Changes to bankruptcy notices and statutory demand procedures from 1 January 2021
Recent changes to bankruptcy regulations have again resulted in a movement in the goal posts for creditors and debtors.
The moratorium on bankruptcy measures ended on 31 December 2020 and as a result creditors were hopeful of a return to pre-Covid conditions to enable debt recovery processes to continue.
That is not the case. Whilst the time period to respond to bankruptcy notices has returned to the usual 21 days (which was temporarily 6 months during covid), the threshold amount to issue a bankruptcy notice has increased from the pre-Covid limit of $5,000 to $10,000. Meaning a creditor can only issue a bankruptcy notice for a judgment debt of equal to or exceeding the sum of $10,000. This has afforded more protection for debtors.
In relation to statutory demands the situation is a little more complex.
For a company that is eligible for temporary restructuring relief pursuant to the Corporations Amendment Act:
a) the statutory minimum amount for service of a statutory demand will remain at $20,000; and
b) the statutory period to respond to a statutory demand will remain at 6 months.
So in effect there will be temporary protection for debtor companies from the standard statutory demand procedures if they are eligible. There has been changes to the statutory demand form to take these changes into account.
That raises a question of when is a company eligible for temporary restructuring relief. The Corporations Amendment Act and Corporations Amendment Regulations suggest a company will be eligible for temporary restructuring relief where that relief has not been sought by the appointment of a small business restructuring practitioner. Also, the directors of the company must between 1 January 2021 and 31 March 2021 make a written declaration (Declaration) in the prescribed form and stating the required points set out in the form about its total liabilities and insolvency status amongst other matters including the non-appointment of a restructuring practitioner. The directors must publish notice of the Declaration on ASIC’s Published Notices website and give a copy to ASIC within 5 business days.
The Declaration will generally expire 3 months after publishing of the notice on ASIC’s Published Notices website. It may be extended for a further month if certain criteria are met including the directors have taken all reasonable steps to appoint a restructuring practitioner but have been unable to do so.
In relation to companies which have not made a Declaration, the statutory minimum and statutory period will revert to the pre-COVID-19 position from 1 January 2021, with the effect that:
1. The statutory minimum will revert to $2,000; and
2. The statutory period to respond to the demand will revert to 21 days after the date of service of the statutory demand.
It is important to note that a company will cease to be eligible for temporary restructuring relief if:
1) the Declaration expires;
2) the company fails to give ASIC a copy of the Declaration or Further Declaration within 5 business days of the notices publication;
3) an administrator is appointed, or a liquidator or provisional liquidator is appointed to wind up the company;
4) a small business restructuring practitioner is appointed to the company;
5) the company publishes a notice that it is not, or is not to be treated as, eligible for temporary restructuring relief; or
6) the Court orders that the company is not eligible for temporary restructuring relief.
If you require legal assistance please do not hesitate to contact McLaughlins Lawyers on (07) 5591 5099 and speak to one of our highly-skilled lawyers today.
Date: 11 January 2021
Author: Matt Kollrepp
Director: Ian Kennedy
Related Tag:- Gold Coast Law Firms