24 Sep Insolvency Law Reforms 2020
As the economy continues to recover from the Coronavirus pandemic and the associated lockdown measures across the country, the Morrison Government has announced changes to Insolvency laws to aid businesses in the recovery process. These changes are to commence on the 1st January 2020.
The Australian Restructuring Insolvency & Turnaround Association (ARITA) has released an announcement today (29/09/2020) regarding the COVID-19 temporary insolvent trading protection measures for company directors.
What you need to know:
The protection for company directors only applies if they commence an external administration PRIOR to 31 December 2020. There is no retrospective protection measures if a company director enters external administration POST 31 December 2020.
What does the legislation say:
Further, ARITA noted that:
“The specific amendment to the Corporation Act 2001 made as part of the Coronavirus Economic Response Package Omnibus Bill 2020 (and extended by the Corporations and Bankruptcy Legislation Amendment (Extending Temporary Relief for Financially Distressed Businesses and Individuals) Regulations 2020) is noted below [emphasis added]
588GAAA Safe harbour—temporary relief in response to the coronavirus
(1) Subsection 588G(2) does not apply in relation to a person and a debt incurred by a company if the debt is incurred:
(a) in the ordinary course of the company’s business; and
(i) the 6 month period starting on the day this section commences; or
(ii) any longer period that starts on the day this section commences and that is prescribed by the regulations for the purposes of this subparagraph; and
(c) before any appointment during that period of an administrator, or liquidator, of the company.”
What does this mean for your clients?
Effectively, if you have a client that is currently in financial distress, they need to seek immediate financial assistance. If a client seeks professional advice prior to 31 December 2020 under these new measures, they may be protected from insolvent trading. It important that they do not leave this too late.
Please contact our team if you have questions or are concerned about a client that is in financial distress. We provide a no obligation consultation and are able to provide an assessment of the best solution for their circumstances.
We will aim to share our insight as more information comes to light and further announcements are made. Please check back soon.
Access the Insolvency Reforms to Support Small Business Factsheet here.
For more information visit:
Treasurer of the Commonwealth of Australia – Insolvency Reforms to Support Small Businesses Recovery