On 22 March 2020 the Government announced temporary relief for financially distressed companies, to help businesses get to the other side of the Coronavirus crisis. These provided a regulatory shield for businesses as part of the hibernation strategy.
On 7 September 2020 the Government announced a further extension of this relief to 31 December 2020. Regulations to implement the extension commenced on 22 September 2020.
The extended relief includes reforms to insolvency laws to provide:
- A temporary increase in the threshold at which creditors can issue a statutory demand on a company from $2,000 to $20,000;
- A temporary increase in the time companies have to respond to statutory demands they receive from 21 days to 6 months; and
- Temporary relief for directors from any personal liability for trading while insolvent, with respect to any debts incurred in the ordinary course of the company’s business.
This temporary relief system expires at the end of December 2020.
Regarding the temporary insolvent trading moratorium for directors of companies who during the period 22 March 2020 to end of December 2020 incur debts which they cannot pay, what is not well understood is that the company must also be placed into some form of external administration (i.e. liquidation) to effectively take advantage of the moratorium. Accordingly, companies need to properly assess their financial position with professional guidance which we are able to provide.
Complimentary temporary changes to the personal bankruptcy system were also included to help lessen the threat of people being forced into bankruptcy. These temporary changes have also been extended until 31 December 2020 and also provide temporary increases to the threshold amount [also increased to $20,000] and the time to respond to a bankruptcy notice [also increased to 6 months].
If you have any questions or concerns about your business or your financial management, please contact our office on 9251 5222 – we are here to help.