By: Cecil Hanafin
The Australian government has announced that it is putting in place temporary measures to prevent businesses and individuals temporarily facing financial distress as a result of COVID-19 from being forced into liquidation. 

Given New Zealand’s insolvency laws are closely aligned with Australia it is likely that in the coming days our Government will follow suit with a similar package.  Below is a summary of what temporary measures we are likely to see:
  1. Increased threshold amount and extended timeframes to comply with a statutory demand
 
Liquidation of companies will often be instigated by a creditor issuing a statutory demand requiring payment of a due debt within 15 working days.If payment is not made (or a genuine dispute not raised) within that timeframe, the company is presumed unable to pay its debts and can be wound up by the petitioning creditor.
The Australian Government has increased its timeframe to comply with a statutory demand from 21 days to six months.It is likely our Government will follow suit.
 
The minimum threshold for creditors issuing a statutory demand in New Zealand is currently $1,500.The Australian Government is increasing its minimum threshold amount from $2,000 to $20,000 for the next six months and again it is likely our Government will make a similar increase.
 
  1. Increased threshold amount and extended timeframes to comply with bankruptcy notices
 
Bankruptcy of an individual most commonly occurs following a person’s failure to comply with a bankruptcy notice.Like statutory demands there is a minimum threshold amount for the issuing of a bankruptcy notice ($1,000) and a strict timeframe to comply (10 working days) before an act of bankruptcy occurs.It is likely these will both be increased by the Government to give debtors more time to work through repayment options (as the Australian Government has done).
 
  1. Reckless Trading
 
In order to give companies confidence to continue to trade, and return to viability once the coronavirus crisis has eased, without the risk of directors being held personally liable, the Australian Government has announced that directors “will be temporarily relieved of their duty to prevent insolvent trading with respect to any debts caused in the ordinary cause of business”.Cases of dishonesty and fraud will still be subject to criminal penalties.This temporary relief is being offered for a period of six months.
 
Given New Zealand has comparable laws with regard to reckless trading it is likely that the New Zealand Government will announce a similar temporary measure to enable as many businesses as possible to trade through these uncertain times in the hope that, post this crisis, debts can be repaid and businesses can resume to normal as soon as possible.By offering this temporary relief, directors are essentially being given the ability to continue to incur debts over this difficult time, without the fear of later being held personally liable.
 
 
A summary of the Australian relief package can be found here (https://treasury.gov.au/sites/default/files/2020-03/Fact_sheet-Providing_temporary_relief_for_financially_distressed_businesses.pdf)
 
 
Please get in touch
If you have any concerns or queries about your situation, or require assistance, please contact one of the Insolvency team.


Wynn Williams is a member of SCG Legal, a global network of more than 110 independent law firms with both legal and public policy practices serving businesses in all 50 U.S. state capital cities and the District of Columbia, as well as capital cities and major commercial centers in more than 50 countries. SCG Legal has developed a COVID-19 Global Resource Center, which is focused on up-to-date legal and public policy developments from more than 25 different countries and most U.S. States. To access it, visit scglegal.com/coronavirus-resources.

 
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