If your business is experiencing financial distress because of the coronavirus pandemic, see what measures the Australian Government has put in place to help
The Australian Government recently legislated new measures under the Coronavirus Economic Response Package Omnibus Act 2020 (Cth) to help otherwise profitable and viable businesses that may now be facing financial distress caused by the current coronavirus pandemic. These will be in place for the next six months, from 25 March – 25 September 2020. VML has helpfully summarised the key points of the new measures:
Temporary higher thresholds to issue a statutory demand
- The minimum threshold for creditors to issue a statutory demand on a company under the Corporations Act has increased from $2,000 to $20,000.
More time to respond to statutory demands
- The statutory timeframe for a company to respond to a statutory demand will be extended from 21 days to 6 months.
Personal insolvency/bankruptcy proceedings
- The minimum amount of debt required for a creditor to initiate bankruptcy proceedings against an individual debtor under the Bankruptcy Act will increase from $5,000 to $20,000.
- A debtor now has 6 months to respond to a bankruptcy notice (instead of 21 days).
- Where a debtor declares an intention to enter voluntary bankruptcy, unsecured creditors cannot take further action against them for 6 months (instead of 21 days).
- Creditors may of course still enforce debt against companies or individuals through the courts.
Directors’ personal liability for trading while insolvent
- Directors will be temporarily relieved of their personal duty to prevent insolvent trading with respect to any debts incurred in the ordinary course of the company’s business. This will relieve directors of their usual personal liability for trading while insolvent, with the view that the company can pay back their debts when economic conditions improve.
- Dishonesty and fraud will still be subject to criminal penalties, and any debts incurred by the company will still be payable by the company.
Although the usual rules regarding insolvency are designed to apply pressure to prevent insolvent trading as early as possible, the flexibility of the new measures means that businesses are less likely to be pushed into insolvency or forced winding up under these extreme and unprecedented circumstances, and may hopefully return to viability upon the conclusion of the pandemic.
To assist businesses, the Treasury has set up the Coronavirus Business Liaison Unit and will also be posting coronavirus-related updates as affects business here.
If you need assistance and guidance relating to your rights and obligations during this pandemic, please don’t hesitate to get in touch with the VML team – we’re with you all the way.