In another move to protect small business owners, the Federal Government has permanently raised the minimum debt required to serve a statutory demand from $2,000 to $4,000, effective today.
The increase was introduced by the Corporations Amendment (Statutory Minimum) Regulations 2021 (Cth) (Regulations). The new threshold applies to all statutory demands served on or after 1 July 2021. The 21-day period to comply with a statutory demand remains unchanged.
The temporary safe harbour introduced by the Federal Government is not a panacea for directors of distressed businesses. It may be time to act now.
The Coronavirus Economic Response Package Omnibus Act 2020 introduced relief measures in the second stage of the Federal Government’s plan to 'cushion the economic impact of the coronavirus and help build a bridge to recovery'.[1]
Despite the extension of the insolvent trading moratorium, directors should still satisfy the usual requirements of the safe harbour against insolvent trading if they can.
As we know, the Federal Government has implemented a package of changes to Australian insolvency and bankruptcy laws to provide relief from the economic impacts of COVID-19.
The COVID-19 restrictions are slowly easing but the economic impacts are far from over. While businesses struggle to find ways to free up cash, it is likely we will see restructuring of loans and waiving of debts.
Taxpayers and their advisors need to be aware of the taxation implications of restructuring and forgiving loans, including the Commercial Debt Forgiveness (CDF) rules, Division 7A and the CGT rules.
Key takeaway
COVID-19 has had a debilitating effect on many sectors of the economy and unfortunately, the coming 12 months will see more businesses in financial distress and an uptick in business insolvency.
In such an environment, the commercial reality is that many businesses will be owed debts that will not be paid in full or at all. For many businesses, this could spell disaster. For this reason, debtor management is crucial in the present environment.
An edited version of this article first appeared in Smart Company. By Special Counsel Katherine Payne and partners Mark Petrucco and
The impact of COVID-19 on businesses will undoubtedly require directors to consider formal restructuring and insolvency options, including the appointment of administrators. Administrators are faced with the challenge of assessing a company’s options and forming a recommendation in an era of high market uncertainty. Both proposing a holding Deed of Company Arrangement (DOCA) and extending the convening period are being discussed as options to provide administrators with more time to undertake these tasks. In this article we consider the scope and limitations of each strategy.
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.
A new 'safe harbour' regime was implemented in September 2017 to provide directors who were trying to save a business with protection from future insolvent trading claims. No one could have predicted how important that regime is about to become. Given the escalating stress that is being placed on businesses because of COVID-19, many otherwise successful businesses may risk meeting the definition of insolvency.