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The handcuffs are on debt recovery, but for how long? What you can do in the meantime…

By Jeffrey Brown, Principal at Matthews Folbigg in the Insolvency, Restructuring and Debt Recovery Group


As part of the Federal Government’s response to the COVD-19 crisis, a handbrake has effectively been applied to court proceedings aimed at bankrupting individuals and placing companies into liquidation. This has been achieved by lengthening the time for debtors to respond to formal demands, from 21 days to 6 months, for both bankruptcy notices (in the case of individuals) and statutory demands (for payment of debts incurred by companies). As part of the same reforms, the minimum debt amount that can be the subject of bankruptcy or winding up proceedings has been increased to $20,000.00.

The Federal Government intends to keep these extended compliance periods and amounts in place until at least the end of 2020. While they remain in place, debtors will be well aware that creditors have limited options open to them to enforce their debts.

Anecdotal evidence would suggest that many of those debtors are choosing to trade on their businesses well beyond the point at which they have become insolvent (that is, unable to pay their debts as they fall due).
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Model Behaviour: the Australian version of America’s Chapter 11 Bankruptcy Scheme – Key Points

By Jodie Rodrigues, solicitor at Matthews Folbigg in the Insolvency, Restructuring and Debt Recovery Group

Part 1: The Key Points

On 24 September 2020, the latest instalment in Australia’s insolvency reforms was announced. These reforms have been branded “the most significant reforms to Australia’s insolvency framework in 30 years”.

And yet the plan, apparently, is to have these reforms in place in 3 months.

Under the Morrison government’s proposal, Australia would adopt a framework modeled on parts of Chapter 11 of America’s Bankruptcy Code. The proposed system would provide two alternative forms of insolvency administration for small businesses with liabilities of up to $1,000,000:

  1. A ‘debtor in possession’ restructuring plan, allowing thirty-five business days to obtain creditor approval for a debt restructure; and
  2. A simplified form of corporate liquidation, is restructure is not possible.

Restructuring Process

From 21 January 2021, small businesses with liabilities of less than $1,000,000 will have access to a debtor-controlled restructuring process in which there will be:
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Danger – COVID-19 Safe Harbour Flaw Requires URGENT External Administrator Appointment

A fatal flaw exists in the government’s COVD-19 safe harbour legislation. This means directors must appoint an external administrator to their company on or before 24 September 2020, if they wish to take advantage of the COVID-19 safe harbour protection from insolvent trading.

At the beginning of the global pandemic the Australian Federal Government introduced temporary legislation to protect directors from liability for insolvent trading during the global COVID-19 pandemic. This safe harbour protection from insolvent trading will excuse directors for liabilty in respect of debts incurred in the ‘ordinary course of business’ during the operation of the temporary legislation, presently due to expire at the end of 24 September 2020.

However, for reasons which are not clear, but possible linked to the urgency with which the legislation was passed, the drafters included an additional fundamental and crucial requirement to gain the benefit of this COVID-19 safe harbour protection from insolvnt trading. That requirement is that in order to gain this COVID-19 safe harbour protection, an external administrator (either a voluntary administrator or a liquidator), must have been appointed before the legislation expires at the end of 24 September 2020.
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Clearing your debtor ledger – Get in touch with your not too friendly Debt Collection Lawyer!

By Hayley Hitch, an Associate of Matthews Folbigg Lawyers in our Insolvency, Restructuring and Debt Recovery Group

Do you hate debt collection? Do you have a list of debt collection tasks that is getting longer every day? Have you been unable to accomplish the critical debt collection part of debt collection? If only debt collection were easier, and there was some way of moving those pesky debtors off the debt collection ledger! And don’t forget the cashflow side of debt collection – wouldn’t you like to have a bit extra cashflow back in your budget?

You need a Debt Collection Lawyer!

Matthews Folbigg assists clients with a range of debt collection services, including issuing letters of demand, negotiating settlements, negotiating instalment arrangements with debtors, and where the debt collection process requires, commencing court proceedings and enforcing judgments. We can also assist with debt collection before it even becomes debt collection – making sure you protect your interests by reviewing your terms of trade and where applicable, assisting with the registration of caveats, or personal property security registrations. Debt collection doesn’t need to wait until debts are overdue. We want to help you come through COVID-19 with a breath of fresh air and a tidy debt collection ledger.
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Responding to Debt Collectors

By Bonnie McMahon an Associate of Matthews Folbigg, in our Insolvency, Restructuring and Debt Recovery Group

If you receive a letter of demand from a debt collector, you might be wondering what you should do and whether you should respond to the debt collector. We have set out four helpful tips below which might assist you to respond to debt collector correspondence.

  1. Do not ignore the debt collector!

Whilst it might be daunting or scary receiving a letter of demand from a debt collector, you must ensure that you read the letter of demand and consider the claim being made against you. If you do not respond to the demand, it is likely that the debt collector may proceed with commencing proceedings against you. Debt collector proceedings and judgments can have unintended consequences, including being recorded on your credit profile, or leading to bankruptcy, so it is important that you take steps to deal with the debt collector’s claim as soon as possible.
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OPPOSING PREFERENCE PAYMENT CLAIMS AFTER COLLECTING MONEY

Claims by a liquidator for monies to be repaid to a company now in liquidation are unfortunately for most businesses a common event.  The good deeds done in collecting money can come undone and hurt your bottom line.

As a successful credit management team, you will have recovered monies that may have been received shortly before the debtor company was placed into liquidation, or the individual declared bankrupt.  This can then bring a new raft of issues should the liquidator or trustee be savvy enough to want the money back.

The reasoning behind the recovery of monies by a liquidator is to ensure that in the final days and months of a company prior to liquidation, monies paid by the company are paid equally to all of its creditors and that none are preferred over others.  Similar provisions apply in a bankruptcy matter.

Whilst this seems fair on its face, it does not assist those businesses that are diligent and actively take steps to ensure that their customers comply with the terms upon which they agree to abide by in receiving the goods and services provided.
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Government restrains creditor enforcement action in wake of COVID-19

By Andrew Hack, Solicitor, and Stephen Mullette, Principal, of Matthews Folbigg Lawyers, in our Insolvency, Restructuring and Debt Recovery Group.

As mentioned in yesterday’s blog, the Australian Government announced it would introduce a bill, to be fast-tracked through the Parliament, to address the economic crisis as a result of COVID-19. The bill was proposed on 23 March 2020 with the third reading agreed to in the Senate on the same day. As at 24 March 2020 it has passed both houses.

Much of the legislation provides substantial subsidies to businesses as well as payments to individuals affected by the economic downturn. However, a significant part of it provides relief to distressed businesses. The main changes are:

  1. An increase in the cap on issuing creditors statutory demands from $2,000 to $20,000;
  2. An increase in the cap on issuing bankruptcy notices from $5,000 to $20,000;
  3. For both statutory creditors statutory demands and bankruptcy notices, the period of compliance has been increased from 21 days to 6 months; and
  4. Continue reading…

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Winter is Coming – COVID-19 Changes Insolvency Law

By Anica Cunanan, Law Clerk at Matthews Folbigg in the Insolvency, Restructuring and Debt Recovery Group

The unprecedented financial impact of COVID-19 has forced the laws surrounding insolvencies to change – well at least temporarily.  Analogous to the process of containing the virus, the Government is currently deciding on temporary changes to also flatten the curve of the inevitable insolvencies following this pandemic.

The Treasurer has been given a temporary instrument-making power in the Corporations Act 2001, for a period of six months, in order to provide temporary relief to distressed businesses. This was announced by the Government on 12 March 2020.

By way of summary these changes may include the following:

  1. A temporary increase in respect of the debt for which creditors may issue a statutory demand – from $2,000 to $20,000;
  2. Further, extension of the time for compliance with a statutory demand – from 21 days to six months;
  3. An increase in the threshold for initiating bankruptcy proceedings;
  4. Continue reading…