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COVID-19 (coronavirus): changes to creditor statutory demands and insolvent trading laws

On March 25 2020 the Coronavirus Economic Response Package Omnibus Act 2020 came into effect in response to the economic impact of COVID-19 (coronavirus). The Act makes significant changes to both insolvent trading laws and creditor statutory demands. These changes will remain in effect for six months, until 25 September 2020.

 
Creditor’s statutory demands
A creditor’s statutory demand is a form of demand to a company for repayment of debt. Where a company fails to comply with a creditor’s statutory demand, they will be presumed to be insolvent.
The changes to the creditor’s statutory demand regime are as follows:
● The Government has temporarily increased the current minimum threshold for a demand to be issued from $2,000 to $20,000.
● The statutory time frame in which the company must respond to a statutory demand has been temporarily extended from 21 days to six months.

 
Insolvent trading laws
In accordance with the Corporations Act 2001 directors may be personally liable to pay debts a company incurs if the company trading whilst insolvent. The Act temporarily relaxes this strict provision, aiming to provide companies the confidence to continue to trade through the coronavirus health crisis and to help the company return to financial viability after the crisis has passed. Directors will be temporarily relieved of their duties to prevent insolvent trading if the debts incurred are in the company’s ordinary course of business for six months from 25 March 2020. However, where debt is incurred dishonestly and fraudulently, the director may face criminal penalties. However, directors should be aware that if the company was insolvent before 25 March 2020 and debts were incurred whilst the company was insolvent then they will continue to be liable for those debts.

If you would like more information on the recent temporary relief measures passed or what options are available to reduce financial distress to your company then please speak to ISA for free and confidential advice on our 24/7 toll-free hotline on 1800 003 883.

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