The thresholds and time limits have temporarily changed as per the Coronavirus Economic Response Package Omnibus Act 2020(Cth) (the Act). In Schedule 12 of the Act, the section entitled, ‘Temporary relief for financially distressed individuals and businesses’ makes temporary changes to how an individual’s bankruptcy and a company’s insolvency may be addressed by a creditor (and the ATO). This act went in to effect with royal assent on 24 March 2020, however, the schedules we refer to in this article went in to effect 1 day after royal assent or 25 March 2020.
Until 25 September 2020 [six months from 25 March 2020] the rules in Australia have changed in regard to Trading Insolvent, Statutory Demands, Bankruptcy providing individuals and businesses with ‘Temporary Relief’.
Changes to ‘Trading Insolvent’ regulations
Current director protections in the Corporations Act 2001 (Cth) (the Corps Act) are temporarily supplemented by protections for personal liability in regard to trading insolvent. Until 25 September 2020, barring dishonest or fraudulent acts, directors are temporarily protected from personal liability if their company is later found to have been trading insolvent during this period of assistance. Additionally, this aspect of the Act is only to be used if necessary to support the business during the six month period only.
It is foreseen that the interpretation of the above and exploration of the boundaries that create what is ‘necessary’ will be explored by the courts after this support period ends.
Changes to Statutory Demands and Bankruptcy Rules
The ‘statutory period’ is from the ‘statutory minimum’ (the threshold amount to issue the statutory demand to a company) is temporarily $20,000 from the historical $2,000 minimum. The time period within which to comply is going from 21 days to six months.
The ‘the statutory minimum’ (the threshold amount to issue the bankruptcy notice) is temporarily $20,000 from $5,000. The ‘time fixed for compliance with the notice’ as temporarily modified to 6 months from the normal 21 day period.
The time is similarly and temporarily extended for the presentation of a debtors petition and the temporary protection afforded to a debtor. This is similarly extended temporarily from 21 days to 6 months.
The Australian Financial Security Authority (the AFSA) has created an update page on the changes to the collection of debts in a page entitled ‘debt relief’.
Companies may seek payment plans, deferrals and reductions in amounts owing to the Australian Tax Office (the ATO). The ATO has the ability (and are generally believed likely to do so) to defer enforcement strategies such as issuing summons for charges and issuing Director’s Penalty Notices for this period.
26 September 2020
What may occur on the other side of these ‘temporary’ provisions? Will the Supreme Court of Victoria and the Federal Court become inundated with set-aside applications in the 21 days following the end of the temporary provisions?
It is foreseen that many companies may hold any debt collection activities such as serving Statutory Demands and seeking to Bankrupt an individual debtor, however, the Magistrates’ Court and County Court are still available to file and serve claims to receive judgement and seek other enforcement of judgements.