A new Bill “Coronavirus Economic Response Package Omnibus Bill 2020 (Cth)” was introduced and passed in parliament on 23 March 2020 and it has made significant changes to how bankruptcy and insolvency regulations and laws will now work due to the impact of COVID-19.
The Bill received the assent on 24 March 2020, and the changes have been in effect from 25 March 2020.
A Statutory Demand is where a company (the Creditor) issues a Statutory Demand in an effort to recover debts that were owed to them by another company (the Debtor). The criteria for a Statutory Demand WAS as follows:-
- The debt had to be more than the statutory minimum – $2,000;
- The debt could not be in “genuine” dispute.
- The Statutory Demand had to be in the prescribed form – Form 509H and had to be accompanied by an Affidavit from the company issuing the Statutory Demand.
Once a Statutory Demand was sent to the Debtor, they had a strict 21-day time limit by which they had to either pay the debt back to the Creditor, make an application to set aside the Statutory Demand or negotiate an agreement/compromise with the Debtor to have the money set aside.
If the Debtor does nothing in those 21 days, the Creditor then applied to the Court to make the Debtor insolvent.
The Debtor could not retroactively attempt to settle the debt if they have missed the time frame, and the onus of proof then shifts to them to prove they are not insolvent. This can be a costly exercise which will often leave the Debtor in a much worse financial position than if they had complied with the requirements within the 21-day time limit.
However, due to the current situation Australia finds itself in, and the impact of COVID-19 on companies across the country, the government has introduced new legislation that dramatically alter the terms of a Statutory Demand.
The government has changed the law by increasing the thresholds that usually would apply when issuing a Statutory Demand.
From 25 March 2020, if a Creditor wishes to issue a Statutory Demand for a debt owed to them, the debt amount must now be greater than $20,000.00.
The Debtor now has six (6) months to respond to the Statutory Demand, a much longer timeframe than the previous 21 days.
The changes have been implemented to allow companies who are currently facing financial hardship be given relief from having to respond to proceedings within the previous strict timeframe.
It is important to also be aware that these Statutory Demand changes cannot be applied retroactively, so if your company issued a Statutory Demand before 25 March 2020 these changes will not affect it.
Bankruptcy Proceedings for Individuals
Bankruptcy proceedings against individuals (the Debtor) have also had a major shift in the new Bill, whereby individuals who may owe others (the Creditors) money will now have greater protection from bankruptcy proceedings being commenced against them.
Before the introduction of the new Bill, bankruptcy proceedings against individuals took place when an individual owed someone (either an individual or a business) a debt of more than $5,000.00.
The Creditor would then initiate proceedings by lodging the bankruptcy with the Insolvency and Trustee Service of Australia.
The Debtor would then have 21 days to comply with the bankruptcy notice and pay the full amount of the debt or make arrangements with the Creditor to make repayments.
If no arrangement is agreed to, and the Debtor has not paid back the money owing, they were deemed to have committed an act of bankruptcy and the next stages of the process could begin.
A couple important issues to note on the bankruptcy notice proceedings:-
- The Debtor must be present in Australia or have a sufficient connection with Australia
- Creditors were able to combine debts owed to them to get over the threshold of $5,000.00.
Once the criteria had been satisfied the Creditor could file for a creditors petition for the Debtor to be declared bankrupt. Creditor’s had to file the creditors petition within six (6) months of the act of bankruptcy.
You would then proceed with the process of recovering your money through the bankruptcy process.
However, with the Coronavirus Economic Response Package Omnibus Bill 2020 coming into effect, changes have been made to the various thresholds that will allow for bankruptcy proceedings to be initiated.
From 25 March 2020 the monetary threshold has increased from $5,000.00 to $20,000.00 and the Debtor will now have six (6) months to respond to the bankruptcy notice (previously 21 days).
The changes to Statutory Demands and Bankruptcy Proceedings are temporary and will be in place for six (6) months, unless the government deems it necessary to extend the time period.
If someone currently owes you money, and you are unsure on the best way to recover it, please give Macrossan and Amiet a call to discuss your possible options.