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27 Mar 2020

HHG Legal Group’s Director Murray Thornhill and Lawyer, Nikolina Milosevic, explores the details of the Coronavirus Economic Response Package Omnibus Bill 2020 and its potential impact on small businesses.

20200327 Stimulus IA

There is no doubt that the Coronavirus (COVID-19) has resulted in unprecedented changes to economies around the world, Australia included. As we work towards protecting those who are vulnerable to the health issues caused by COVID-19 by implementing isolation and quarantine measures, the domino effect is that businesses across Australia will struggle to survive and individuals will struggle to make ends meet.

In an attempt to limit the damage to the Australian economy and financial welfare of Australians in these tough times, the Australian Parliament has initiated amendments to various laws through the Coronavirus Economic Response Package Omnibus Bill 2020 (Bill).

Impact of Bill

The Bill received Royal Assent on 24 March 2020 and, in summary, makes the following changes that impact on Australia businesses:

  1. Accelerating the decline in value of certain business assets, the use of which commences between 12 March 2020 and 30 June 2021, for businesses with turnover of less than $500 million;
  2. Increasing the statutory minimum for issuing bankruptcy notices from $5,000 to $20,000 for all notices issued on or after 25 March 2020;
  3. Increasing the time limit within which a debtor must respond to a bankruptcy notice from 21 days to 6 months for all notices issued on or after 25 March 2020;
  4. Increasing the time limit within which a debtor must respond to a statutory demand issued pursuant to the Corporations Act 2001 from 21 days to 6 months for all demands issued on or after 25 March 2020;
  5. Increasing the statutory minimum for issuing a statutory demand pursuant to the Corporations Act 2001 from $2,000 to $20,000 for all demands issued on or after 25 March 2020; and
  6. A temporary (at this stage, six-month) suspension of provisions in the Corporations Act 2001 which cause Directors to be personally liable for insolvent trading. The amendments do not however address debts which are incurred outside of the company’s usual operations.

The Bill also provides a number of other amendments to current legislation, including government payments to households to support Australian families, early release of superannuation, and changes to qualification requirements for certain social service government allowances.

How does this impact me and my business?

Whilst the government considers the enactment of the changes contained in the Bill are absolutely necessary to reduce the impact of COVID-19 restrictions on the Australian economy, businesses and families, there will be a flow-on effect from many of the proposed changes that will negatively impact some businesses and individuals.

Creditors looking to issue statutory demands (pursuant to the Corporations Act 2001) or bankruptcy notices (pursuant to the Bankruptcy Act 1966)  (Creditors), will now have to carry those debts for a period of up to 6 months or engage in other recovery methods which may be less time- and cost- effective. In conjunction with other restrictions, this may cause those Creditorsto default on their own payment obligations and risk becoming insolvent.

Some comfort can be taken in knowing that directors of corporate entities will be provided some protection from trading insolvently, and that those Creditors will also be extended the same accommodations that they have had to extend to their debtors. However, each situation should be approached cautiously and proactively; directors in their individual capacity as a director, as well as separately on behalf of the company, should take legal and financial advice about their options when pursuing debtors and if they suspect insolvency.

Some ways to reduce the risks which will arise as a result of the Bill, depending on your circumstances, may be to:

  1. Issue statutory demands immediately on default by a debtor – the quicker the demand is issued, the quicker the six-month timer will start ticking;
  2. Continue to always comply with your obligations as director and remain informed of legislative changes; and
  3. Seek advice from professionals if you feel that your business may be in trouble – let your trusted legal and financial advisors assist you with minimising risk.

How HHG can help

If you need any assistance, our commercial law and dispute resolution team are always available to help you with any questions that you may have. If you require any further advice or assistance regarding the stimulus measures and your business operations please call Murray Thornhill on 1800 609 945 or email us and we’ll get back to you

*This is general information only, and does not constitute specific legal advice. Please consult one of our experienced Legal Team for specific advice relevant to your situation.

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