The Federal Government has recently shut down most non-essential activities and businesses throughout the country to stop the spread of COVID-19. Passed on the 23rd March 2020, this new package is an attempt to keep businesses, particularly small business – the engine room of our economy – alive during this shut down.
This article focuses on the new Schedule 12 of the Coronavirus Economic Response Package Omnibus Act 2020 (“the Act”). This new Schedule 12 attempts to provide temporary relief for financially distressed individuals and companies.
The Act increases the default amounts in the Bankruptcy Act 1966 and the Corporations Act 2001 (“the CA”). The minimum amount required to commence proceedings to wind up a company by a creditor will be increased from $2,000 to $20,000. This amendment will be automatically revoked after 6 months from the date it is brought in.
The minimum threshold required for bankruptcy has also been increased from $5,000 to $20,000.
Additionally, these amendments will see an increase to the time for debtors to respond to a statutory demand. Under the current rules, debtors have 21 days to respond to a statutory notice and bankruptcy notice. This will be increased to 6 months after the date which the Bill commences. The extended time will start once the bankruptcy notice and or statutory demand is issued.
Further, there will be a temporary relief for directors from their duty to prevent insolvent trading. A new safe harbour provision will be inserted into the Act. Section 588GAAA will waive s588G(2) requirements in relation to a person and a debt incurred by a company if; the debt is incurred in the ordinary course of business; and which occur during the 6 months period after the Act came into effect. The debt must be incurred before an Administrator or Liquidator is appointed during the 6 month period.
The debt will be deemed to have occurred during the ordinary course of business where the debt was necessary to facilitate the continuation of the business. This only applies during the 6 month exemption period.
The directors will bear the evidentiary burden to prove a defence to insolvent trading using the new safe harbour provision.
Finally, the Act also introduces a new s1362A into the CA which allows the Treasurer to:
- determine that specified classes of persons are exempt from obligations under the Act or the Corporation Regulations (“the Regulations”).
- modify specified obligations under the Act or the Regulations to enable a specified class of persons to comply with these new obligations during the Coronavirus period.
If you would like more information, please do not hesitate to contact us.