What are the changes to insolvency post COVID-19?

The coronavirus crisis has forged a new path in the insolvency space, with temporary arrangements becoming new legislative requirements now set in stone. Following the wake of forced shut-downs and an economic crisis, this is what you need to know to stay afloat in the aftermath.

Ceasing a Director 

Effective from 18 February 2021, there are new requirements when ceasing a company director in accordance with the Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 (Cth). Companies can no longer cease the last remaining director on ASIC records, unless a replacement director is also appointed. There are three (3) exceptions to this, including if:

• the last director is deceased;
• the company is being wound up or under external administration; and
• the officeholder never consented to the appointment.

In addition, if a director’s cessation date is notified to ASIC more than 28 days after the effective date, then the effective date will be overridden and replaced with the lodgement date. Late lodgement fees still apply in this scenario, and an application fee will be charged should directors apply to ASIC or the Court to change a resignation date.

The amendments aim to prevent illegal phoenix activity by holding directors accountable, preventing them from improperly backdating their resignation or leaving their company with no directors.

Statutory Demand Threshold

In response to the economic impact of COVID-19, the Government temporarily raised the threshold at which a statutory demand could be issued from $2,000 to $20,000 and the timeframe that creditors had to respond from twenty-one (21) days to six (6) months.

The Government received submissions until 5 March 2021 regarding whether these changes should be made permanent, some of which highlighted:

• confusion which may arise from indexing the threshold to keep in line with inflation;
• commercial costs of issuing and defending a demand at the current permanent minimal threshold amount $2,000;
• alignment with the personal bankruptcy threshold;
• impacts on creditors and debtor companies. For instance, increasing the threshold may lead creditors to manage their risk of non-payment through less generous credit terms, such as higher interest rates or shorter repayment periods.

Personal Bankruptcy Threshold 

At the onset of the coronavirus, the Government temporarily lifted the threshold to issue a bankruptcy notice from $5,000 to $20,000. On 18 December 2020, an announcement was made to permanently lift the threshold to $10,000 effective on 1 January 2021 upon the expiration of the $20,000 temporary threshold.

Next Steps

Is your business owed money by creditors and you are unsure about how these changes affect you? Are you concerned about meeting your financial repayments and declaring personal bankruptcy?

Contact our expert insolvency lawyers at Antunes Lawyers on (02) 9964 0499 to assist you navigate the changes to the corporate and personal insolvency sphere post COVID-19.