Covid-19 has bought about many challenges for all of us in 2020 – and particularly, for businesses. The lockdowns and restrictions have forced many businesses to close or significantly change the way they do things. And the shutdown of industries such as travel and events has bought many businesses, big and small, literally to their knees.

It’s not all doom and gloom, however. The Government has introduced numerous measures to help businesses through these trying times.

One of these measures, is the temporary changes to statutory demands. And these rules are worthwhile being aware of, because as of Sunday (6 September 2020) – the Federal Government have announced that they have extended these changes until 31 December 2020.

What is a Statutory Demand?

A statutory demand is a document issued by a creditor that forces a company to pay a debt within 21 days.

Under the Corporations Act 2001, if the debtor doesn’t pay, or hasn’t made a suitable arrangement to pay with the creditor, within that 21-day timeframe – that debtor company is deemed to be insolvent.

What are the changes?

With the economic and cash flow pressures that Covid-19 has had on businesses, the Federal Government has instated temporary measures to extend this 21-day timeframe to six months.

It also means that:

• Creditors cannot issue statutory demands unless the debt is at least $20,000 (normally $2,000).
• Creditors cannot issue a bankruptcy notice unless the debt is at least $20,000 (normally $5,000).
• A director will not be personally liable under the insolvent trading provisions if the debts were incurred in the ordinary course of business in the 6-month period from 25 March 2020. Relief will not apply to criminal conduct involving intent, such as dishonesty or fraud.

The Act passed both Houses of Parliament on 23 March 2020, receiving Royal Assent on 24 March 2020. There is no retrospective application.

The impact for businesses

Clearly, if you owe money that you are having difficulties paying, due to a significant decrease in turnover from the effects of Covid-19 – these changes can ease the pressure on your business.

It can also prevent you from having to close your business down all together by giving you more time to find the cash. And it can save you, as an individual, from having to declare bankruptcy.

That’s a great thing if your current financial circumstances are very much out of your control. No one could have predicted or budgeted for a pandemic disaster for 2020 and the sudden changes it would bring, that’s for sure.

Trouble is, if you’re on the other side of the fence, it also makes it more difficult for you to get any money owed to you. Which can put a fairly significant strain on your cashflow, making it more difficult to pay your bills.

So, it is a bit of a chicken and egg scenario – creditors can’t come after you as easily, but you can’t go after your debts as easily either.

The hope is though, that many businesses will be able to avoid unnecessary insolvency a little longer and hopefully come out the other side in one piece. The more businesses that can survive the pandemic, the better it is for the economy and all of us.

What to do if you need advice

Company laws are clearly quite complex and changes to these intricate laws in response to Covid-19 can be even trickier to decipher.

If you’re finding yourself or your company is in a bit of a financial or legal pickle, it’s always best to get the right advice, before coming to any conclusions on your own.

Work with your company tax accountant and financial advisors to ensure you’re managing your cashflow, expenses and accounts as best you can.

Figure out whether you can find innovative ways of bringing in extra income into your business. See what skills, equipment or resources you can leverage with new products or new markets.

And seek the appropriate legal advice if you get served with a statutory demand. AMK Law can certainly help you manage this, to help protect you legally and keep your business moving forward. We can also assist you in determining an effective debt recovery strategy if you have debtors who aren’t paying you.

Playing the guessing game with your business won’t help you or your business survive this pandemic. Seeking the appropriate professional advice, certainly can.

Important disclaimer: The material contained in this publication is of a general nature only and it is not, nor is intended to be legal advice. This publication is based on the law as it was prior to the date of your reading of it. If you wish to take any action based on the content of this publication, we recommend that you seek professional legal advice.