Creditors – Proceed with caution

  • COVID-19
  • Published 19.01.2021
Temporary changes to statutory demands extended again for companies eligible for temporary restructuring relief

Key Takeaways

In March 2020, urgent protections were put in place to protect companies from potentially crippling consequences of restrictions placed on businesses due to the then-emerging COVID-19 pandemic. These protections included temporarily altering statutory demands so that creditor-initiated liquidations were more difficult to commence whilst the government attempted to limit the anticipated negative economic impacts of the pandemic. Those changes lifted the minimum amount of a debt upon which a statutory demand could be based from $2,000 to $20,000 and extended the time for a company to comply with a statutory demand from 21 days to six months.

A suite of reforms to the insolvency regime for small businesses commenced on 1 January 2021. Along with these reforms, the protections offered to distressed companies as a result of the pandemic were, for the most part, lifted.

However, creditors should also be aware that the temporary protections have been extended for companies that are eligible to enter debt restructuring, which may continue to impact judgment enforcement strategies.

Who is eligible for the temporary restructuring relief? 

To benefit from the temporary restructuring relief, the directors of a company must make a written declaration that, amongst other things, the company is or is likely to become insolvent in the next three months and that the board of the company has resolved that a restructuring practitioner for the company should be appointed. A copy of the declaration must be published on the ASIC Published Notices website. These steps must be taken prior to 31 March 2021 in order for the company to benefit from the temporary restructuring relief. 

The declaration expires three months after notice is published, however it can be extended for a further month, if the directors of the company make a further declaration that they have taken all reasonable steps to appoint a restructuring practitioner but have been unable to do so. This further declaration must be published on the ASIC website at least two weeks prior to the expiry of the initial relief period. 

Implications

Impact on enforcement of judgments 

Relevantly, if a company has notified ASIC and published the relevant notice that it has resolved to appoint a restructuring practitioner, the previous changes to statutory demands will continue to apply to that company.

This means that a company eligible for temporary restructuring relief must owe a creditor at least $20,000 before a statutory demand can be issued by that creditor against the company. Further, the time for compliance with a statutory demand will remain six months for these eligible companies. These protections are currently in place until the end of July 2021.

If a company is not eligible for temporary restructuring relief, the statutory minimum amount has reverted to $2,000 and time for compliance to 21 days, as was the case prior to the COVID-19 pandemic.

Impact on creditors

It is important to remember that a company is only eligible for temporary restructuring relief if it has published a notice on ASIC’s Published Notices Website (available here). Therefore, if you are considering issuing a statutory demand to enforce a debt owed to you by a company, you should first ensure that a notice has not been published by that company.

If the debtor company has published a notice indicating that it intends to appoint a restructuring practitioner and you have a court judgment against it, there are other methods of enforcement that may be suitable for your circumstances. To find out whether these options may be suitable for you, please contact Fiona Reynolds.

Helpful link

For more information on temporary restructuring relief, please see the Corporations Amendment (Corporate Insolvency Reforms) Act 2020 – (https://www.legislation.gov.au/Details/C2020A00130)

Fiona Reynolds

Partner

P: 02 8257 5751

Email Fiona