Here is a link to a flyer which you may have seen, click HERE. In summary:
- Creditors Statutory Demands (CSDs): The temporary increase in the threshold from $2K to $20K and the increase in the time period in which to respond, from 21 days to 6 months, for CSDs. This means that they will not be worth issuing for a lot of debts, if not most, for the time being.
- Insolvent Trading by Directors: Directors will be allowed to have their companies trade whilst insolvent for 6 months. Actions against directors for insolvent trading are rarely pragmatic and so few are ever commenced, so this concession may not make a lot of difference to anyone, anyway.
- New Powers for the Treasurer: The Treasurer will receive broad powers to alter the provisions of the Corporations Act 2001. Exactly what powers will be granted, and which of those will be exercised, are yet to be seen, but we will keep you abreast of developments.
Alternative courses of action: Instead of issuing a CSD, and to avoid being caught by insolvent trading companies, are:
- Early Reminders: If you are not doing it already, you and your clients should have a system in place to write to your clients/customer as soon as a debt remains unpaid beyond usual trading terms, and keep following up. It is best, if possible, to do these follow ups in writing or a combination of verbal discussions and writing.
- Court Action: You or your clients are not precluded from taking court action. Get in early to avoid missing out. Many Courts have altered protocols in light of COVID-19 and may alter protocols further to encourage electronic lodgement of documents and Court appearance by telephone or video conference.
- Security: If in doubt about an ability to pay, particularly for urgent work, consider seeking Payment Upfront, Director Guarantees and Security over personal assets and/or real property assets, secured by PPSR registrations and/or a caveats, which will also minimise exposure to preferential creditor claw-back provisions. Consider making all extensions of time to pay conditional upon security being given.
In relation to Early Reminders and Court Action, please click HERE for information on our step-by-step $100 DIY Debt Collection Kit. It is mainly for debts under $10K, where legal costs cannot be recovered. It contains practical legal advice worth $Ks. It covers the process from reminder letters and telephone script, through demand letters, issuing a summons, taking a matter to court and enforcing judgments, with Word templates and examples. You and your clients might find it useful.