Temporary Insolvency relief measures extended until 31 December 2020
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The Federal Government has announced that the temporary COVID-19 insolvency relief measures will be extended until 31 December 2020.
The measures were first introduced in March 2020 as part of the Federal Government’s COVID-19 relief and the stimulus package. Designed to provide distressed companies the opportunity to survive and recover from the pandemic-induced downturn, the measures effectively imposed a moratorium on creditor actions that might unnecessarily push otherwise viable businesses into insolvency. The most significant changes included:
- Insolvent trading– Temporary relief for directors from any personal liability for trading while insolvent, for debts incurred in the ordinary course of the company’s business; and
- Statutory demand regime – Temporary increase in the threshold at which creditors can issue a statutory demand from $2,000 to $20,000 and the time companies have to respond to statutory demands from 21 days to six months.
Originally due to end on 25 September 2020, the Federal Government’s decision to extend these measures until 31 December 2020 came the day after the extension of ‘Stage 4’ lockdown in Metropolitan Melbourne to 28 September 2020 which has caused severe curtailments to business activities.
The extension of the temporary relief measures is seen as a necessary ‘regulatory shield’ to protect viable businesses as they resume operations and adapt to a new COVID-safe economy, as well as providing the necessary flexibility for distressed businesses to restructure or to wind down their operations in an orderly manner.
Despite the extension of the relief from the duty to prevent insolvent trading, directors must still comply with other statutory or common law directors’ duties as they remain in operation. As such, if your business has been impacted by COVID-19 and is facing financial difficulties, it is critical to promptly seek professional advice and explore the available options to turnaround or restructure the business. Apart from giving the business the best chance to survive and continue into the future, proactively addressing the issues and taking the necessary measures pursuant to the safe harbour protection regime would assist the company to avoid being wound up and the directors would avoid additional personal liabilities.
The team at Collins Wentworth are experienced in business financial matters. If you have concerns about the financial position of your business and wish to know more about how we can assist you, contact us today.
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