What Your Business Needs to Know About Insolvency & COVID-19

Insolvency & COVID-19

What Your Business Needs to Know About Insolvency & COVID-19

While Australia’s collective efforts to limit the spread of coronavirus mean the country is gradually reopening and returning to normal, the effect of shutdowns and border closures on the economy will last for some considerable time yet.

The obvious downside of necessarily strict public health measures has been a rise in business insolvency and unemployment. To address the sudden impact of the pandemic on Australian businesses, key changes to our insolvency laws were announced in March 2020. Originally scheduled to end in late September, these measures were subsequently extended to 31 December 2020.

The details of these debt relief measures are provided below for those who may be facing the possibility of insolvency, but we’ll also account for the situation where a business is dealing with an insolvent client that can’t pay its debts.

COVID-19 measures to deal with insolvency

Now in place until 31 December 2020, the changes made by the Australian Financial Security Authority (AFSA) earlier in the year include:

  • the minimum amount of debt required to activate a bankruptcy notice by a creditor against a debtor was increased from $5,000 to $20,000;
  • the amount of time an individual has to respond to a bankruptcy notice was increased from 21 days to six months;
  • people can apply for six months of debt relief from creditors, an increase from the original 21-day period.

If you were issued a bankruptcy notice before 25 March 2020, you still had 21 days to comply with the bankruptcy notice.

It’s worth noting that if your business received support payments through the Federal government’s Coronavirus Economic Response Package announced in early April 2020 (JobKeeper, etc) and you were already in bankruptcy, these are not claimable by the bankruptcy trustee as income or as an asset, regardless of whether you receive the payments before or after the date of bankruptcy.

Any support payments received before the date of bankruptcy and still in your bank account when you become bankrupt are claimable by the trustee. During the period of bankruptcy, these payments are included in your after-tax income amount. If your after-tax income exceeds a certain amount, you may have to make compulsory payments.

What to do when your business is in the position of creditor

While the extension of relief from creditors to six months can be borne by organisations the size of our national banks, if you’re a small or medium-sized business owner who supplies goods on credit it may become a major issue for your enterprise when your clients are unable to pay their bills on time due to COVID-19.

A business that supplies equipment or foodstuffs to the hospitality industry, for example, is likely to have experienced difficulty in having its invoices honoured on time as the pandemic forced the extended shutdown of cafes, restaurants, function centres and more.

In normal circumstances, the supplier might engage a solicitor to act on his behalf to collect debts. They may even obtain a court judgment providing enforcement options to collect a debt from a client. The judgment would mean the supplier/creditor can charge interest on the debt owed by the customer at the post-judgment rate and possibly take further steps such as a wage garnishee order to enforce repayment of the amount owing.

But under the COVID-19 changes, the customer can ask for Temporary Debt Protection (TDP) through the AFSA and for a period of six months prevent the creditor from being able to use enforcement options such as a wage garnishee or the seizure and sale of its assets.

This process requires the client to file a statement about their financial affairs, including information about income, assets and debts, which is supplied to the creditor so they are aware of the debtor’s position.

In some cases the creditor and debtor may then contact each other during the six-month debt relief period, with or without legal representation or intervention by the AFSA, to try and work out a debt repayment arrangement.

Use the Personal Property Securities Register

For those supplying goods on credit terms to clients, the AFSA suggests registration on Australia’s Personal Property Securities Register (PPSR; ppsr.com.au). An agreement with the customer combined with valid registration on the PPSR can assist creditors in having their invoices paid or the goods returned if the customer is unable to pay or becomes insolvent.

What a business should do during the debt relief

If COVID-19 has placed your business in the position where you are or are facing the prospect of, insolvency there are several steps you can take while you have relief from any action by creditors.

Discussing your situation with legal professionals who have expertise in the laws around bankruptcy, insolvency and corporate restructuring will help clarify your options. One of the options under the Bankruptcy Act 1966 may help your business see its way through to a post-pandemic existence: filing for bankruptcy; a binding debt agreement between your business and its creditors to pay a sum you can manage or a personal insolvency agreement that allows the business to pay instalments or a lump sum to creditors.

Consult the experts

At Big Law Pty Ltd, advising businesses about insolvency, restructuring and the special COVID-19 measures still in place is a specialty area of ours. While any business is free to negotiate its own arrangements with its creditors, such as a debt agreement, taking professional advice and guidance from our experienced team of Strathpine Lawyers will save you time, stress and money in doing so.

If you’re running a business, this is a stressful time. Uncertainty is the enemy of a successful enterprise but with our assistance, we can help you best protect your business or position it for a rebirth once our society and economy return to more normal operation.

Call us today on (07) 3482 6999 or email us at [email protected] for an initial consultation.

How We Can Help

Big Law Lawyers Strathpine offers you the same comprehensive suite of legal services that you would expect to only find in the city.

We are a successful well-established legal practice based in Strathpine, Brisbane. We have earned a reputation for providing trustworthy, practical legal advice to a diverse range of clients, in both Brisbane and regional Queensland.

Things to Read

What is the Process for Removing a Power of Attorney in Queensland

Granting someone power of attorney is a significant legal step, entrusting that person with the authority to make important decisions about your life. However, situations may arise where you find it necessary to revoke this power. For any of a number of reasons, an attorney may not be able to perform their duties adequately, orRead More »What is the Process for Removing a Power of Attorney in Queensland

What Do the Changes to the Property Law Act and the Introduction of a Seller Disclosure Scheme Mean for Buyers and Sellers of Property?

An updated version of Queensland’s Property Law Act (‘the Act) was recently passed into law designed to modernise, improve and streamline the operation of the Act for both buyers and sellers. Key changes to the Act include: introduction of a statutory seller disclosure scheme (Seller Disclosure Scheme) applying to all freehold sales of land; updatedRead More »What Do the Changes to the Property Law Act and the Introduction of a Seller Disclosure Scheme Mean for Buyers and Sellers of Property?

What are the Disclosure Obligations For a Retirement Village and What Happens if They are Not Complied With

The role of retirement villages in Australian society are increasingly important given our aging population, ideally providing comfortable and secure living arrangements for seniors. The process of securing a place in a retirement village can be complex, however, and a prospective resident should receive expert legal advice before committing their signature to a contract. ToRead More »What are the Disclosure Obligations For a Retirement Village and What Happens if They are Not Complied With

Will Exit Fees Payable at the End of a Retirement Village Lease Affect the Inheritance Available to My Children

Queensland’s weather and lifestyle make it a popular, preferred destination for retirees in Australia, meaning the place of retirement villages as a living option for seniors is an important consideration once working life has ended. There are different arrangements by which residents secure a ‘right to reside’ in Queensland retirement villages, including loan and license… Read More »Will Exit Fees Payable at the End of a Retirement Village Lease Affect the Inheritance Available to My Children

Podcasts to Listen to

Can Step-Children Contest a Will?

It probably comes at no surprise, that in the context of estate administration, people who may be beneficiaries, or those that think they should be, may want to contest the Will. This can often concern step children. In Queensland, this process is often referred to as a family provision claim. To learn more about thisRead More »Can Step-Children Contest a Will?

How can an Executor be removed?

One of the most important aspects of estate planning is of course, making sure you have the right executor. But what happens if things don't work out or circumstances change and you want another executor. In this podcast, Estate Planning Lawyer, Elise Jacques discusses the matter. Elise Jaques Solicitor Make an appointment

What Does the New Property Law Act Mean for Sellers of Property?

In QLD, the Property Law Act 2023 (the Act) passed Parliament on 25 October 2023. The primary objective of the Act is to simplify, streamline and modernise Queensland's property law regime by replacing the Property Law Act 1974 (Qld). But what are the key elements, in particular those that will impact upon sellers of propertyRead More »What Does the New Property Law Act Mean for Sellers of Property?

Avoiding the Estate Planning Risks When Moving into a Retirement Village

In recent years, there has been an exponential increase in the number of retirement villages being built, and of course, the number of people moving into them. In the context of the legalities, there is often an emphasis on the contractual obligations when buying into such a village. But what about the impact on estateRead More »Avoiding the Estate Planning Risks When Moving into a Retirement Village