After the most bizarre of years in Australia (and globally), life returned to normal in the Insolvency industry as of 1 January 2021 – well, sort of.
The Coronavirus Economic Response Package Omnibus Act, introduced by the Federal Government urgently in March last year, and extended again in September, made numerous changes to the way creditors could recover their debts. From March, a Creditor’s Statutory Demand (“CSD”) was not able to be issued unless the debt owed exceeded $20,000, rather than the original $2,000 minimum. The time the corporate debtor had to pay an amount claimed in a CSD was also extended from 21 days to an astonishing 6 months.
Similarly, a Bankruptcy Notice was not able be issued to an individual debtor unless it was for a debt of at least $20,000, and the time to comply with a Bankruptcy Notice was also extended to 6 months.
Consequently, based on my experience, there appeared to be almost no CSDs or Bankruptcy Notices issued between March and December 2020.
The flow-on effect of this was the most dramatic downturn in the appointment of liquidators and Bankruptcy Trustees in Australia. Some debtors just got a 9 month holiday.
There was a concern that the insolvency restrictions would be further extended, however both of these restrictions were automatically repealed on 31 December 2020. This means that a CSD can now be issued on any undisputed debt over $2,000, and the debtor only has 21 days within which to pay the debt or apply to a Court to set it aside. Bankruptcy Notices also can be issued for debts over $5,000 owed by individuals and the debtor only has 21 days to pay or apply to set it aside.
These changes will also put even more pressure on those businesses who have been seriously impacted by a downturn in trade courtesy of COVID-19. Add to this the proposed termination of the JobKeeper allowances to businesses from 24 March. The combined effects of all these changes will put many businesses under serious financial strain. However, the economy cannot be put into a state of suspended animation for ever.
The flip side of that coin however is that creditors can now use these debt recovery tools as they did prior to March last year. Nine months is a very long time to bide one’s time to collect debts using the previously efficient methods of insolvency laws. That resulted in other good businesses not being paid, and so difficulties with those businesses also spiraled. Even during the serious COVID-19 times last year, I recommended that creditors should continue to negotiate with their debtors and keep the lines of communication open. That advice has not changed. But now a creditor has the old insolvency regime to use to try and enforce payment sooner than anyone was being paid last year.
This article is for general information purposes only and does not constitute legal or professional advice. It should not be used as a substitute for legal advice relating to your particular circumstances. Please also note that the law may have changed since the date of this article.