The Australian Government has released its plan to help elevate the economic impacts of COVID-19 on Australian businesses. The Government's economic response aims to implement measures to prevent otherwise profitable and viable businesses from facing financial distress during the next 6 months.
Demands from Creditors – Companies and Individuals
The Government will be temporarily increasing the current minimum threshold for creditors issuing a statutory demand on a company from $2,000 to $20,000. In respect of timeframe, the Government will also be temporarily increasing the statutory timeframe for a company to respond to a statutory demand from 21 days to 6 months.
In an attempt to also assist individuals, the Government will be temporarily increasing the minimum amount of debt required for creditor to initiate bankruptcy proceedings against a debtor from $5,000 to $20,000. The timeframe the debtor has to respond to a bankruptcy notice will also be temporarily extended from 21 days to 6 months.
In relation to any debtor who declares an intention to enter voluntary bankruptcy, the current period of protection whereby unsecured creditors cannot take further action to recover debts will be temporarily increased from 21 days to 6 months.
Importantly, creditors whom are themselves small business will still have the right to enforce debt against companies or individuals through the courts.
These measures will remain in place for the next 6 months.
Directors Personal Liability – Trading while Insolvent
Directors of companies will be temporarily relieved of their duty to prevent insolvent trading for the next 6 months in respect of any debts incurred in the ordinary course of the company's business. It is hoped that by relieving directors of any personal liability associated with insolvent trading, companies will retain the confidence to continue to trade through the COVID-19 health crisis.
The temporary relief from personal liability for insolvent trading will only apply to debts which are incurred in the ordinary course of the company's business. Any instances of abhorrent dishonesty and fraud will still be subject to criminal penalties.
Amendments to the Corporations Act 2001 (Cth)
The current COVID-19 health measures to stop its spread are increasingly giving rise to unprecedented issues for businesses and their ability to comply with the provisions of the Corporations Act 2001 (Cth). In the hope to remain afloat, it is acknowledged that companies may need to make very quick decisions in the context of these uncertain trading conditions.
To facilitate the Government's plans to implement more regulatory certainty at a time when Parliamentary sittings will also be disrupted, the Treasurer will be given a instrument-making power in the Corporations Act 2001 (Cth) to temporarily amend certain provisions in order to provide relief from specific obligations or to modify obligations to enable compliance with legal requirements during the on-going crisis.
The instrument making power will apply for the next 6 months and any instrument made under this new power will apply for up to 6 months from the date it is made.
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