The Government made a host of changes to legislation to provide temporary relief for businesses with the intent to provide businesses a “safety net to make sure that when the crisis has passed they can resume normal business operations.”
One element of that safety net was to lessen the threat of actions that could unnecessarily push a business into insolvency and force the winding up of the business.
The temporary relief package was to run from 25 March, 2020 until the 24 September, 2020. The Government on the 7th September, 2020 issued a media release confirming that such relief package will be extended to the 31st December, 2020.
Some of the key elements of the package will continue to be:
- A temporary increase in the threshold at which creditors can issue a statutory demand on a company ($2,000 increased to $20,000) and the time companies have to respond to statutory demands they receive (21 days increased to 6 months);
- A temporary increase in the threshold for a creditor to initiate bankruptcy proceedings ($5,000 increased to $20,000), an increase in the time period for debtors to respond to a bankruptcy notice, and extending the period of protection a debtor receives after making a declaration of intention to present a debtor’s petition; and
- Temporary relief for directors from any personal liability for trading while insolvent. The temporary relief from personal liability for insolvent trading will apply with respect to debts incurred in the ordinary course of the company’s business. Egregious cases of dishonesty and fraud will still be subject to criminal penalties. Any debts incurred by the company will still be payable by the company.
Regardless of the extension of this relief package, it is essential that business owners take steps now to develop strategies to assist their businesses to survive, restructure and possibly thrive. If you are experiencing financial difficulty now or prior to the COVID-19 pandemic, then you should not “kick the can down the road” as the underlying issues will likely still be present. The sooner you obtain financial and restructuring advice, the more options available to you and the better the outcome.
For more information please contact an author or any member of our Restructuring, Turnaround & Insolvency team.
This information and the contents of this publication, current as at the date of publication, is general in nature to offer assistance to Cornwalls’ clients, prospective clients and stakeholders, and is for reference purposes only. It does not constitute legal or financial advice. If you are concerned about any topic covered, we recommend that you seek your own specific legal and financial advice before taking any action.