In response to the current Coronavirus pandemic and the impact that it has had on businesses, the Federal Government recently introduced temporary measures that will assist in relieving companies and their Directors in these times of financial difficulty. It is no secret that impending insolvency and/or bankruptcy is currently a very real risk for many Australian businesses and as any Director will know (or should know!) the implications of trading insolvent can be significant.

What is the Government’s Intention?

The intention of the relief being provided by the Government at this time is consistent with the overall theme of the relief being provided to all businesses and that is, to keep them trading while we all navigate these rapidly changing and challenging times by:

1. helping them to stay solvent during the pandemic; and
2. reducing the imminent threat of personal liability for Directors if a company does become insolvent as a result of the pandemic.

What Measures Have Been Introduced?

The relief measures that were passed by Parliament in late March will be in place for the next six months and include:

1. an increase to the threshold amount and time to respond to statutory demands;
2. an increase to the threshold amount and time to respond to bankruptcy notices against individuals; and
3. a temporary ‘pause’ on Director’s personal liability for insolvent trading.

Both the threshold amounts for statutory demands and bankruptcy notices have been increased significantly, to $20,000, and the time to respond has been increased to six months. What this means is that the Government has recognized that companies and individuals alike may very well incur more debt while their businesses are affected during this time and will likely require more time to ‘get back on track’ and be in a position to pay their creditors. It seeks to ensure that companies and individuals are able to ‘stay afloat’ for as long as possible, rather than having to enter voluntary liquidation or declare bankruptcy.

These measures will no doubt provide some comfort for businesses who are concerned about outstanding debts owed to their creditors.

What About Personal Liability for Directors?

In the event that a company does find that the impacts of the pandemic have effected their business to a point where they are still struggling to pay their debts, the Directors of that company can rest assured that they may be relieved of any personal liability associated with insolvent trading that occurs over the next six months. It is extremely important for Directors to understand that this relief only applies to insolvent trading that has occurred during the ordinary course of the company’s business, it does not apply to cases of dishonesty or fraud (which will still be subject to criminal penalties). Directors must continue to ensure that they are still taking active steps to deal with financial stress and consider options for ‘staying afloat’, but are simply being given some breathing room to do so.

What Should Businesses Do Next?

Regardless of the relief being provided by the Government, it remains as important as ever for business owners to consider how they might diversify their businesses to keep income coming in and keep the debts owed to creditors down. For that reason, we encourage businesses to seek professional advice wherever they can these matters and how they might take advantage of the other forms of relief being provided by the Government. Every business’ situation will be different, especially given the current climate, and seeking assistance earlier rather than later could make all the difference to how a business comes out of this on the other side.

We Can Help!

As a small business our self, Enterprise Legal is extremely passionate about assisting businesses wherever we can in these difficult times and have already identified ways in which we can do so. To that end, we have prepared a number of free ‘Coronavirus Resources’ for businesses which are available via our website. 

Please do not hesitate to get in touch with us to chat about how your business has been effected by the pandemic and how we might be able to assist you to survive and thrive!

☎️ (07) 4646 2621

✉️ Submit an Online Request

A Letter Of Demand Can Help You Recover Your Debts 

Minor Debts Are Not Minor Problems

Minor debts can be the cause of many sleepless nights for small to medium business owners. The problem is that while an amount owed to you might cause inconvenience to you should you not recover it, it might not be so large a sum that you want to incur further costs engaging a lawyer or a debt recovery agency to collect your money, especially when that might cost more than the actual debt!

In some aspects, it is simply easier to write the debt off. However, those minor debts can add up and if you are consistently writing off $5,000.00 to $10,000.00 every other month, this will cause significant detriment to the viability of your cash flow and business. 

Good Reasons to Send a Demand Letter

Having a formal Letter of Demand issued by a law firm sends a clear message that you are serious about recovering the debt and will not be so easily dismissed. The purpose of the Letter of Demand is also two-fold - first, it puts the debtor on notice of your intention to commence legal proceedings unless payment is made within a stipulated time frame. Secondly, the Letter can be used as evidence in subsequent court proceedings as written proof of your attempt to settle the matter early.

The Letter will also clearly set out the parameters of the dispute and may even account for any offset due. The Letter should attach a copy of any agreement, invoices or relevant text messages to assist any reader to identify the transaction and the liability to pay. This often assists in reducing the scale of the dispute to something more easily managed and addressed.

It is also our experience that you as a client feel emotionally better about the situation, after having decided to send a Letter of Demand. Having a trusted and knowledgeable advisor to discuss the problem with puts the problem into perspective. Often just having a plan and set steps to follow removes the stressful burden of figuring out what to do next by yourself.  

What are the Possible Outcomes from Sending a Letter of Demand?

The best result is receiving prompt payment from the debtor, with a side benefit of tightening up your trading terms and conditions to reduce the risk of debts arising again.

Another outcome is the creation of ‘industry reputation’. It may be to your benefit for your general customers to know that you are serious about being paid for your services and that you are willing to engage legal assistance when required. This perception is worth every metaphorical penny, as it can weed out the time wasters and non-payers from the very beginning.

Frequently though, no response nor payment is received. This at least crystallises your available options and we can let you know the costs associated with each subsequent step. The true power of a demand letter is being prepared to act on the foreshadowed step of commencing proceedings, otherwise the debtor may simply be calling your bluff.

Our highly experienced Disputes team at Enterprise Legal provides a full debt recovery service and can assist you from reviewing your contracts and debts, to sending Letters of Demand (at fixed fee rates) all the way through to commencing proceedings and obtaining Judgments, a winding-up Order or sequestration (bankruptcy) orders against a Debtor. 

If you need assistance, Enterprise Legal will work collaboratively with you and financial advisors to assist to limit the damage whilst also ensuring your legal rights and interests are protected.

Contact EL’s Principal Legal Advisor – Disputes, Kirsten Woolston to discuss your options today: 

☎️ | (07) 4646 2621
✉️ | Submit an Online Request

A Creditor’s Statutory Demand (or commonly referred to as a CSD) is a technical letter of demand. It is issued per section 459E of the Corporations Act 2001 (Cth) against corporate entities where the issuing creditor has good reason to believe that there is no dispute in relation to the debt owed.

A CSD can be either supported by a Judgment of a court or an Affidavit and the demand must meet the statutory minimum amount of $4,000.00.

How Does a Creditor’s Statutory Demand Work?

The CSD provides a notice period of 21 days in which the debtor company must act. There are strict rules about service and the calculation from the date on which the CSD is delivered. If no action is taken within those 21 days, a presumption of insolvency automatically arises.

This acts as a short cut and for a strict period of 3 months can be used by either the issuing creditor or any other creditor who becomes aware of an expired CSD.

What Happens Next?

A presumption of insolvency means a company is presumed to not be in a position to pay its debt as and when they fall due. This then supports a creditor making an application to the Court to wind the company up and appoint a liquidator.

A liquidator has extensive powers to enable him/her to realise (recover or sell) the company’s assets and to also ask tricky questions of the directors such as: Where did all the money go?  Monies realised are then disbursed between all known unsecured creditors.

If a company owes you a debt equal to or greater than $4,000.00, use of a CSD may be suitable. It is not an everyday debt collection tool, but when used properly it can be highly effective.

Has your company been served with a Creditor’s Statutory Demand?
Find out what you need to urgently do by reading EL's Knowledge Centre article 

If you need to discuss your company's debt recovery options, get started by making an appointment with EL's Principal Legal Advisor - Disputes, Kirsten Woolston:

☎️ | (07) 4646 2621
✉️ | Submit an Online Request

If you have received a Creditor’s Statutory demand DO NOT DELAY! It is essential that you act and immediately seek legal advice.

The 21-day time limit is very strict and time starts ticking from the moment of delivery to your registered office. This may mean that you already do not have the full 21 days and your options decrease in proportion to the amount of time you have left.

1. Be Alert, Not Alarmed

The first step will be to ascertain WHEN exactly the Creditor’s Statutory Demand was served upon your Company’s registered office. A date stamped on the received envelope can be useful. Otherwise, if it was posted to your street address, please keep the envelope as it may be possible to utilize the Australia Post tracking number to ascertain the delivery date.

2. Does It Really Matter If I Don’t Know The Exact Date?

It might. The 21-day time frame is strict and cannot be extended. At the expiration of the 21-day time frame a ‘presumption of insolvency’ automatically arises and the presumption exists for 3 months. This presumption can expose your company to an application to the Court for an order that the Company be wound up and a liquidator appointed. Besides losing control over your company and its bank accounts, assets, existing business networks and good will, this can also have adverse consequences on you personally as a director.

3. What Are My Options?

a) Call your Enterprise Legal advisor as soon as possible. We will ascertain whether:

i. the Demand is technically compliant with the legislation;
ii. the Demand was properly served; and
iii. the debt is disputed.

b) Depending on those results, most options include:

i. Pay the demand in full and satisfy the debt;
ii. Instructing Enterprise Legal to write that the debt is disputed and include available evidence in support, note any technical failings and demand that the Creditor’s Statutory Demand be withdrawn; or
iii. File and serve a Supreme Court application to have the Creditor’s Statutory Demand set aside.

All 3 of the available options MUST occur within the 21-day period, otherwise your company will be statutorily presumed insolvent. There is an exponential increase in costs to save your company after the 21-day deadline has passed.

Have you been served with a Creditor's Statutory Demand?
Front-foot it by making an appointment with EL's Principal Legal Advisor - Disputes, Kirsten Woolston to discuss your options:

☎️ | (07) 4646 2621
✉️ | Submit an Online Request