Keeping the wolves from the door

One of the biggest concerns business owners currently have is what is the impact if they are unable to pay their bills given the dramatic changes to business cashflow.

The Federal government has recently passed law that gives struggling businesses more time to respond to formal ‘statutory demands’ for payments and increase the amount that may be wound up for non-payment

A statutory demand is a formal written demand issued under the Corporations Act 2001 requiring a company to pay a debt of $2,000 or more within 21 days. A company is presumed to be insolvent for not complying with the demand and can be wound up.

The temporarily changes operate to increase the time to comply with a statutory demand to 6 months and the amount has been increased to $20,000.

For directors of small businesses, from 25 March 2020,

• The same 6 month time frame and $20,000 amount extends to personal bankruptcy of company directors that personally guarantee payment for company loan or debts.

• There is a 6 month moratorium on personal liability for directors for insolvent trading, with the aim on allowing businesses to continue to try to trade during any period of insolvency during the 6 month period.

While this gives struggling companies some relief, creditors can still seek repayment of debts through legal action in the courts. There is no ban on a creditor taking legal action, obtaining a court judgement and enforcing that judgement through sheriff’s warrants to seize property.

We can help you with understanding your business legal obligations in uncertain times. Contact our business lawyers Lachlan Edwards on 0427 916 442 or Siobhan Liston on 03 5445 1067 for assistance.