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There is a temporary increase to the threshold at which creditors can issue a statutory demand on a company and the time companies have to respond to statutory demands they receive.
This includes temporary relief for directors from any personal liability for trading while insolvent, and providing temporary flexibility in the Corporations Act 2001 to provide temporary and targeted relief from provisions of the Act.
What are the elements of the temporary relief package?
An example of how temporary relief can help your business
Steph, Mon and David own a small company that operates a chain of yoga studios in Sydney. Social distancing measures require the participants in the yoga class to be significantly reduced. As a result, their company incurs more debt, to the point where it cannot meet its debts as and when they become due and payable.
Under the provisions of the Corporations Act, the 3 owners would be personally liable if the business took on further debt without entering an insolvency procedure like voluntary administration or liquidation. However, during the 6 month period in which the temporary relief is offered, their business can continue to open their yoga studios so that they can maintain their customers and quickly resume normal operations when the crisis has passed, and continue to incur debt.
When economic conditions improve, the company can pay back the debt incurred.