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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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Winding Up
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Model Behaviour: the Australian version of America’s Chapter 11 Bankruptcy Scheme – Trustees & Creditors

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

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”.

For information about the proposed insolvency regulations, read Part 1 of this blog here.

 The proposed scheme has been developed to provide relief to small business in light of the economic impact of the coronavirus by way of the additional debt taken on to survive. However, the impact of the proposed mechanisms is wide reaching, and particularly in circumstances where no draft legislation has been released, no consultation has been undertaken, and the plan is to have these amendments in place by 1 January 2021, the reforms may be hazardous for creditors and insolvency practitioners. Read on to find how the insolvency reform will affect you.

Ramifications for Creditors

Aside from the implicit ramifications listed in Part 1, for at least thirty-five business days, creditors can do nothing to recover their debt. During the thirty-five day period, creditors are restricted from:
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Winding Up
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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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Debt Collection – Who Signed the Document?

By Darrin Mitchell, Senior Associate at Matthews Folbigg in the Insolvency, Restructuring and Debt Recovery Group

In the current age of technology, with capabilities to do just about anything, it seems redundant and “old fashioned” to be asked to execute a document by hand writing your signature on a sheet of paper! Because of this, debt collection can be a distinct (and difficult) exercise.

When opening a credit account, a supplier of goods and/or services will generally forward a Credit Application and a Deed of Guarantee to the customer. These documents are helpful in debt collection as they include information from the customer as to the customer’s financial viability, and security for the repayment of amounts owing should debt collection become necessary. In days gone by, these documents were to be completed by the customer physically writing on the forms as required, then posting these back to the credit provider, or perhaps giving the documents to a sales representative for the supplier.
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Debt Collection – Liquidated or Unliquidated Debt?

By Darrin Mitchell, Senior Associate at Matthews Folbigg in the Insolvency, Restructuring and Debt Recovery Group

Is your debt collection for a liquidated or an unliquidated amount? What is the difference?

In a debt collection action, the debt is often defined by the amount specified in tax invoices issued for the supply of goods or services. Debt collection for these types of debts involves a “liquidated” debt. This is because the debt which is the subject of the debt collection is ‘liquid’, in the sense of having a specific monetary value. There may be an ability to claim interest in debt collection proceedings for a liquidated debt, but again this will be a defined amount and calculated in accordance with the terms and conditions of the agreement between the parties.

Debt collection for an “unliquidated” debt is quite different. This is where there has been a claim which requires quantification, such as debt collection for loss claimed by a party, or damages suffered where the amount of loss or debt is not certain. Unliquidated debt collection will arise when the amount a person has lost cannot be simply defined and needs to be the subject of evidence and determination by the Court. Examples of debt collection for unliquidated debts might include motor vehicle accidents or defamation claims.
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Collecting Money? Avoid Going It Alone!

By Ellen Ferris, a Solicitor in Matthews Folbigg’s Insolvency, Restructuring and Debt Recovery Group.

Collecting money, especially from people you know, is always a delicate business.

Collecting money requires you to be persistent, and all too often becomes something that we let slip to the back of our mind to avoid the hassle, inconvenience, and sometimes even embarrassment of chasing valued customers for unpaid debts. Certain debts, even large ones, can be placed in the “too hard basket”, and never followed up on. Certain timelines for recovering debts can then expire, or more simply, debts can be forgotten or ignored.

Matthews Folbigg Lawyers understand these issues. When it comes to collecting money we are very experienced, and know that handing over the problem of collecting money to lawyers is normally only considered after the last resort has failed. However, at Matthews Folbigg Lawyers we can go about collecting money in a way that suits your special relationship with your customers. Whether you would like a gentle reminder or a final warning, if you are not getting anywhere with your own attempts at collecting money, we would be happy to assist.
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Insolvency Relief Extended until New Years!

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

The Morrison Government earlier this year introduced the Coronavirus Economic Response Package Omnibus Act 2020 (Cth) which came into effect on 25 March 2020 to provide relief to individuals and entities under the Corporations Act 2001 (Cth), Bankruptcy Act 1966 (Cth) and supporting legislation. These changes were due to expire on 25 September 2020, where the legislation was expected to revert back to its former position where, for example, statutory demands and bankruptcy notices required a 21 day response period.

You may recall our earlier blog which goes into some detail about these changes, this may be viewed here.

The Morrison Government has however today extended the operation of the relief provided (and described above) until 31 December 2020. This means that:

  1. Any statutory demands issued under the Corporations Act 2001 (Cth) on or before 31 December 2020 will need to provide the debtor with a period of 6 months to respond and be for at least $20,000;

    2. Continue reading…

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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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