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Creditor’s Statutory Demand Threshold: What It Is and How to Use It

By Kim Nguyen, Solicitor of Matthews Folbigg Lawyers, in our Insolvency, Restructuring and Debt Recovery Group.

On 15 February 2021, the Treasury released a consultation paper “Increasing the Statutory Demand Threshold” seeking submissions on the appropriateness and impacts of permanently increasing the statutory demand threshold. The consultation period expired on 5 March 2021, however, further information can be found here.

What were the temporary changes?

In response to COVID-19, Federal Parliament introduced insolvency reforms to support small businesses in financial distress.  In March 2020, the Government passed the Coronavirus Economic Response Package Omnibus Act 2020 (Cth) (Coronavirus Act) which temporarily:

  • Increased the statutory minimum debt(s) based on which a creditor can issue a statutory demand from $2,000 to $20,000;
  • Extended the period within which the company may respond from 21 days to six months.

The purpose of the reform was said to be to reduce the pressure upon companies that were struggling to pay their debts.
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Debt Restructuring legislation proposed for SMEs

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

The Treasury has today announced its Draft Bill designed to create a new, affordable restructuring mechanism for distressed small to medium businesses. The legislation seeks to resolve problems SMEs face in affording the costs of expensive Voluntary Administration processes. The Australian Government’s “Debt Restructuring” solution is a new process similar to a Part IX debt agreement available to insolvent individuals under bankruptcy legislation, as well as Chapter 11 arrangements available to companies in the US.

The Debt Restructuring process allows company directors to retain control of the company while putting a proposal to creditors for consideration, provided they meet the “eligibility criteria”, to be prescribed in regulations. Notably, the company’s total liabilities must be limited to a certain size in order to meet the eligibility criteria (as with Part IX debt agreements).

Whilst it is not a new proposal (ARITA has been advocating for such a mechanism since 2014), it has been picked up by the Government amidst the COVID-19 economic crisis in the hope of limiting fallout as a result of collapsing businesses once the faucet of stimulus is turned off and other temporary relief measures come to end, which is currently scheduled for the end of the year. As such, the new legislation will be effective from 1 January 2021.
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