Statutory Demands in 2021 and Beyond – Things You Ought To Know

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Statutory Demands in 2021 and Beyond – Things You Ought To Know

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A Company owes you money. It is overdue and you feel you have made all attempts to get them to pay, including phone calls, letters of demand and extending ordinary terms because of COVID-19. You speak with a legal advisor and you agree, it is time to take formal legal action. Of the several options available to you, you are advised the statutory demand regime should be utilised. All is well, except it’s now 2021 – and you would be right if you thought the Government might have passed some last-minute legislation which otherwise affects this process, potentially all the way up to 31 July 2021.

 

Background

The COVID-19 pandemic created significant challenges for Australian businesses and individuals. The Commonwealth Government responded by introducing a number of ‘temporary changes’ to corporate law in effort to mitigate the expected negative economic impacts associated with the pandemic. These changes included modifications to the statutory demand regime, including:

  1. Extending the 21 day timeframe in which to deal with a statutory demand to 6 months; and
  2. Increasing the $2,000 threshold in which a creditor is able to issue a statutory demand to $20,000.

The ethos behind these changes was to allow some ‘breathing space’ for businesses as they adjusted to a ‘new normal’, effectively discouraging ordinary debt collection practices – temporarily. These measures formed part of the Coronavirus Economic Response Package Omnibus Act 2020 (Cth) and were to apply up until 31 December 2020.

 

But hasn’t 31 December 2020 come and gone?

Yes..But brewing in the political thinktank in the second half the of 2020 calendar year was an advocacy to further assist Australian small business, their creditors and their employees as the economy transitioned to a ‘recovery phrase’ – 2021 and beyond. These measures formed part of the Corporations Amendment (Corporate Insolvency Reforms) Act 2020 (Cth) which inserts a new Part 5.3B into the Corporations Act 2001 (Cth) and are effective from 1 January 2021.

This included a raft of new reform aimed at reducing the complexity, time and costs for small businesses accessing restructuring and insolvency processes – the eligibility and requirements of which were discussed in our previous article published on The Bottom Line, here.

Significantly, these reforms further extend the COVID-19 ‘temporary changes’ relating to the issue of statutory demands against small businesses whom may not have been able to access such processes immediately following the expiry of the ‘breathing space’ on 31 December 2020.

This is in part recognition of the speed at which the legislation was passed, concern regarding industry resources and advisor education. In these instances, a company (if eligible) may qualify for further ‘temporary relief’, including the increased monetary threshold and timeframe for responding to statutory demands.

 

Accessing ‘Temporary Relief’

A company can access ‘temporary relief’ if, during the period 1 January 2021 to 31 March 2021, the company directors:

  1. Make the required declaration about eligibility for temporary restructuring relief; and
  2. Publish notice with the Australian Securities Investments Commission (ASIC).

Once the above are tended to, the company is entitled to ‘temporary relief’ for a period of three (3) months, with the prospect of an additional month where the criteria continue to apply and the director(s) have taken all reasonable steps to appoint a restructuring practitioner but have been unable to do so, and publish a further notice to that effect. The ‘temporary relief’ ends when a restructuring practitioner or other insolvency practitioner is appointed, or where the three (3) or four (4) month period expires.

 

If They Act and When They Act

Here’s the tricky part –

If a director does not make the declaration and publish the notice until (say) 8 February 2021, the company will not be eligible for ‘temporary relief’ for the period 1 January 2021 to 7 February 2021. Importantly, this means the increased monetary threshold and timeframe for responding to statutory demands does not apply during that period.

As at the date of this article, ‘temporary relief’ will not be available after 31 March 2021. Should a director make the declaration and publish the notice on 31 March 2021, the company may be eligible for ‘temporary relief’ for the period 1 April 2021 to 30 June 2021, or 1 April 2021 to 31 July 2021 in the event the additional month discussed above applies.

 

Your Rights to Recovery

Following on from our earlier scenario – a company owes you money and you agree to utilise the statutory demand regime.

Two key things you should be aware of:

  1. If the debtor is subject to ‘temporary relief’:
    • They will have 6 months to deal with it; and
    • It will only be effective if related to a debt of $20,000 of more.
  1. If the debtor is not subject to ‘temporary relief’:
    • They will have 21 days to deal with it; and
    • It is effective for debts of $2,000 or more.

 

Beyond 31 July 2021

At the date of this article there are no plans being considered on a public legislative level which would further extend the ‘breathing space’ for Australian small business. Other Commonwealth Government stimulus is also set to finish in the coming months – Jobkeeper for instance, leaving potential restructuring options as a desperate remedy or last hope for some companies. If you have felt the effects of the pandemic on your business or require assistance in relation to ‘temporary relief’ regarding a statutory demand you have issued, received or are expecting, now is the time to either get advice on how to structure your company’s affairs or plan your recovery activities.

 

Article written by Daniel Drayton – Manager

SV Partners Newcastle

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