We understand and appreciate that these difficult times may effect your business heavily for the foreseeable future.
As a result, we take this opportunity to provide a brief update concerning the Federal Government’s relief plans for financially distressed businesses and individuals who may face financial distress during the Coronavirus pandemic.
The Federal Government plans to provide a safety net to reduce the threat of creditors forcing otherwise profitable companies into insolvency and individuals into bankruptcy through the statutory demand/bankruptcy regime.
In addition, these changes will provide directors who are trying to save a business with protection from future insolvent trading claims during this period.
We provide a summary of the intended changes below. Please note, these changes are not yet in force but are subject to the approval of new legislation which has been proposed, and are expected to come into force in the next 2-4 weeks.
Temporary higher thresholds and more time to respond to demands from creditors
- Increase to the current minimum threshold amount for creditors issuing a statutory demand on a company from $2,000 to $20,000 (this will apply for 6 months).
- Increase to the current time-frame for a company to respond to a statutory demand from 21 days to 6 months (this will apply for 6 months).
- Increase to the current minimum amount of debt required for a creditor to initiate bankruptcy proceedings against a debtor from $5,000 to $20,000 (this will apply for 6 months).
- Increase to the current time-frame a debtor has to respond to a bankruptcy notice from 21 days to 6 months (this will apply for 6 months).
- Increase to the current time-frame where unsecured creditors cannot take further action to recover debts from 21 days to 6 months (this will apply for 6 months).
Temporary relief from directors’ personal liability from trading while insolvent
- Directors will be temporarily relieved of their duty to prevent insolvent trading with respect to any debts incurred in the ordinary course of the company’s business. This will relieve the director of personal liability that would otherwise be associated with insolvent trading, applying for 6 months. Please note, the temporary relief from personal liability for insolvent trading will apply with respect to debts incurred in the ordinary course of the company’s business and cases of dishonesty and fraud will still be subject to criminal penalties.
Temporary flexibility under the Corporations Act
- The Treasurer will be given the power to amend provisions of the Corporations Act to provide relief from specific obligations or to modify obligations to enable compliance with legal requirements during the crisis. Please note the instrument-making power will apply for 6 months, and any instrument made under this power will apply for up to 6 months from the date it is made.
Temporary tailor solutions for businesses struggling due to Coronavirus
- For owners or directors of a business that is currently struggling due to the Coronavirus, the ATO can tailor solutions for their circumstances, including temporary reduction of payments or deferrals, or withholding enforcement actions such as wind-ups.
We note the Federal Government is moving quickly to implement the above relief and the proposed changes have been introduced to Parliament for urgent consideration.
We plan to keep you updated concerning the Governments response to aid with the impact of Coronavirus on businesses, and if you have any further questions then please don’t hesitate to get in touch.
In the meantime, the whole Arro team wish you well during these challenging times.