From 1 January 2021 new insolvency regimes will be introduced which will involve:

1. a new insolvency process for small businesses whereby financially distressed but viable companies can restructure their existing debts and continue to trade; and
2. a simplified liquidation process which will allow for faster and lower-cost liquidation.

In Episode 10 of Legal Lockdown, Adriana Giometti speaks with Chris Hadley, Partner within Holman Webb's Commercial Recovery and Insolvency Group, to discuss a range of COVID-19-related changes brought about in the debt recovery space.

Topics include:

• Has there been a surge in insolvencies and bankruptcies?
• What can we expect to see moving forward?
• Government relief measures
• Changes to statutory demands
• Director's liability in light of the changes

Recent legislative changes have been made by the federal government in response to the COVID-19 pandemic. Parts of these changes affect the Australian insolvency regimes, including the rules surrounding the issuing of statutory demands by creditors.

This article discusses the recent changes to statutory demands, and provides a timely recap of the important principles relating to statutory demands in Australia.

With financially distressed businesses on the rise, secured parties must ensure that they have registered their security interests on the Personal Property Securities Register within time.  This is crucial in order to avoid losing the security altogether, if the borrower/grantor commences insolvency.

In response to the impacts of COVID-19 on the economy, the Federal Government has introduced temporary changes to rules affecting insolvency and bankruptcy processes.

Illegal phoenix activity involves the deliberate and systematic stripping and transferring of assets from one company to another company to avoid paying liabilities, such as tax or superannuation.  In these circumstances, the company directors strip out the cash and assets, liquidate the company and then re-commence the same or a similar business through a new corporate entity.

The Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Act 2017 (Cth) amended the Corporations Act 2001 (Cth) from 1 July 2018 to impose a prohibition on the enforcement of rights against a company including contractual termination rights arising on the occurrence of an insolvency event in relation to that company.

First published in Governance Directions, the official journal of Governance Institute and updated for the Health Law Bulletin June 2018 edition.

Despite concerns raised by liquidators and experts locally and abroad, the Federal court has confirmed its view that a set-off under section 553C of the Corporations Act can be utilised in an unfair preference claim. 

Key Takeaways:

• Insolvency legislation to create a safe harbour for directors from insolvent trading claims in certain circumstances has received royal assent.
• A director will be entitled to claim the protection of the safe harbour upon developing a course of action reasonably likely to lead to a better outcome.
• To utilise the safe harbour, a director should seek timely advice from an appropriately qualified professional.