Revolutionary variation of Australia’s insolvency system for coronavirus era – novel times certainly do lead to novel measures

With the prospect of huge numbers of businesses becoming insolvent and collapsing in the coming weeks and months due to the effects of Government-enforced travel bans and business ‘lock-downs’, the Australian Government has implemented a number of important measures to protect directors from Australia’s harsh insolvent trading laws, and to prevent creditors from bankrupting individuals or winding up companies over unpaid debts. 

The measures announced yesterday include the following changes to the law which will last for six months, unless extended further:

• a moratorium against personal liability for ‘insolvent trading’, i.e. failing to prevent a company incurring debts while insolvent, for debts incurred in the ordinary course of business;
• an increase in the debt required for creditors to be able to issue a statutory demand on a company from $2,000 to $20,000 (a company’s failure to satisfy a statutory demand allows a creditor to apply to wind up the company in insolvency);
• an increase in the time to satisfy a statutory demand from 21 days to six months;
• an increase in the threshold for a creditor to serve a bankruptcy notice from a judgment debt of $5,000 to a judgment debt of $20,000 (an individual debtor’s failure to satisfy a bankruptcy notice allows a creditor to apply to bankrupt the individual); and
• an increase in the time period for individual debtors to respond to a bankruptcy notice from 21 days to six months.

In addition, the Australian Taxation Office has announced that it will enter into arrangements with taxpayers as necessary, including temporary reduction of payments or deferrals, or withholding enforcement actions.

Whilst these measures will give breathing space for the next six months, businesses and directors will need to start planning now how they will meet their obligations when the temporary measures come to an end.

Further details are included in the fact sheet issued by the Australian Government – available here. 

Please feel free to contact Brad Russell or John Kettle for more, including setting up a call.

Management Liability, Directors and Officers Liability Insurance – Insolvency and Premium Increases

This week, key financial lines insurers have advised that they are placing an insolvency exclusion on all Management Liability and Directors and Officers Liability policies moving forward. They are also intending to increase premiums.

Such an exclusion in the policy wording precludes cover for claims made against an insured whilst trading insolvently.

Often, such an exclusion reads, “any claim arising from or in any way whatsoever connected with the insolvency, liquidation, bankruptcy, receivership or administration of the company, any subsidiary or any associated company, its actual or alleged inability to meet any or all of its debts as and when they fall due”.

We strongly encourage businesses and directors to take this time to review their Management Liability and Directors and Officers Liability policies and to contact the insurance advisory team at Allegiant IRS to discuss what this means for you in the event of a claim. 

The intention to increase the premiums for Management Liability and Directors and Officers Liability Insurance is unfair at this time considering the insurers have been increasing their premiums and reducing Directors and Officers Liability capacity for some years now. 

At a time when businesses need some premium relief, we also received news today that the section of the Management Liability policy which covers crime, will also see premium increases starting as of this week.

Crime Cover is a comprehensive crime section that sits under a Management Liability policy.  It provides cover to the company for loss arising from dishonest acts such as theft and fraud by employees including theft or stock.  Claim examples are theft by employee, inventory or theft by a contractor or a consultant.

Sadly, the insurers project that such claims will be on the increase and in anticipation of this, they will be putting the premiums up for all new renewals as at today.

If you would like to further discuss the insolvency exclusion update, including a claims scenario for your Business Continuity plan, please do not hesitate to contact Brad Russell from Allegiant IRS.

Register your security interests on the PPSR

The current climate should serve as a good reminder for secured parties to ensure security interests have been correctly registered on the Personal Property Securities Register (PPSR).

There are strict time frames for registration of security interests on the PPSR. As a general rule, registrations must occur within 20 business days of the date of a security agreement, however there are shorter timeframes for purchase money security interests (PMSIs) which include interests under retention of title clauses and certain bailments and leases. Even with the proposed insolvency law changes, there are adverse consequences in terms of priorities and enforceability of security interests on the insolvency of a grantor if these timeframes are not met, or registrations contain defects.

Please feel free to contact Kirby Jukes or Emma Murray for further details.

This publication covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. It is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.