This material is general in nature and incorporates information regarding proposed or pending legislative changes to address the potential economic and other impacts of the Coronavirus (COVID-19) pandemic.

On 22 March 2020, the Australian Federal Government delivered its second response to the economic threat posed by the Coronavirus.

Part of this response includes measures to alleviate some of the financial hardship faced by many businesses and provide some safeguards to help them survive and be better placed to resume operations after the crisis.

Key to these objectives were proposed reforms to company and personal insolvency laws.

Statutory demands

Temporary changes to the requirements for issuing a statutory demand are aimed at offering protection to companies that might otherwise be pushed into insolvency and liquidation.

Statutory demands have long been used to recover money owed by a company which will be presumed insolvent if, after 21 days after service of a statutory demand, it either fails to pay the debt or have the demand set aside or extended. The presumption of insolvency triggers a right for a creditor to instigate proceedings to have the company wound up. Generally, a statutory demand may not be issued unless the debt is for $2,000 or more and the debtor is given 21 days from service of the demand to pay the debt or apply to have it set aside.

Temporary changes, anticipated to operate for 6 months from implementation include:

  • Increasing the minimum amount of debt for which a statutory demand may be served from $2,000 to $20,000;
  • Extending the timeframe for a debtor company to comply with a statutory demand from 21 days to 6 months.

Personal liability for company directors – insolvent trading

Companies are prohibited from trading whilst insolvent, and directors have a duty to prevent insolvent trading. Directors who allow a company to continue incurring debt where it is reasonably foreseeable that the company is, or likely to become insolvent, may be held personally liable for financial losses.

New measures provide temporary relief from the duty to prevent insolvent trading to company directors who incur debts in the ordinary course of the company’s business, alleviating the director from personal liability that would otherwise be associated with insolvent trading. These measures will apply for 6 months.

Individuals and bankruptcy

Similar temporary measures, to apply for 6 months, are proposed for individuals facing insolvency issues through changes to personal insolvency laws, namely:

  • increasing the threshold for the minimum amount of debt owed from $5,000 to $20,000 before a creditor can initiate bankruptcy proceedings;
  • extending the timeframe for which a debtor must comply with a bankruptcy notice from 21 days to 6 months;
  • in circumstances where a debtor has declared an intention to enter voluntary bankruptcy, extending the timeframe for which a debtor is protected from an unsecured creditor taking further recovery action from 21 days to 6 months.

Taxation matters

Business owners or company directors who are struggling financially as a result of the Coronavirus may seek tailored solutions from the Australian Taxation Office such as temporary reductions, payment deferrals or the withholding of enforcement action.

How can we help?

The above material is based on an understanding of the available information at the time, which may be subject to change or further development. The individual circumstances of each case and the law at the relevant time must be considered before an informed opinion can be offered.

This is a concerning time for all Australians and we are here to help.

If you or someone you know wants more information or needs help or advice, please contact us on 1800 618 869 or email info@jmalegal.com.au.