The government continues with its reforms to insolvency and bankruptcy rules, with the latest change – a higher threshold for statutory demands - taking effect next month.
From July 1, the minimum amount at which creditors can issue a statutory demand to a company for a debt owed increases from A$2000 to $4000.
The change follows the making of Corporations Amendment (Statutory Minimum) Regulations 2021 in May.
The new threshold for statutory demands is the latest in a series of changes over the past year. A number of temporary insolvency relief measures were introduced in March last year as part of the government’s COVID-19 response and most, but not all, of those temporary measures ended in January
The minimum amount of debt that can trigger bankruptcy dropped down from $20,000 to $10,000 in January, but before the COVID relief measures were put in place the minimum amount of debt that could trigger a bankruptcy was $5000.
Also in January, a new formal debt restructuring process was introduced for small business (with liabilities of less than $1 million). Designed to reduce the complexity and cost of company administration and enable directors to remain in control of their businesses, the new process involves a small business restructuring practitioner consulting in an advisory role to assist the directors to develop and appropriate debt restructuring plan.
This change removes insolvent trading restrictions while a business is restructuring and replaces the requirement for directors of an insolvent company to appoint external administrators in order to get a moratorium from enforcement action by creditors.
And if 50 per cent of creditors (by value) vote in favour of a restructuring plan, the plan will be binding on all unsecured creditors.
The government plans to make more changes. It has announced that it will consult on proposals to clarify the treatment of trusts with corporate trustees under insolvency law and improve scheme of arrangement processes.