Following on from our last post about bankruptcy proceedings, Court action against corporations in 2020 also saw the introduction of new legislation to temporarily protect insolvent businesses.
Among these laws, the threshold amount of a debt owing to a Creditor entitled to issue a Statutory Demand under the Corporations Act 2001 (Cth) was increased from $2,000 to $20,000. Together with this change, the time to comply with the Statutory demand was increased from 21 days to 6 months. The implications of these changes adversely affected creditors, unable to move on winding up the debtor for 6 months from the date the Statutory Demand was served.
The most interesting temporary amended was that Directors of Corporations were relieved of their duty to prevent insolvent trading duties. Section 588G of the Corporations Act 2001 (Cth) provides that directors owe a fiduciary duty to the Company to prevent it from trading whilst insolvent. During the period these amended laws were in force, directors were pardoned from this duty and were able to continue trading even if insolvent.
As of 1 January 2021, these amendments were repealed, meaning most wind-up provisions have returned to their status prior to COVID-19.
This means that Statutory Demands may again be issued for debts in excess of $2,000, with debtors only entitled to 21 days to respond prior to a wind-up application being made. To protect creditors from engaging with insolvent companies, the Section 588G duty to prevent insolvent trading is again in force, meaning directors no longer can rely on temporary COVID-19 safe-harbour provisions.
To find out how you can recover money outstanding from a debtor, please contact our office, who is ready to assist on (02) 9281 0013, or submit an enquiry via our Contact page.