The new Coronavirus Economic Response Package Omnibus Act 2020 (Cth) (CERPO Act) provides support to businesses and individuals suffering financial distress for at least 6 months from 25 March 2020. Relief has been given to businesses, individuals and directors.
Businesses – Creditors Statutory Demands
The minimum debt is temporarily increased from $2,000 to $20,000 for statutory demands issued from 25 March 2020. Time for compliance is temporarily extended from 21 days to 6 months.
For Statutory demands issued prior to 25 March 2020, the original rules still apply. The time for compliance will still be 21 days.
Individuals – Bankruptcy
The minimum debt required for a creditor to serve a bankruptcy notice is temporarily increased from $5000 to $20,000. Time for compliance is temporarily extended from 21 days to 6 months.
When a debtor declares an intention to enter voluntary bankruptcy, by making a declaration of intention to present a debtor’s petition there is a period of protection when unsecured creditors cannot take further action to recover debts – that period is temporarily extended from 21 days to 6 months.
Directors – insolvent trading
Directors will be temporarily relieved of obligations to ensure companies are not trading whilst insolvent. The effect of this protection is a 6 month moratorium against directors being held personally liable for insolvent trading by a company if the debt was incurred:
- In the ordinary course of the company’s business;
- In the 6 months commencing 25 March 2020; and
- Before the appointment of an administrator or liquidator of the company during the temporary safe harbour application period.
Ordinary course of business
The explanatory memorandum of the CERPO Act provides:
“A director is taken to incur a debt in the ordinary course of business if it is necessary to facilitate the continuation of the business during the six month period that begins on commencement of the subparagraph. This could include, for example, a director taking out a loan to move some business operations online. It could also include debts incurred through continuing to pay employees during the Coronavirus pandemic.”
Cases of misrepresentation or dishonesty will not be excused.
To discuss your situation, speak with Jonathan Kenny.