Relief against creditor action in COVID-19 times

If a company owes a debt to a creditor, then one option available to that creditor is to serve a statutory demand on the company. In ordinary circumstances, pre-COVID-19 times, a company would have 21 days from service of the statutory demand in which to either party the debt, enter into a payment arrangement with the creditor or file and serve an application to the Court to have the demand set aside under section 459G of the Corporations Act 2001 (Act).

Part of the government’s economic response to COVID-19 is to create a safety net for distressed businesses. These are temporary measures only. Instead of the 21 days time frame a company has to pay or respond to the statutory demand, that period has now been extended to six (6) months. Once that period expires, the creditor can initiate winding up proceedings in either the Supreme Court of Federal Court.

Furthermore, a statutory demand could usually only be issued in relation to debts of $2,000 or more. That minimum monetary threshold has now been increased to $20,000.

These two changes give businesses some breathing space to defer some existing debt in these uncertain times.

Similarly, for individuals facing bankruptcy, the minimum debt threshold for creditors to issue a bankruptcy notice has increased from $5,000 to $20,000 as a temporary measure to give individuals some breathing space.

Furthermore, the time in which an individual can pay or respond to a creditor’s bankruptcy notice has now increased from 21 days to six (6) months.

These changes came into effect on 24 March 2020 as part of the Coronavirus Economic Response Package Omnibus Act 2020. These measures will be in place for six months, ending 25 September 2020. It is important to remember that these measures apply tothose statutory demands that were served on or after the date the changes came into effect.

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