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As of 1 January 2021, these amendments were repealed, meaning most wind-up provisions have returned to their status prior to COVID-19.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.
2020 had seen a flurry of changes to bankruptcy legislation in the wake of COVID-19. As of March 2020, the Federal Government introduced new amendments to bankruptcy laws to better protect debtors. The amendments to these laws largely surrounded bankruptcy notices – the mechanism used by a creditor in order to make a debtor bankrupt. A bankruptcy notice is a key step in enforcement of a judgment debt. It is the first step to make an individual bankrupt for a debt owing to a creditor.
Among these amendments, a temporary threshold amount change to bankruptcy proceedings was introduced – increasing the threshold amount of the debt required to issue a bankruptcy notice from $5,000 to $20,000. The changes also included an extension of time to comply with the bankruptcy notice once served on debtor, from 21 days to 6 months. These measures were initially set to end in September, 2020 but were extended to 31 December 2020.
With the expiration of these amendments, it was envisaged that the threshold amount would revert back to the pre COVID-19 amount of $5,000. However, the bankruptcy legislation was amended further by the Federal Government to introduce a new minimum threshold amount of $10,000. Therefore, as from 1 January 2021, a creditor can issue a bankruptcy notice only if their debt is $10,000 or more.
In addition to the threshold amount change, debtors now have once again only 21-days to respond to a Bankruptcy Notice. If a debtor fails to comply with the Bankruptcy notice within the 21 days a Creditor’s Petition can be issued at the end of this period and proceed to make a debtor bankrupt.
If you are seeking assistance or advice as a creditor or debtor, our office is ready and able to assist on (02) 9281 0013, or submit an enquiry via our Contact page.