WRITTEN BY Nicole Harrowfield
Businesses experiencing financial distress as a result of COVID-19 will continue to receive financial relief until 31 December 2020.
What does this mean for businesses?
The extension predominantly impacts companies in relation to statutory demands and insolvent trading.
When creditors issue a statutory demand against a company before 31 December 2020, the demand must be in the amount of $20,000 or more and the company has six months to respond to this demand. This is a marked increase from the pre-COVID statutory framework, where creditors could issue a demand for any amount above $2,000 and companies would only have 21 days to respond.
In addition, companies’ insolvent trading relief will be extended to 31 December 2020. This measure insulates directors from any personal liability for debts incurred in the ordinary course of the business if they trade on behalf of the company whilst it is insolvent. It should be noted that this relief does not extend to directors if they have breached their statutory or common law directors’ duties.
What does this mean for individuals?
For natural persons the legislation provides more support in relation to bankruptcy notices and the extension of the moratorium on declarations of intention for debtors’ petitions.
Individuals who receive a bankruptcy notice before 31 December 2020 will have six months to respond and the notice must be in the amount of $20,000.00 or more. As with companies, this is a significant increase from the pre-Covid statutory framework where the debt only needed to be $5,000.00 or more and individuals only had 21 days to respond.
The moratorium period for a declaration of intention to issue a debtor’s petition with the Australian Financial Security Authority will continue to be six months rather than the usual 21 days. This enables individuals to make their own provisions with creditors and if those arrangements are ineffective, they can then declare themselves bankrupt. If an individual fails to declare themselves bankrupt at the end of that six-month period, a creditor can apply to a court to make the person bankrupt.
Don’t be complacent
While the extension of these measures is good news for business currently in financial distress, it is not the time to be complacent in managing your debts. If you are at all concerned about where your financial position might leave you in a legal context, contact Nicole Harrowfield or the Business & Corporate team at BAL Lawyers.