Omnibus Act 2020 last night and Royal Assent today. The Act is intended to encourage business to continue trading free of risk that insolvent trading laws – which prevent directors of insolvent companies incurring fresh debt – would impose a personal civil and criminal liability on them. There are also changes to statutory demands and debtor's petitions.
The Coronavirus Economic Response Package Omnibus Bill 2020 (Coronavirus Response Bill) was passed on 23 March 2020 and received Royal Assent on 24 March 2020 following the Federal Government’s announcements made between 12 and 22 March 2020 of its economic response to the spread of the coronavirus pandemic.
The Coronavirus Response Bill provides, amongst other legislative amendments, for temporary changes of 6 months’ duration to Australian insolvency and corporations laws to assist in managing the sudden economic shock resulting from COVID-19.
As part of its economic response to the COVID-19 pandemic, yesterday the Government passed a ‘temporary safe harbour’ insolvency measure[1].
Yesterday, the Federal Government announced the following temporary measures for financially distressed businesses: