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The Federal Government recently made changes to insolvency law which removed the insolvency moratorium and returned most limits back to pre-COVID-19 levels. The below sets out the new limits and discusses how to utilise them to enforce your debts.

insolvency moratorium

In March 2020, the Australian Federal Government introduced an insolvency moratorium through the Coronavirus Economic Response Package Omnibus Act 2020 (Cth) (Omnibus Act) which provided temporary changes to insolvency laws which were then further extended through to 31 December 2020.

On 1 January 2021 this insolvency moratorium expired, with the following limits now in force:

corporations – statutory demands and insolvent trading:

    1. the minimum amount for a creditor to issue a statutory demand is $2,000 (down from $20,000);
    2. the period within which a debtor must respond to a statutory demand is 21 days (reduced from six months); and
    3. Directors again have a personal liability for insolvent trading if debts are incurred in the ordinary course of business (directors had temporary relief from personal liability under the Omnibus Act).

individuals – bankruptcy:

    1. the minimum amount of debt that can trigger bankruptcy is $10,000 (down from $20,000, but increased from the pre-COVID-19 limit of $5,000);
    2. the amount of time an individual has to respond to a bankruptcy notice is 21 days (reduced from six months); and
    3. temporary debt protection allows for 21 days relief from creditors (reduced from six months).

temporary restructuring relief for companies

Until 31 March 2021, if a company is eligible for temporary restructuring relief, then the increased limits on issuing a statutory demand will continue to apply. The minimum amount remains at $20,000 and the minimum period is six months. In addition, the temporary safe harbour from personal liability for insolvent trading will continue to apply for directors of eligible companies during this period.

Ascertaining whether a company is eligible for temporary restructuring relief can be difficult, as companies who have applied for temporary relief do not need to notify their creditors. However, companies who have applied for relief may be found on the published notices on ASIC.  It is therefore prudent to conduct a search on the ASIC website prior to serving a statutory demand.

enforcement options

With the exception of companies that have applied for temporary restructuring relief, the expiry of the insolvency moratorium has resulted in the compliance period returning to 21 days and the minimum amount reducing to $2,000 for corporations and $10,000 for individuals.

Therefore, serving a statutory demand or a bankruptcy notice is again an important tool in seeking repayment from your debtors.  In addition, where there is no genuine dispute as to the debt owing, statutory demands can be served without a court judgment and remain a highly effective debt recovery tool.

Our team is well placed to help with service of statutory demands and bankruptcy notices and to ensure you act within the latest regulations.

If you would like assistance chasing an unpaid debt or have any questions about the above, please email or call us.

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Insolvency moratorium expires as covid-19 law changes ease

27 January 2021
prue greenfield nathanael kitingan nik verbeek

The Federal Government recently made changes to insolvency law which removed the insolvency moratorium and returned most limits back to pre-COVID-19 levels. The below sets out the new limits and discusses how to utilise them to enforce your debts.

insolvency moratorium

In March 2020, the Australian Federal Government introduced an insolvency moratorium through the Coronavirus Economic Response Package Omnibus Act 2020 (Cth) (Omnibus Act) which provided temporary changes to insolvency laws which were then further extended through to 31 December 2020.

On 1 January 2021 this insolvency moratorium expired, with the following limits now in force:

corporations – statutory demands and insolvent trading:

    1. the minimum amount for a creditor to issue a statutory demand is $2,000 (down from $20,000);
    2. the period within which a debtor must respond to a statutory demand is 21 days (reduced from six months); and
    3. Directors again have a personal liability for insolvent trading if debts are incurred in the ordinary course of business (directors had temporary relief from personal liability under the Omnibus Act).

individuals – bankruptcy:

    1. the minimum amount of debt that can trigger bankruptcy is $10,000 (down from $20,000, but increased from the pre-COVID-19 limit of $5,000);
    2. the amount of time an individual has to respond to a bankruptcy notice is 21 days (reduced from six months); and
    3. temporary debt protection allows for 21 days relief from creditors (reduced from six months).

temporary restructuring relief for companies

Until 31 March 2021, if a company is eligible for temporary restructuring relief, then the increased limits on issuing a statutory demand will continue to apply. The minimum amount remains at $20,000 and the minimum period is six months. In addition, the temporary safe harbour from personal liability for insolvent trading will continue to apply for directors of eligible companies during this period.

Ascertaining whether a company is eligible for temporary restructuring relief can be difficult, as companies who have applied for temporary relief do not need to notify their creditors. However, companies who have applied for relief may be found on the published notices on ASIC.  It is therefore prudent to conduct a search on the ASIC website prior to serving a statutory demand.

enforcement options

With the exception of companies that have applied for temporary restructuring relief, the expiry of the insolvency moratorium has resulted in the compliance period returning to 21 days and the minimum amount reducing to $2,000 for corporations and $10,000 for individuals.

Therefore, serving a statutory demand or a bankruptcy notice is again an important tool in seeking repayment from your debtors.  In addition, where there is no genuine dispute as to the debt owing, statutory demands can be served without a court judgment and remain a highly effective debt recovery tool.

Our team is well placed to help with service of statutory demands and bankruptcy notices and to ensure you act within the latest regulations.

If you would like assistance chasing an unpaid debt or have any questions about the above, please email or call us.