As a result of the foreshadowed impacts of the Coronavirus, temporary laws in relations to Creditor’s Statutory Demands and Bankruptcy Notices were introduced in March 2020. As a result of these temporary laws:
- the statutory minimum for issuing a Statutory Demand was increased from $2,000.00 to $20,000.00;
- the statutory minimum for issuing a Bankruptcy Notice was increased from $5,000.00 to $20,000.00; and
- the period to comply with a Statutory Demand and/or Bankruptcy Notice was increased from 21 days to 6 months.
These temporary changes were in place until 31 December 2020. However, despite these temporary changes ceasing to apply, other changes have been made to assist those suffering from the economic impacts of the coronavirus.
The statutory minimum for issuing a Statutory Demand has been reduced back to $2,000, and the minimum timeframe to comply has been reduced back to 21 days. However, the Corporations Amendment (Corporate Insolvency Reforms) Act 2020 has introduced temporary restructuring relief to assist small businesses in avoiding liquidation. If a company is eligible for the temporary restructuring relief, the statutory minimum to issue a Statutory Demand to that company will be increased to $20,000, and the timeframe to comply will be increased to 6 months. At this stage, the temporary restructuring relief is available until 31 March 2021.
Eligibility and Access to Temporary Restructuring Relief
Firstly, a company’s liabilities must be less than $1 million to access the temporary restructuring relief. Secondly, in order for a company to be eligible for, and to access, the temporary restructuring relief, the director/s of the company must make and publish a declaration on the ASIC Published Notices Website stating that:
- there are reasonable grounds for the directors to believe that the company is insolvent, or likely to become insolvent before the expiration of the declaration;
- if a restructuring practitioner was appointed to the company, the eligibility for restructuring would be met;
- the director/s have resolved to appoint a restructuring practitioner; and
- an external administrator has not been appointed to the company.
The company will be able to access the temporary restructuring relief until:
- the declaration expires; or
- the company ceases to be eligible for the temporary restructuring relief.
A company will not be eligible for temporary restructuring relief if the company has previously been eligible for the relief, and that relief has ceased. Further, a company is able to seek an extension for its access to the temporary restructuring relief.
The period to respond to a Bankruptcy Notice has been reduced back to 21 days. However, the statutory minimum to issue a Bankruptcy Notice has been permanently increased to $10,000. This means that a creditor will need to obtain judgment against a debtor for at least $10,000 before they can issue a Bankruptcy Notice. Although post-judgment interest can be included in a Bankruptcy Notice, this interest cannot be used to meet the statutory minimum – the judgment itself must be for $10,000 or more.
Key Take Away
Statutory Demands and Bankruptcy Notices can be complex and have serious impacts on both companies and individuals if ignored. It is important to obtain legal advice to understand your rights and obligations. A debtor may also apply to the Court to set aside a Statutory Demand or Bankruptcy Notice. For more information about this, please contact Aleksandra Moore or Emma Carr at our office.