Here is a quick comparison of the key features of the new temporary laws introduced against the current law regarding insolvency that have been put into place:
Description
The timeframe in which a debtor must comply with a bankruptcy notice
The timeframe in which a debtor is protected from enforcement action by a creditor following presentation of a declaration of intention to present a debtor’s petition
The statutory minimum for a creditor to issue a statutory demand to a debtor
Timeframe to respond to a statutory demand
Duty to prevent insolvent trading
Current Law
21 days
21 days
$2,000
21 days
Directors have a duty to prevent insolvent trading
New Law (temporarily)
6 months
6 months
$20,000
6 months
Directors have temporary relief from personal liability for insolvent trading if debts are incurred in the ordinary course of business.
A point to keep in mind, changes have been made to wording of the relevant provisions in the Corporations Act 2001, and Bankruptcy Act 1966, with instances of the prescribed periods within those acts, e.g “21 days”, substituted with the words “the statutory period”. A definition for “the statutory period” has also been added into the dictionary sections of those Acts, being s 9 and s 5 respectively. The relevant counter-part regulations (Corporations Regulations 2001 and Bankruptcy Regulations 1996) have also included a provision automatically repealing the above leniencies after 6 months from the date they come into effect (being 24 September 2020).
This could mean that, if the wording of “the statutory period” is retained within these Acts and Regulations beyond the 6 months, or even after the coronavirus pandemic has subsided (if it subsides), practitioners should ensure they also check Regulations as well as the Acts for the relevant periods.
For further details regarding these changes, or if you think that these changes might affect you, do not hesitate to get in contact with us.
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