On 1 January 2021, new insolvency reforms to support small business commenced and COVID-19 temporary insolvency protections came to an end.
This is good news for creditors who can now more easily proceed with creditor’s statutory demands in the usual course as well as bankruptcy notices, provided company debtors have not applied for temporary relief.
Back to the Future
Creditor’s statutory demands
As at 1 January 2021:
- the threshold to issue a statutory demand is now $2,000; and
- the timeframe for debtors to respond to a statutory demand is now 21 days.
As at 1 January 2021, the following changes have been made:
- the debt threshold is now $10,000;
- the timeframe for debtors to respond to a bankruptcy notice has been reduced from six months to 21 days; and
- the temporary debt protection period has been reduced from six months to 21 days.
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Take Action Now
On 28 March 2021, the JobKeeper Payment scheme is set to conclude and it is expected that there will be a gradual relaxation of the temporary relief which has been provided by financial institutions.
Whilst we have not yet seen the forecasted tsunami of insolvencies, the true effects of COVID-19 and how these will be felt by many industries following March 2021 remain to be seen.
Proactive recovery action and the utilisation of risk mitigation strategies now will result in a reduction of potential disputes and ensure fruitful recoveries in the future.
You do not want to be left standing behind a conga line of other creditors.
Small Business Insolvency Reforms
The small business insolvency reforms, which commenced on 1 January 2021, allow eligible small businesses to utilise either a “debtor in possession” restructuring process, or, where businesses enter a creditor’s voluntary winding up, a simplified liquidation process.
Creditors should be aware that eligible small businesses may declare their intention to appoint a restructuring practitioner until 31 March 2021, where they will be afforded up to three months temporary relief from insolvent trading liability and enjoy continued access to the COVID-19 protections for statutory demands ($20,000 statutory limit and 6 months to comply).
For the relief to apply, directors must lodge their intention with ASIC, and have the notice published on the ASIC published notices website.
It is too early to determine the impact of the new restructuring process and simplified liquidations; however, creditors should be aware of their obligations and rights under the new processes and be conscious of the ability for businesses to access further temporary protections until 31 March 2021.