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COVID-19: Effects on Legal and Debt Recoveries

A Summary of Legal Changes from BBW Lawyers

Firstly, from all the team here at BBW Lawyers, we hope you, your families and your team, are safe and well.

The spread of coronavirus (COVID-19) in Australia has led to some drastic measures being taken by the Federal and New South Wales governments, including but not limited to the implementation of certain temporary measures to assist people and companies in financial distress.

The purpose of this update is to provide you with a summary of the temporary measures implemented by the Federal government; a snapshot of the changes made to the various Court jurisdictions in New South Wales; and points for consideration to assist you in making decisions so to ensure the longevity and sustainability of your business through maintaining revenue streams.

Statutory Demands and Bankruptcy Notices

It is important to note that the temporary relief measures are effective as of 25 March 2020, and will apply to all Statutory Demands and Bankruptcy Notices served on or after 25 March 2020. The above does not apply retrospectively. For example:

Process and Monetary limit

Compliance period

Statutory Demand served on or before 24 March 2020

 

Monetary limit $2,000

The debtor company has 21 days to comply with the Statutory Demand.  Failure to comply, gives rise to the presumption of the debtor company being insolvent.

The creditor then has 3 months, from the expiry of the 21 days, to issue an Originating Process, seeking winding up orders, otherwise the Statutory Demand will expire.

Statutory Demand served from 25 March 2020

 

Monetary limit $20,000

The debtor company has 6 months to comply with the Statutory Demand.  Failure to comply, gives rise to the presumption of the debtor company being insolvent.

The creditor then has 3 months, from the expiry of the 6 months, to issue an Originating Process, seeking winding up orders, otherwise the Statutory Demand will expire.

Bankruptcy Notice served on or before 24 March 2020

 

Monetary limit $5,000

The debtor has 21 days to comply with the Bankruptcy Notice.  Failure to comply, gives rise to the presumption of the debtor committed an act of bankruptcy.

The creditor then has 6 months, from the expiry of the 21 days, to issue a Creditor’s Petition, seeking a sequestration order, otherwise the Bankruptcy Notice will expire.

Bankruptcy Notice served from 25 March 2020

 

Monetary limit $20,000

The debtor will have 6 months to comply with the Bankruptcy Notice.  Failure to comply, gives rise to the presumption of the debtor committed an act of bankruptcy.

The creditor then has 6 months, from the expiry of the 6 months, to issue a Creditor’s Petition, seeking a sequestration order, otherwise the Bankruptcy Notice will expire.

The Courts in New South Wales

In response to COVID-19, the Courts have implemented several changes to reduce health risks, and uphold the safety and wellbeing of the community and its staff. For that reason, face to face, or in-person attendances, have been limited as much as possible.

By way of summary, please see below the implemented changes in the different Court jurisdictions:

Court Jurisdiction

Implemented Changes

Local Court of NSW In the Small Claims and General Divisions of the Local Court, directions will continue to be undertaken via the Local Court Online Court portal.

In both the Small Claims and General Divisions of the Local Court, existing hearing dates are being vacated and matters will be relisted for further directions.

With respect to any Motion or Final Hearing, the matters that do proceed will be conducted via telephone or by way of audio-visual devices.

District Court of NSW The District Court has requested that all Practitioners familiarise themselves with the District Court’s virtual Courtroom.

Similar to the Local Court, existing hearing dates in the District Court are being vacated and matters will be relisted for further directions.

With respect to any Motion or Final Hearing, the matters that do proceed will be conducted via telephone or by way of audio-visual devices.

Supreme Court of NSW As of 24 March 2020, there will be no personal appearances in any Supreme Court matters, save in exceptional circumstances, with the leave of the Chief Justice or the head of jurisdiction.

As such, the Supreme Court, will conduct its matters via the Online Court Portal, and the Court will contact parties in relation to future listings to advise of the video and teleconference facilities available for their specific matter.

Federal Circuit Court The Federal Circuit Court will continue to hold in-person appearances; however, matters will not be listed for more than 1.5 Hours, and no party will be allowed to enter the courtroom before the matter is called. 

In the Courtroom there will be a limit of 8 people (excluding the Registrar and Court Officer) and social distancing rules will apply.

Should any party or practitioners be affected by COVID-19, they should immediately notify the Court and leave. The Court list will be adjourned and appropriate steps taken, including any deep cleaning required.

Debt recoveries during COVID-19

Whilst you may wish to exercise leniency in seeking recoveries from COVID-19 affected businesses, and as such, act reasonably and commercially, this should be balanced with ensuring that you do not put your own business at risk in the future, by unnecessarily limiting revenue streams now.

In proceeding with a “business during COVID-19 approach”, the following should be taken into consideration:

1. The Federal government’s temporary measures only apply to Statutory Demands and Bankruptcy Notices. It has not proposed and/or made any changes restricting or limiting demands, statement of claims, applying for judgment, or enforcing judgments.

As such, you may continue pursuing your recoveries and claims through the other forms of litigation/debt recovery process, without limitations.

2. Creditors are not denied their right to issue Statutory Demands and Bankruptcy Notices. There are only requirements that the monetary debt be over $20,000 and extended compliance periods be allowed.

This indicates that if a debt is over the sum of $20,000 and the debtor has failed to satisfy the debt within a 6-month period, creditors are eligible, without any limitations, to proceed with further action in relation to the Statutory Demands and Bankruptcy Notices, including winding up or sequestration orders.

3. If a company enters liquidation and you have re-negotiated agreements and entered into instalment arrangements in the 6 months leading up to the liquidation, this will normally be considered knowledge of insolvency by liquidators.

However, we anticipate liquidators taking the current environment into consideration, and payments and re-negotiated agreements due to COVID-19 should not be subject to preference claims for debts incurred from 25 March 2020.

This is premised on the basis that a 6-month temporary relief from personal liability is provided to assist directors continue to trade during this time.

4. Finally, whilst the Courts in New South Wales have made changes to their day to day operations, these changes are geared towards ensuring the safety and wellbeing of the community and its staff.

In relation to actual matters, the Court are trying to ensure matters can continue to progress in line with timing requirements set out in their respective practice notes, and not be dismissed or stayed.

For further information or should you require any assistance in pursuing your matters, please contact John Fairgray (Partner) jfairgray@bbwlaw.com.au, Luis Ormazabal (Senior Associate) lormazabal@bbwlaw.com.au or Balveen Saini (Associate) bsaini@bbwlaw.com.au.

Learn more about BBW Lawyers

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About BBW Lawyers

BBW Lawyers’ commercial, insolvency and debt recovery team works closely with a number of prominent NSW and Australian companies and organisations in providing strategic advice and dedicated legal services. The team comprises of industry specialists who are active members of, and contributors to, the Australian Institute of Credit Management (NSW Divisional President – Balveen Saini, 2019 Legal Representative of the Year – Luis Ormazabal), as well as having extensive experience in all Courts and Tribunals.

© BBW Lawyers 2020. This is general commentary and should not be relied upon as if it were legal advice. No part of this publication may be reproduced by any process without written permission from BBW Lawyers.