Statutory Demands and the New Minimum Threshold

Statutory Demands and the New Minimum Threshold
Posted on 15 Jul 2021

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As at 1 January 2021, there was an end of the operation of the temporary amendments ushered in by the Coronavirus Economic Response Package Omnibus Act 2020 (CERPO), and thus creditors who had $2,000 or more owing to them by a company could issue a statutory demand, the consequences of which, if not paid or set aside, may ultimately lead to the liquidation of the respondent company.

 

What is a Statutory Demand?

Let’s have a quick refresher on statutory demands:

  • A statutory demand is a precursor to a winding up application (also known as a Creditor’s Statutory Demand or s459E Notice).
  • It can be issued in respect of a judgment debt, or a debt/s in relation to which there is no genuine dispute (and accompanied by an affidavit deposing to that fact) which (prior to 1 July 2021 and subject to CERPO) are greater than $2,000.
  • If the debt is disputed (by way of set-off or otherwise) the debtor company may bring an application pursuant to s459G within the 21 day period to set it aside.
  • If the debtor company fails to comply with the statutory demand within 21 days, a presumption of insolvency will arise.
  • In reliance upon that presumption, the creditor may file an application to wind up the company for the appointment of a liquidator (in the Supreme or Federal Court jurisdictions).

 

The consequences of this Form 459E Notice, therefore are significant and they should not be ignored or treated flippantly. 

For expert and commercial advice in circumstances where your company receives a statutory demand (at the registered office of your company is where it is required to be served) contact one of our team.

 

Changes During Covid

As many are aware, during the period of the operation of CERPO’s amendments (from March 2020 to firstly September 2020, and extended to 31 December 2020) the minimum debt for which a statutory demand could be issued by a creditor to a debtor company was increased from $2,000 to $20,000.

The time for compliance with the demand also extended from 21 days to 6 months.

These changes were designed to alleviate pressures on companies under financial strain in what was an unprecedented and remarkable stage of history as Australian business battled the economic impacts of the pandemic.

 

The path to further change

The changes effected by CERPO were always intended to be temporary. 

As at 1 January 2021, the minimum debt for which a creditor could issue a statutory demand reverted to the pre-pandemic minimum of just $2,000.

Perhaps in the post –Covid 19 landscape it was a good time to review, although whether it required a pandemic to trigger such a review is likely an unpopular opinion. Needless to say from all the insolvency reforms we have seen over the past twelve months , it is not wholly surprising that a change was required to this minimum threshold.

In February 2021, there was a call for submissions from the Federal Government for industry feedback on the minimum thresholds for statutory demands. 

On 3 May 2021, the Hon Josh Frydenberg MP (Treasurer) announced that as a part of the economic recovery plan, further measures to improve insolvency framework in Australia was being pursued.

Following public consultation, threshold at which creditors can issue a statutory demand on a company increase from $2,000 to $4,000. At the time of announcement the media release issued states its focus to be “further simplifying and streamlining insolvency law”, and to that end, the Federal Government will also:

    • consult on the treatment of ‘trading trusts’ under insolvency law
    • review the ‘safe harbour’ provisions to determine whether they remain fit for purpose. 
    • consult on improvements to schemes of arrangement, including a moratorium on creditor enforcement while such schemes are being negotiated.

 

Current Position

From 1 July 2021 - the minimum amount has increased to $4,000 unless the debtor company is eligible for temporary restructuring relief (the threshold amount of $20,000 for companies that are eligible for temporary restructuring relief will remain unchanged for the month of July)

From 1 August 2021 - the minimum amount will increase to $4,000 for all companies.

 

So why this change?

In addition to bringing the threshold closer in line with the minimum debt to issue a bankruptcy notice ($10,000), the change acknowledges the change to the value of money – inflation. 

“According to the RBA’s inflation calculator, a basket of goods valued at $2,000 in 1992 would be worth $3,878 in 2020”

The Treasury: 15 February 2021

 

If your company, or a client, has received a statutory demand or has any questions in relation to the reforms, please contact Stacy Miller or a member of our team for further information.

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