Serious focused businessmen in suits work together on online project management look at laptop discuss financial market, male partner makes business offer consult client talk give presentation advice

How to make the most of the Government’s COVID-19 temporary insolvency reforms

James Ferguson ||

In March this year the Australian Government introduced temporary changes to the insolvency laws in Australia which were designed as a safety net to enable businesses to continue trading during the COVID-19 pandemic. The temporary changes included raising the threshold for creditors to issue statutory demands (the preliminary step to winding up a company) and removing directors from personal liability for trading whilst insolvent in relation to debts incurred in the ordinary course of business.

While these temporary reforms may have been met with an initial sigh of relief from businesses and directors, CreditorWatch, one of Australia’s largest credit reporting companies, has warned that the temporary reforms have created an army of “zombie companies” that are being propped up by Government relief packages, but cannot realistically sustain their activities once those relief packages end in September. It is predicted that once these relief packages end, and the insolvency laws return to normal, there will be a spike in the number of wind up and bankruptcy applications made to the Courts because it is predicted that a large number of companies will be unable to meet their debts.

What does this mean for accountants?

  1. Now is the time for you to reach out to your clients.  Clients who are having cashflow problems often wait until it’s too late (for example: when they are served with a statutory demand or wind up application) before they reach out for help and, in some instances, this can make the situation much harder to navigate.
  1. Encourage your clients to be realistic about their financial situation and the way in which they do business.  COVID-19 has forced many industries to be flexible and adapt to the changing demands and restrictions. If there are aspects of your client’s business that are no longer sustainable, then now could be a perfect opportunity to consider if they should continue those aspects in the short or long term and to restructure their business accordingly.
  1. If your clients are experiencing cashflow problems, and are only surviving because of the Government’s relief packages, then make a plan with your client now for how they can get on top of their debts over the coming months. It is important that your clients get on top of their finances early and make a plan that will be sustainable for their business. For example, one approach may be to encourage your clients to be transparent with their creditors and see whether a payment arrangement can be reached for any outstanding debts that will allow your client to balance their obligations.

Although the predicted spike of bankruptcy and insolvency applications seem inevitable once the insolvency laws return to normal, businesses should use the current temporary reforms to assess their situation and make a plan so that they can survive and thrive.

If you have a query relating to any of the information in this piece, please do not hesitate to get in touch with a member of Coleman Greig’s Litigation & Disputes team, who would be more than happy to assist you.

Share:

Send an enquiry

Any personal information you provide is collected pursuant to our Privacy Policy.

Categories
Archives
Author

More posts

Understanding roles in the strata scheme

A strata scheme is a building or group of buildings that have been divided into lots which can be apartments, villas, offices, units or townhouses. This will be articulated in the strata plan.

Can i put my home on Airbnb?

Airbnb is a form of short-term rental accommodation. To add your property to Airbnb in NSW, you are required to meet several laws and regulations governing short-term rentals.

When are liquidators required to seek approval to retain legal counsel?

When does a liquidator (or the company he or she is appointed to) need court, creditor, or committee approval to validly retain a solicitor to act in a liquidation matter which is likely to extend for longer than three months?  The answer to this question has only recently been settled.

Proposed changes to building and construction law in NSW

The Building Bill 2022 (the Bill) is the key avenue through which the NSW Government has proposed to reshape the culture of the building and construction industry by eliminating poor performance and improving the quality of building statewide.

Can you dismiss an employee who fails to return to the office?

Slowly but surely, most employers are requiring employees to return to the office for at least a portion of their working week. Some employers continue to struggle with employees resistant to returning to the office or those who have an expectation that they can continue to work from home whenever it suits them.

New powers to combat phoenixing in construction

The rise of phoenixing in the building and construction industry in Australia in recent years has proved a significant challenge to regulators. Mismanagement of time or cashflow can quickly propel businesses into insolvency.

The NSW Building Commission’s extraordinary powers

In late 2023, the NSW Government passed the Building Legislation Amendment Bill 2023 (Amendment Bill). The Amendment Bill established the NSW Building Commission and granted it extraordinary powers to enter construction sites, inspect work and take away information and materials.

© 2024 Coleman Greig Lawyers   |  Liability limited by a scheme approved under Professional Standards Legislation. ABN 73 125 176 230