COVID-19: What You Need to Know About the Important Changes made to Australia’s Insolvency Laws
There is no denying that the impacts of COVID-19 have been hard-hitting, with many Australians feeling the pressure stay afloat during these highly uncertain times.
Under the Coronavirus Economic Response Package Omnibus Act 2020 (Cth) (‘CERP’), important amendments have been made to Australia’s insolvency laws, providing temporary relief to both individuals and companies experiencing short-term financial hardship as a result of the pandemic. Changes to both the Corporations Act 2001 (Cth) and the Bankruptcy Act 1966 (Cth) officially came into effect on 25 March 2020, and will extend to at least 25 September 2020.
If you are currently undergoing issues with bankruptcy or debt recovery, here is what the legislative changes may mean for you…
Amendments to Statutory Demands & Bankruptcy Notices
Under section 459E of the Corporations Act, a creditor may serve a company with a statutory demand demanding payment of outstanding debt, provided that debt is of at least $2,000.00 (the statutory minimum). Upon service of the demand, the company is given 21 days to make payment, negotiate an agreement with the creditor or apply to have the debt set aside. Where a debtor fails to respond within this 21-day period, they will be presumed insolvent.
Similarly, a bankruptcy notice issued to an individual under section 41 of the Bankruptcy Act must be made with respect to an outstanding debt of at least $5,000.00, with a 21-day compliance period.
So, what does this mean for those struggling during the Coronavirus pandemic?
Increased thresholds under the new CERP Legislation have meant that Australian companies and individuals experiencing difficulties in meeting their financial obligations are now far less vulnerable to being declared insolvent under these provisions.
Changes to the statutory minimums now require statutory demands and bankruptcy notices to be issued with respect to outstanding debts of at least $20,000.00, as opposed to the prior statutory minimums of $2,000.00 and $5,000.00 respectively.
Further, the 21-day response period granted to debtors under these provisions have both been dramatically extended to 6 months.
Relief from Director Liability for Trading Whilst Insolvent
Additional amendments made to the Corporations Act now safeguard company directors from continuing to trade whilst insolvent. Usually, directors have a duty under section 588G to prevent insolvent trading and can be held personally liable for any debts incurred whilst doing so. Under the new CERP Legislation, directors have now been temporarily relieved from this liability, provided any debts incurred are done so in the ordinary course of business. It is hoped this change will encourage and assist businesses to carry on trading despite experiencing a downturn in profitability.
With these legislative changes now in effect, measures taken by creditors to wind up a company or declare an individual bankrupt have been effectively frozen for 6 months, allowing many Australians the opportunity to bounce back from their newfound financial hardship.
The team at CPC Lawyers understands the difficulty our communities are currently facing as a result of the virus, and are here to help ease the financial stress involved.
If you feel as though you could be affected by these changes, and would like to know more about your rights and obligations under the new CERP Legislation, contact CPC Lawyers on (08) 7325 0219 to book an appointment with one of our experienced solicitors.