Morrison Government pursuing more insolvency reform
Ahead of next week’s federal budget, the Morrison Government has decided to pursue further measures to improve Australia’s insolvency framework for businesses.
Most notably, the threshold for which a creditor can issue a statutory demand on a company will increase from $2 000 to $4 000, this change is scheduled to take effect on 1 July 2021.
Other reforms being considered are:
- Changing how trusts are treated under insolvency law;
- a review of whether Safe-Harbour provisions, introduced in 2017, should remain; and
- introducing moratoriums on creditor enforcement while insolvency schemes are being negotiated
The changes being considered will build on the reforms which came into effect on 1 January of this year that streamlined the insolvency process and provided directors with greater control to restructure or wind down their operations. These changes were subject of a prior post which you can access here.
A copy of the Treasurer’s media release issued on 3 May 2021 can be accessed here.
With insolvency becoming an evolving space, professional legal advice is key for all businesses.
James Conomos featured for IR Global Member Spotlight Interview
Our Managing Partner James Conomos was recently featured for a Member Spotlight interview with IR Global. IR Global is a multi-disciplinary professional services network with membership of the highest quality boutique and mid-sized firms who service the mid-market. James is currently the exclusive Australian member for insolvency within IR Global.
Through this network, James has established professional relationships with a number of Australian and international lawyers. He has also acquired unique experience and knowledge that has culminated in the referral of further work.
In this interview they cover a number of topics including his pathway to law, his experiences as a young lawyer and how this lead to the establishment of JCL in 1992. He then looks at how work has changed as a result of the Covid-19 Pandemic and his hopes for the future of technology within legal services.
Have a read of the full interview here.
New illegal phoenixing laws to take effect this week
On 18 February 2021, the Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 will come into effect seeking to curb illegal phoenix activity by introducing new offences and granting additional powers to ASIC and liquidators.
The Act, which was passed by Parliament in February 2020, introduces new measures designed to:
- hold directors accountable;
- prevent directors from improperly backdating their resignation; and
- prevent directors from leaving their company with no directors.
Illegal phoenixing commonly occurs when company directors transfer the assets of an existing company to a new company without paying true or market value and leaving debts with the old company. Once the assets have been transferred, the old company is placed into liquidation and the directors continue to operate the business under the new company. When the liquidator is appointed to the old company, the creditors cannot be paid as there are no assets to sell.
From 18 February 2021, companies will no longer be able to remove the last remaining director on ASIC records. To enforce this, ASIC will reject lodgements submitted using a Form 484 - Change to company details or Form 370 - Notification by officeholder of resignation or retirement to cease the last appointed director without replacing that appointment.
Further, if ASIC is notified of a director’s cessation date more than 28 days after the effective date, then the effective date will be overridden and replaced with the lodgement date.
The introduction of this new legislation renders it vital that anyone who has resigned as a company director ensures that their resignation has been correctly lodged with ASIC.
Increase to personal bankruptcy threshold
As part of its response to the Coronavirus pandemic, the Australian Government implemented a number of temporary changes to the bankruptcy and insolvency laws. This insolvency moratorium was the subject of a prior post here, but in summary included:
- an increase of the minimum debt required to issue a bankruptcy notice from $5,000 to $20,000;
- an increase of the minimum debt required to issue a creditor’s statutory demand from $2,000 to $20,000;
- an extension of the timeframe for debtors to take action to resolve a bankruptcy notice or creditor’s statutory demand from 21 days to 6 months;
- the suspension of directors' personal liability for insolvent trading.
Whilst these measures were previously extended from 30 September 2020 to 31 December 2020, there was no further extension and they have now expired.
In late 2020, the Bankruptcy Amendment (Bankruptcy Threshold) Regulations 2020 (Cth) was passed to permanently increase the minimum required debt to issue a bankruptcy notice from $5,000 to $10,000. This change took effect on 1 January 2021.
A copy of the Attorney-General’s Media Release issued on 18 December 2020 can be accessed here.
There has been no corresponding increase to the minimum required debt to issue a creditor’s statutory demand.
