Extension of temporary relief for financially distressed businesses and individuals

On 7 September 2020, the Federal Government announced it will continue to provide relief for businesses and individuals that have been impacted by COVID-19 through the extension of temporary insolvency and bankruptcy protections until 31 December 2020.

Current Protections Extended

Earlier this year we reported that the Federal Government announced the following relief for financially distressed companies, directors of companies and individuals:

Companies

• The minimum threshold for creditors issuing a statutory demand on a company would increase from $2,000 to $20,000.
• The statutory timeframe for a company to respond to a statutory demand would increase from 21 days to 6 months.
• Directors of companies would be temporarily relieved of their duty to prevent insolvent trading for 6 months in respect of any debts incurred in the ordinary course of the company’s business.

Individuals

• The minimum amount of debt required for creditor to initiate bankruptcy proceedings against a debtor would be increased from $5,000 to $20,000.
• The timeframe the debtor has to respond to a bankruptcy notice would be extended from 21 days to 6 months.

The measures were proposed to last for a period of 6 months – ending on 25 September 2020. However, the Federal Government has announced it intends to continue the existing protections until 31 December 2020. In a joint media release by the Treasurer and Minister for Industrial Relations, it was noted that the purpose of the extension is to:

“[L]essen the threat of actions that could unnecessarily push businesses into insolvency and external administration at a time when they continue to be impacted by health restrictions.”

So what now?

As discussed in our previous article, there still remain alternative avenues of relief for creditors looking to enforce their debts during COVID-19.

Despite the temporary protections, creditors are still entitled to pursue and enforce debts through the Courts, with no general COVID-19 restrictions on commencing legal action. In the event proceedings are commenced and a judgement is subsequently entered against the debtor, enforcement action will then become available.

In NSW, a creditor may enforce a judgment by:

• garnishee order – an order on the debtor’s bank or other party that would otherwise be making payment to the debtor to instead pay the money to the creditor in payment of the debt;
• writ of execution – which involves the Sheriff repossessing property owned by the debtor and selling it to realise the debt; and/or
• charging order – which allows the creditor to lodge a caveat over real estate owned by the debtor, preventing or delaying the debtor from selling that real estate.

Similarly, creditors in the construction industry (or who otherwise fall within the prescribed scope of the Building and Construction Industry Security of Payment Act 1999 (NSW) (“Act“)) may look too pursue and enforce debts within processes prescribed by the Act.

The strict timeframes for compliance (or dispute) once served with a payment claim or payment schedule provide the fast and cost efficient means to resolve contractor disputes and resume cash flow. On the same note, due to the various time-sensitive steps that are required under the Act, we recommend that legal advice is obtained prior to a contractor taking any such action.

Key Takeaways

• The Federal Government has extended its temporary period of protection for financially distressed individuals and businesses until 31 December 2020.
• While the period of protection has been extended, creditors are still able to pursue and enforce debts through alternative avenues of relief.
• Creditors should be aware of these alternative avenues to ensure their businesses have the best chance at maintaining cash flow throughout the uncertain times that lie ahead.

Image Credit – Mala Iryna © Shutterstock.com