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COVID-19 –What Debt will Scuttle Passage to the New Safe Harbours?

By Ellen Ferris, a Solicitor in Matthews Folbigg’s Insolvency, Restructuring and Debt Recovery Group.

Amendments in March of this year have brought about changes to the Corporations Act 2001 which allow for an additional temporary safe harbour to protect directors from insolvent trading, –  see our blog here.

However, companies do not automatically qualify for the protection. To qualify, the debt must be incurred as follows:

  • In the ordinary course of the company’s business;
  • During the six month period starting from the date the new law commenced (being 24 March 2020); and
  • Before any appointment of an administrator or liquidator.

The evidentiary burden of proof is on the person seeking to rely on the safe harbour relief, which means that it will be up to directors to make sure they obtain and keep evidence that their debt meets the criteria. [...]  READ MORE →

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COVID-19: Will my hearing go ahead? – Part 3

By Andrew Hack, Solicitor, and Stephen Mullette, Principal, of Matthews Folbigg Lawyers, in our Insolvency, Restructuring and Debt Recovery Group.

This is part 3 of our series on what will constitute valid grounds for an adjournment of a pending hearing, due to COVID-19 and the global coronavirus pandemic.

In Talent v Official Trustee in Bankruptcy & Anor (No 5) [2020] ACTSC 64 the Plaintiff sought an adjournment of the trial hearing, arguing that he was an ‘at risk’ person because he suffered from leukaemia. Doctors had recommended that he remain isolated. [...]  READ MORE →

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COVID-19 and Corporate Insolvency: What does an increase in corporate insolvency mean to creditors?

By Andrew Hack, Solicitor, and Stephen Mullette, Principal, of Matthews Folbigg Lawyers, in our Insolvency, Restructuring and Debt Recovery Group.

In these difficult times, recent legislative amendments provide assistance for debtors, but risk for creditors. Going forward, it will be important for creditors to carefully monitor their credit policies. Creditors are likely see more spikes in default rates over the next months while government restrictions and businesses’ staff isolation plans remain in place. Where a debtor is placed into external administration, they should be aware of their rights (and duties) during the insolvency process. [...]  READ MORE →

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Third Party Facilitators and Pre-Insolvency Advisers: Illegal Phoenixing Amendments 2020 #4

By Andrew Hack, Solicitor, and Stephen Mullette, Principal, of Matthews Folbigg Lawyers, in our Insolvency, Restructuring and Debt Recovery Group.

In our last blog we discussed some of the implications of the new legislation designed to prevent ‘creditor-defeating dispositions’.

In addition to it being it being a voidable transaction, the new legislation puts a duty on the company’s director to prevent the company from entering into a creditor-defeating disposition. Section 588GAB of the Corporations Act 2001 (Cth) creates a personal liability on directors for damages and pecuniary fines, as well as being a criminal offence. In respect of pre-insolvency advisers, section 588GAC is a similar provision applying to any third party who ‘procures, incites, induces or encourages’ a company to make a creditor-defeating disposition of property. The explanatory memorandum states: [...]  READ MORE →

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COVID-19 Credit Crisis – Where can Accountants and Advisors Turn for Help?

By Ellen Ferris, a Solicitor in Matthews Folbigg’s Insolvency, Restructuring and Debt Recovery Group.

Accountants and financial advisors are the first port of call in a financial storm. Never is that need more prevalent than now, during the COVID-19 pandemic.

Among other things, accountants and financial advisors should be able to consider discussing the following options with their clients:

  • Voluntary administration – especially the option for the statutory moratoriums gained by voluntary administration;
  • Deeds of Company Arrangement (DOCA) – including Holding DOCAs which have been recently upheld by the High Court – see here;
  • The existing Safe Harbour provisions – see here;
  • The new COVID-19 protections against insolvent trading – see our blog here;
  • Informal restructuring of companies and business (making sure you avoid the anti-phoenixing legislation – see our blogs here); and
  • If all else fails, promptly appointing a suitable qualified liquidator to wind up the company.

Accountants and advisors should advise clients early in respect of these matters. Time is critical and the stakes are high – both for advisors and directors – and advisors must be prudent in advising their clients who appear to have long term issues with solvency; it is better to speak with a specialist now for restructuring advice, rather than later. This will ensure that when things do improve, they will be in a better position to take advantage of the situation. [...]  READ MORE →

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COVID-19 and Corporate Insolvency: New tax legislation directors need to know

By Andrew Hack, Solicitor, and Stephen Mullette, Principal, of Matthews Folbigg Lawyers, in our Insolvency, Restructuring and Debt Recovery Group.

In the light of the COVID-19 outbreak, the Federal Government has acted to ameliorate some risks to directors. This includes recently introduced risks to directors.  Directors should be aware of new amendments to the Taxation Administration Act 1953 (Cth) (“the TAA”). The amendments include:

  1. New rules about post-dating ASIC notification of a director resignation;
  2. An estimates regime for GST payments;
  3. Application of the Director Penalty Notice (“DPN”) regime to account for the estimates regime for GST payments; and
  4. Retention of tax refunds for failing to comply with obligations.

Director Resignations

These new rules provide that any notification of a director resignation lodged with ASIC 28 days after the resignation date will only be effective from date of notification. This means that even if a director resigned several years ago, he or she will remain a director (with all of the liabilities associated with such appointment) until their resignation is lodged with ASIC. Therefore, directors who resign should ensure that they lodge a Form 370 with ASIC as soon as possible. If they fail to notify ASIC within 28 days, they may find themselves liable in respect of any non-compliance by the remaining directors. [...]  READ MORE →

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Creditor-Defeating Dispositions and Some Implications: Illegal Phoenixing Amendments 2020 #3

By Andrew Hack, Solicitor, and Stephen Mullette, Principal, of Matthews Folbigg Lawyers, in our Insolvency, Restructuring and Debt Recovery Group.

In this series of blogs we are looking at amendments to the Corporations Act arising from the Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 (Cth) which came into effect as of 18 February 2020. The amendments introduce a new concept, called a “creditor-defeating disposition”. This is a transfer of assets for less than the best price obtainable, which hinders assets from being available in the winding up of the company, and where either (according to section 588FE(6B)): [...]  READ MORE →

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COVID-19 and Corporate Insolvency: What should directors do?

By Andrew Hack, Solicitor, and Stephen Mullette, Principal, of Matthews Folbigg Lawyers, in our Insolvency, Restructuring and Debt Recovery Group.

During the COVID-19 outbreak, insolvent trading laws have been relaxed. But this does not mean there is no risk to directors. In reality the breathing space has simply been extended to allow directors to work out a solution. In our previous blog in this series, we discussed the obligations on directors when their companies are or might become insolvent. This blog explores what directors should do about it. [...]  READ MORE →

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Insolvent Trading Advice for Clients Affected by COVID-19

By Ellen Ferris, a Solicitor in Matthews Folbigg’s Insolvency, Restructuring and Debt Recovery Group

In the current climate, many accountants may have clients experiencing financial distress, including directors seeking advice on how to avoid personal liability for trading whilst insolvent.

What advice should accountants be giving their clients in this environment? What advice do directors need to hear?

Insolvent Trading – The Danger

Firstly, it is important to understand how the law defines insolvent trading. The law defines insolvency as an inability to meet debts as and when they are due and payable. Insolvent trading, in simple terms, relates to debts incurred whilst a company is insolvent. [...]  READ MORE →

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Accountants Keeping Clients Afloat During COVID-19

By Ellen Ferris, a Solicitor in Matthews Folbigg’s Insolvency, Restructuring and Debt Recovery Group.

Accountants are being swamped by directors caught up in the effects of a global pandemic and the consequences of shutdowns and quarantine. Accountants’ own businesses are in the same boat.

How to advise clients during this time? The Australian Restructuring Insolvency and Turnaround Association (“ARITA”) has released helpful guidance for accountants seeking to help their clients at this time. These resources can be accessed via the below link: [...]  READ MORE →

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Helpful Resource on Directors’ Duties During Disaster

By Ellen Ferris, a Solicitor in Matthews Folbigg’s Insolvency, Restructuring and Debt Recovery Group.

Directors’ duties are changing daily as the Government makes new laws to deal with the impact of COVID-19. However those duties have not been extinguished and it is important that responsible directors keep on top of their statutory obligations (and personal liabilities). The Australian Restructuring Insolvency and Turnaround Association (“ARITA”) has released helpful guidance for directors. These resources can be accessed via the below link: [...]  READ MORE →

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Winter is Coming – COVID-19 Changes Insolvency Law

By Anica Cunanan, Law Clerk at Matthews Folbigg in the Insolvency, Restructuring and Debt Recovery Group

The unprecedented financial impact of COVID-19 has forced the laws surrounding insolvencies to change – well at least temporarily.  Analogous to the process of containing the virus, the Government is currently deciding on temporary changes to also flatten the curve of the inevitable insolvencies following this pandemic.

The Treasurer has been given a temporary instrument-making power in the Corporations Act 2001, for a period of six months, in order to provide temporary relief to distressed businesses. This was announced by the Government on 12 March 2020. [...]  READ MORE →