Changes to Debt Recovery Laws Due to COVID-19
Updated: Nov 21, 2021
The COVID-19 pandemic has brought about various changes to debt recovery law in Australia. Some changes have been temporary and others more permanent, but together they have altered the process for creditors aspiring to recover debts and debtors defending their rights.
In March 2020, the Federal Government implemented a range of temporary amendments to ensure struggling businesses would stay afloat throughout the pandemic. These included:
The threshold changing from $2,000 to $20,000 for the amount a debtor had to owe before the creditor could issue a Statutory Demand.
The threshold changing from $5,000 to $20,000 for the amount a debtor had to owe before the creditor could issue a Bankruptcy Notice.
Debtors were allowed a period of six months to respond to Statutory Demands or Bankruptcy Notices, an increase from the original 21-day period. Similarly, the period of protection debtors received when they declared their intention to present a debtor’s petition increased from 21 days to six months.
Small business directors were relieved from risk of personal liability for trading while insolvent, provided debts were incurred through ordinary business operations.
Debt recovery laws in 2021
The temporary changes were originally set to last until September 2020 but given the spread of COVID-19, the Government extended this period until the end of the year.
On 1 January 2021, the changed laws reverted to how they had been prior to the pandemic – excepting a few key points. Rather than changing the amount of debt that could trigger bankruptcy back to its original amount of $5,000, the Government increased the threshold to $10,000.
Additionally, changes implemented in the new year have meant that small business directors can continue trading while insolvent provided the business is viable and they arrange a debt restructuring plan with creditors with the assistance of a professional third party.
Does the present situation favour creditors or debtors?
The change away from debtor-centric debt recovery laws has seen an increase in Statutory Demands and Bankruptcy Notices in 2021, as a portion of creditors have been waiting for more favourable conditions to take action.
Due to Government Stimulus packages such as JobKeeper, many debtors are in a strong position to pay their debts, while at the same time as creditors are now in a stronger position to recover the money they are owed. As such, now is an ideal time for creditors to act. For this reason, it is more vital than ever before that debtors have a strategy to ensure fair outcomes for themselves.
At Arida Lawyers, our experienced team can advise creditors on the viability of initiating recovery action in the present environment. We can draft and serve letters of demand, commence legal proceedings, and commence enforcement actions to recover your debts.
We can also assist debtors by advising on legal standing and chances of success, responding to letters of demand, applying to the court, and drafting and servicing defences in court.
The Arida Lawyers team can also assist with contract law, consumer law, employment law, will and estate law, and building and construction law. Contact us today on 0466 977 649 or email firstname.lastname@example.org to arrange a free consultation.
This article provides general information relevant to our expert services. It is not legal advice and should not be relied upon as such. If you are seeking legal advice, you should contact us for a free initial consultation.
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