On 1 January 2021, changes to the Corporations Act 2001 (the Act) were introduced, impacting the time for compliance with Creditor’s Statutory Demands, as well as the minimum amount for which they can be issued.
Temporary restructuring relief during the COVID-19 health pandemic
In March 2020, the Coronavirus Economic Response Package Omnibus Act 2020 (Omnibus Act) amended the rules relating to Creditor’s Statutory Demands, to assist and protect financially distressed businesses throughout the COVID-19 health pandemic. Those changes included:
- increasing the statutory minimum for which a Statutory Demand could be issued, from $2,000 to $20,000; and
- extending the time a company has to respond to a Statutory Demand, from 21 days to 6 months.
In addition, the changes provided company directors with temporary safe harbour from personal liability for insolvent trading in relation to debts incurred in the ordinary course of business before any appointment of an administrator or liquidator of the company, during the period of safe harbour protection.
The relief measures were extended in December 2020 under the Corporations Amendment (Corporations Insolvency Reforms) Act 2000 (Reforms Act). However, many of the protections afforded to businesses in respect of Statutory Demands came to an end on 31 December 2020, and a further significant number expired on 31 March 2021.
A resumption of the usual Statutory Demand compliance regime
On 1 April 2021, companies ceased to be eligible for temporary restructuring relief afforded to them under the Omnibus Act and the Reforms Act, unless the directors had lodged the required declaration about their eligibility, and had published the required notice on ASIC’s Published Notices Website.
In most instances, therefore, the normal course in regards to Statutory Demands has now resumed, pursuant to the Act. In particular:
- under section 459E of the Act, a creditor may issue a Statutory Demand for the statutory minimum of $2,000; and
- under section 459F, a company will only have 21 days to respond to a Statutory Demand in the usual course; either by paying the debt, or by making an application to the Court to set aside the demand.
The end of the temporary restructuring relief measures is significant for both creditors and debtors, as they represent a substantial reduction in amounts of, and time for compliance with, Statutory Demands when compared to the protections in place during 2020 and the beginning of 2021.
Eligible debtor companies may still be afforded protections that arise pursuant to Part 5.3B of the Act upon the appointment of the restructuring practitioner. Those protections include a mandatory requirement for the Court to adjourn the hearing of an application for an order that a company be wound up if the company is under restructuring, and the Court is satisfied that it is in the interests of the company’s creditors to continue under restructuring, rather than be wound up.
For creditors who have exhausted other avenues in an attempt to enforce a judgment debt or other debt, the legislative changes will increase the likelihood of matters being finalised in a much shorter period.
Further reforms foreshadowed
On 3 May 2021, the Federal Government announced that it remains committed to further simplifying and streamlining insolvency laws in Australia, and that it will soon increase the threshold at which creditors can issue a Statutory Demand from $2,000 to $4,000. CMN’s team of experienced insolvency lawyers will be monitoring future developments closely, and will provide further updates addressing any changes as they are announced.
In the meantime, it is imperative that both debtors and creditors alike, as well as their financial advisors, familiarise themselves with the rules regarding Statutory Demands as they currently stand.