The Federal Government has sprung into action with stimulus packages to help Australian businesses continue to trade through troubling times caused by COVID19. The safety net is to reduce the threat of insolvency and forced winding up of businesses. It doesn’t mean debts are not payable.
The “Temporary relief for financially distressed businesses” has outlined higher thresholds and more response time when creditors demand payment.
- A statutory demand can send a company into liquidation. The temporary changes apply to the minimum threshold for creditors issuing a statutory demand. The threshold has risen from $2,000 to $20,000 and will apply for six months.
- The response time for a company to respond to a statutory demand has been extended from 21 days to six months. This will also apply for six months.
- Debt levels, which usually trigger insolvency (as per the Bankruptcy Act 1966), have been lifted for six months. The increase from $5,000 to $20,000 means to initiate bankruptcy proceedings, the minimum amount of outstanding debt is $20,000.
- Another bankruptcy trigger addressed by the Government is a temporary increase in the time it takes a debtor to respond to a bankruptcy notice. Traditionally this has been a 21-day response period. Under the new terms, it is now six months. This is to provide the debtor more time to make repayment arrangements.
- When a debtor enters voluntary bankruptcy, there’s a period of protection, which has been extended from 21 days to six months. This period sees unsecured creditors unable to take action to recover debts. The hope is that during this period the debtor can consider options that are best for them to repay the debt.
A critical component outlined by the “temporary relief for financially distressed businesses” is a change to the personal liability regime where directors allow a company to trade whilst insolvent. There are now temporary measures in place to ensure directors do not rush decisions leading to company insolvency.
The Government relief measure states directors will be temporarily relieved from personal liability for insolvent trading, with respect to debts incurred in the ordinary business. If this situation applies to you, BridgePoint Group would strongly advise that you not only seek clarity about the application of these relaxed rules (there is currently an absence of detail) but seek some help in turning your business fortunes around.
The final measure is based on quick-decision-making which is critical for businesses dealing with COVID19. The Treasurer has been given instrument-making powers in accordance with the Corporations Act 2001. This temporary measure allows for “modifying provisions of the Act to provide relief from specific obligations or modify obligations” to enable continued trade during these abnormal trading conditions.
There a lot of complexities involved in the business distress measures the Government has implemented. Making an informed decision is paramount to ensuring your business is sustainable through these challenging times.
If you need explanation or advice on any of these measures please reach out to the BridgePoint Group team. Our experts are here to help.
We are aware that business failure can weigh very heavily on people. Many businesses, even large and apparently successful businesses, lapse into insolvency. The insolvency laws exist to help save those businesses that can be saved and to deal with those that can’t in a dignified way. However, if you find yourself struggling to come to terms with it and feel mental anguish, please seek out help. (Lifeline – 131114 or www.lifeline.org.au)
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