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Insolvency Reform In The Post-Covid19-lockdown Era

Insolvency reform in the post-Covid19-lockdown era

As we reported last year, the Queensland and Federal Governments introduced a range of temporary measures to provide individuals and businesses with relief against financial hardship caused by COVID-19 shutdowns. As at 31 December 2020, a number of those measures have ended, and some new arrangements have been introduced.

Here is a snapshot of a few current arrangements:

  1. Creditor’s statutory demands for debts owing by companies: Temporary amendments to the Corporations Act have now expired, allowing creditors owed undisputed debts worth more than $2,000 by debtor companies to issue Creditor’s Statutory Demands under the Corporations Act with a response required within 21 days of service. The arrangements have reverted to the pre-pandemic era.
  2. Bankruptcy notices for unpaid judgment debts: Judgment creditors with judgment debts worth more than $10,000 can once again serve Bankruptcy Notices on judgment debtors, requiring the judgment debt to be paid within 21 days of service of the Prior to the pandemic, a bankruptcy notice could be issued for debts worth more than $5,000, but the $10,000 threshold is now the permanent limit.
  3. Simplified debt restructuring options for small business: The Federal Government has introduced a new simplified debt restructuring process for eligible small businesses from 1 January 2021. The objective is to provide an alternative avenue to administration or liquidation of the business.

To access the new regime, small businesses must be incorporated companies with less than $1million in total liabilities (excluding employee entitlements), and either be insolvent or likely to become insolvent. If the criteria are met, the small business can appoint an insolvency practitioner to prepare and manage a debt restructuring plan.

A moratorium on debt recovery action by creditors begins when the small business appoints the insolvency practitioner to commence the restructuring process, providing the business with some “breathing room” to try and negotiate a plan with its creditors.

The debt restructuring plan operates in a similar way to a Deed of Company Arrangement. It is a proposal about how and how much to pay unsecured creditors and creditors can vote on whether to accept or reject the plan. During that process, the small business can continue its usual day to day trade and transactions. 50% of creditors by value must vote to accept the plan, for it to pass.

If the plan passes, then the unsecured creditors and the small business company are bound by it, even the creditors who voted against the plan. If the plan does not pass, then creditors are able to commence or resume any debt recovery action open to them, and the small business is no longer protected from the consequences of insolvent trading.

If you require assistance to recover or negotiate debts, please contact Kathleen Anderson or Ben Sindel for advice on (07) 3220 2929 or by email to contact@plastiraslawyers.com.

About Kathleen Anderson

Kathleen Anderson is a Senior Associate in the Dispute Resolution team at Plastiras Lawyers. Kathleen helps individuals and SMEs regarding prevent, negotiate and resolve disputes. Her expertise includes advising on insolvency, bankruptcy and debt disputes.

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