Changes to Statutory Demands Process

It is no secret that COVID-19 has had an extraordinary impact on our day to day lives. As a result of the pandemic, there has also been a number of important changes to the law, including the corporations law. As a temporary measure to provide relief to “financially distressed businesses”, the Federal Government have announced changes to the debt recovery process to help protect struggling businesses.

The change has been implemented as part of the Government’s wider safety net to protect Australian businesses and reduce, as much as possible, the risk of bankruptcy and forced permanent closure.

The Coronavirus Economic Response Package Omnibus Act 2020 came into force on 25 March 2020. The Act addresses multiple economic issues in amending certain pieces of legislation and regulation, including the Corporations Act 2001 and the Corporations Regulations 2001.

Threshold increase for creditors

A temporarily higher threshold has been introduced which prevents creditors from issuing a statutory demand for claims under $20,000. Previously, creditors were able to pursue a debt and issue a statutory demand for $2,000. The threshold has been increased by 1,000%.

Additional time given to debtors

A second major change made to the statutory demand process relates to the time debtors have to comply with a statutory demand. Instead of the usual 21-day compliance period, companies will now have six months to comply with a statutory demand.

For business owners this is a welcome change as they attempt to navigate many financial obstacles, they no longer need to actively keep creditors at bay. However, for those seeking to recover debts, it has put in place some additional challenges to navigate. These new measures are set to be in place for six months.

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