You may be aware that the Australian Government has introduced some temporary measures to alleviate the financial burden – including the threat of bankruptcy or insolvency - that businesses and company directors may be enduring during this period of severe economic stress.
The Corporations Act 2001, will be amended to bring some assistance to deal with the mostly unforeseen economic consequences of the Coronavirus. In particular are those relating to insolvency and bankruptcy, and the options creditors often have to take such action in order to recover debts. It is hoped that these measures will prevent directors of stressed companies entering into insolvency by introducing a (temporary) relief from any personal liability for trading while insolvent.
Other provisions include increasing the various thresholds at which creditors can initiate proceedings against directors of companies.
The increases include:
- The threshold at which creditors can issue a statutory demand on a company from $2,000 to $20,000;
- The threshold at which creditors can initiate bankruptcy proceedings from $5,000 to $20,000;
- The time companies have to respond to statutory demands from 21 days to 6 months; and,
- The time individuals have to respond to bankruptcy notices from 21 days to 6 months.
The AICR has always advocated that legal action to bankrupt a person in financial distress must be a last resort. Now is the time to be even more sensitive to the financial stress that many people in our community are facing and are likely to face for some time.
Only a few months ago we wrote that bankruptcy and personal insolvency rates had fallen in Australia by 15% since 2017-18. As well, the rate of debt agreements also fell by more than 20%. (https://www.afsa.gov.au/statistics/annual-statistics).
The Coronavirus catastrophe will certainly challenge those figures. This is despite the many measures the government and large businesses have introduced. It has been gratifying to learn of organisations – banks, insurers, councils and others – that are providing relief by way of debt holidays, postponing payments and even delaying scheduled price increases.
Communication is always important in resolving debt issues. It is even more so now that there is a clear understanding between creditors and debtors of the range of options available. Ignoring debt issues is the worst option.
The Australian Treasury Department and the Tax Office websites list the range of measures the Government has in place for businesses to better cope during with the COVID-19 pandemic:
For more information:
https://www.treasury.gov.au/coronavirus
https://www.ato.gov.au
These organisations are also available for financial counselling and advice:
https://www.financialcounsellingaustralia.org.au/
https://www.salvationarmy.org.au/need-help/financial-assistance/financial-counselling/
Yours sincerely,
Brian Carter
Chairman