The Australian government has announced that it is putting in
place temporary measures to prevent businesses and individuals
temporarily facing financial distress as a result of COVID-19 from
being forced into liquidation.
Given that New Zealand's insolvency laws are closely aligned
with Australia, it is likely that in the coming days our Government
will follow suit with a similar package. Below is a summary
of what temporary measures we are likely to see:
- Increased threshold amount and extended timeframes to comply with a statutory demand
Liquidation of companies will often be instigated by a creditor
issuing a statutory demand requiring payment of a due debt within
15 working days.If payment is not made (or a genuine dispute not
raised) within that timeframe, the company is presumed unable to
pay its debts and can be wound up by the petitioning
creditor.
The Australian Government has increased its timeframe to comply
with a statutory demand from 21 days to six months.It is likely our
Government will follow suit.
The minimum threshold for creditors issuing a statutory demand in
New Zealand is currently $1,500.The Australian Government is
increasing its minimum threshold amount from $2,000 to $20,000 for
the next six months and again it is likely our Government will make
a similar increase.
- Increased threshold amount and extended timeframes to comply with bankruptcy notices
Bankruptcy of an individual most commonly occurs following a
person's failure to comply with a bankruptcy notice.Like
statutory demands there is a minimum threshold amount for the
issuing of a bankruptcy notice ($1,000) and a strict timeframe to
comply (10 working days) before an act of bankruptcy occurs.It is
likely these will both be increased by the Government to give
debtors more time to work through repayment options (as the
Australian Government has done).
- Reckless Trading
In order to give companies confidence to continue to trade, and
return to viability once the coronavirus crisis has eased, without
the risk of directors being held personally liable, the Australian
Government has announced that directors "will be
temporarily relieved of their duty to prevent insolvent trading
with respect to any debts caused in the ordinary cause of
business".Cases of dishonesty and fraud will still be
subject to criminal penalties.This temporary relief is being
offered for a period of six months.
Given New Zealand has comparable laws with regard to reckless
trading it is likely that the New Zealand Government will announce
a similar temporary measure to enable as many businesses as
possible to trade through these uncertain times in the hope that,
post this crisis, debts can be repaid and businesses can resume to
normal as soon as possible.By offering this temporary relief,
directors are essentially being given the ability to continue to
incur debts over this difficult time, without the fear of later
being held personally liable.
A summary of the Australian relief package can be found here (
https://treasury.gov.au/sites/default/files/2020-03/Fact_sheet-Providing_temporary_relief_for_financially_distressed_businesses.pdf)
Please get in touch
If you have any concerns or queries about your situation, or
require assistance, please contact one of the
Insolvency team.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.