The Federal Government yesterday announced a package of temporary measures to assist financially distressed companies. The package is intended to allow distressed businesses (and individuals) time to weather the uncertain storm of Covid-19 and resume normal business once the immediate crisis is over.
Each element of the package will apply (at this stage) for 6 months.
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.
The Australian Federal Government has announced today (22 March 2020) that it intends to make temporary amendments to insolvency and corporations laws in light of the challenges COVID-19 poses to many otherwise profitable and viable businesses.
In particular, the government intends to relieve directors from the risk of personal liability for insolvent trading, where the debts are incurred in the ordinary course of business.
The Treasurer, the Honourable Josh Frydenberg MP, has today announced proposed temporary changes to Australian corporate insolvency laws which will vary the minimum requirements for statutory demands and provide some relief for directors from insolvent trading. These announcements form part of the Australian Government's measures to support otherwise profitable and viable businesses due to the economic impacts of COVID-19.
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