Peter A Clarke

The Commonwealth Parliament passed the Coronavirus Economic Response Package Omnibus Act 2020 yesterday.  It introduced the Bill yesterday as well.

It is a wide ranging Act but to the extent that it relates to those practicing commercial law the relevant provisions are amendments to section 9 and 459E – G for the statutory demand and 588Eff. The statutory minimum has been raised from $2,000 to $20,000.  That is significant but what will have a bigger impact on the use of statutory demands is the statutory period being increased from 21 days to 6 months.  These amendments are to last for 6 months from date of proclamation unless otherwise modified by regulation.  Accordingly, from now until about 24/25 September 2020 at least the new regime regarding the use of statutory demands will be in place.  The statutory period of a statutory demand served tomorrow would not  expire until around 25 September.  As such applications to set aside the statutory demand can be filed any time up to that date.

Given this is a significant area of my practice it is important to be on top of these changes.

The Act provides:

Part 2—Amendments relating to businesses in financial distress

Corporations Act 2001

21  Section 9

Insert:

statutory period means:

                     (a)  if a period longer than 21 days is prescribed—the prescribed period; or

                     (b)  otherwise—21 days.

22  Paragraphs 459E(2)(c) and 459F(2)(b)

Omit “21 days”, substitute “the statutory period”.

23  Subsection 459G(2)

Omit “21 days”, substitute “the statutory period”.

24  Subsection 459G(3)

Omit “those 21 days”, substitute “that period”.

25  In the appropriate position in Chapter 10

Insert:

Part 10.42—Transitional provisions relating to the Coronavirus Economic Response Package Omnibus Act 2020

  

1669  Application of amendments made by Schedule 12 to the Coronavirus Economic Response Package Omnibus Act 2020

 The amendments made by Part 2 of Schedule 12 to the Coronavirus Economic Response Package Omnibus Act 2020 apply to statutory demands that are served on or after the commencement of that Schedule.

Corporations Regulations 2001

26  Before regulation 5.4.01

Insert:

5.4.01AA  Temporary increase to the statutory minimum and statutory period

 (1)  For the purposes of paragraph (a) of the definition of statutory minimum in section 9 of the Act, the amount prescribed is $20,000.

 (2)  For the purposes of paragraph (a) of the definition of statutory period in section 9 of the Act, the period prescribed is 6 months.

 (3)  This regulation is repealed at the end of the period of 6 months starting on the day this regulation commences.

27  Paragraphs 3 and 5 of Form 509H of Schedule 2

Omit “21 days”, substitute “the statutory period”.

28  Form 509H (note 2) of Schedule 2

Omit “minimum of $2,000.”, substitute “minimum. The statutory minimum is $2,000 or a greater amount prescribed by the regulations. For a 6?month period in 2020, a greater amount of $20,000 is prescribed (see the Coronavirus Economic Response Package Omnibus Act 2020).”.

29  Form 509H (note 5) of Schedule 2

Repeal the note, substitute:

1. 5. The statutory period is 21 days or a longer period prescribed by the regulations. For a 6?month period in 2020, a longer period of 6 months is prescribed (see the Coronavirus Economic Response Package Omnibus Act 2020).

The second amendment to the Corporations Act is to provide temporary relief for directors who may engage in insolvent trading for the next 6 months or any longer time prescribed by regulations.  The amendments are to sections 588E and 588GA and the insertion of 588GAAA.

Part 3—Temporary relief for directors from duty to prevent insolvent trading

Corporations Act 2001

30  Paragraph 588E(8A)(a)

After “subsection 588GA(1)”, insert “or 588GAAA(1)”.

31  After section 588GA

Insert:

588GAAA  Safe harbour—temporary relief in response to the coronavirus

Safe harbour

(1)  Subsection 588G(2) does not apply in relation to a person and a debt incurred by a company if the debt is incurred:

            (a)  in the ordinary course of the company’s business; and

            (b)  during:

                         (i)  the 6?month period starting on the day this section commences; or

                        (ii)  any longer period that starts on the day this section commences and that is prescribed by the regulations for the purposes of this subparagraph; and

 (c)  before any appointment during that period of an administrator, or liquidator, of the company.

  (2)  A person who wishes to rely on subsection (1) in a proceeding for, or relating to, a contravention of subsection 588G(2) bears an evidential burden in relation to that matter.

When the safe harbour does not apply

 (3)  Subsection (1) is taken never to have applied in relation to a person and a debt in the circumstances prescribed by the regulations for the purposes of this subsection.

Definitions

 (4)  In this section:

evidential burden, in relation to a matter, means the burden of adducing or pointing to evidence that suggests a reasonable possibility that the matter exists or does not exist.

32  Subsection 588GB(7) (paragraph (b) of the definition of relevant proceeding)

After “subsection 588GA(1)”, insert “or 588GAAA(1)”.

33  Paragraph 588HA(1)(a)

After “safe harbour”, insert “described in subsection 588GA(1)”.

34  Subsection 588WA(1)

Repeal the subsection, substitute:

 (1)  Subsection 588V(1) does not apply in relation to a corporation that is the holding company of a company, and to a debt, if:

        (a)  the corporation takes reasonable steps to ensure that either subsection 588GA(1) or 588GAAA(1) (the safe harbour provision) applies in relation to:

                    (i)  each of the directors of the company; and

                    (ii)  the debt; and

       (b)  the safe harbour provision does so apply in relation to each of those directors and to the debt.

The Explanatory Memorandum relevantly provides:

Comparison of key features of new law and current law

New law	Current law
The Treasurer may by, legislative instrument: •     determine that, due to the Coronavirus, specified classes of persons are exempt from specified obligations in the Corporations Act or the Corporations Regulations; or •     modify specified obligations under the Corporations Act or the Corporations Regulations to enable specified classes of persons to comply with those obligations during the Coronavirus crisis.	No equivalent
The legislative instrument may: •     exempt or modify generally; or •     subject persons or classes of persons to specified conditions with which they must comply.	No equivalent

Detailed explanation of new law

• • Schedule 8 to this Bill amends the Corporations Act to establish a temporary mechanism to provide short-term regulatory relief to classes of persons that, due to the Coronavirus, are unable to meet their obligations under the Corporations Act or the Corporations Regulations. It also provides for short-term regulatory changes to facilitate continuation of business or mitigate the economic impact of the Coronavirus. [Schedule 8, item 1, subsection 1362A(2) of the Corporations Act]
  • The Treasurer may, by disallowable legislative instrument, temporarily exempt specified classes of persons from the operation of specified provisions, or temporarily modify the operation of specified provisions of the Corporations Act or the Corporations Regulations due to the Coronavirus. [Schedule 8, item 1, subsections 1362A(1), (4) and (5) of the Corporations Act]
  • Any such legislative instrument made by the Treasurer may make exemptions or modifications that are general, or subject to specified conditions.[Schedule 8, item 1, subsection 1362A(3) of the Corporations Act]
  • The legislative instrument is disallowable under section 42 of the Legislation Act 2003.
  • This is a temporary provision to facilitate the continuation of business during the Coronavirus. Accordingly, an instrument made by the Treasurer under section 1362A(1) ceases to be in force at the end of the six month period beginning on the day after the instrument is made, or an earlier time, if specified.
    [Schedule 8, item 1, subsection 1362A(4) of the Corporations Act]
  • The Treasurer cannot make an instrument under subsection 1362A(1) after the end of the period of six months beginning on the day this section commences.
    [Schedule 8, item 1, subsection 1362A(5) of Corporations Act]
  • The Treasurer may amend an instrument at any time before the instrument ceases to be in force in accordance with subsection 1362A(4). [Schedule 8, item 1, subsection 1362A(5) of the Corporations Act]

Application and transitional provisions

• • The amendments in Schedule 8 to this Bill will commence on the day after this Bill receives Royal Assent.

An instrument cannot be made under section 1362A(1) after the end of the period of six months beginning on the day the amendments commence. [Schedule 8, item 1, subsections 1362A(4) and (5) of the Corporations Act]

The Treasurer’s 2nd reading speech relevantly provides:

We’re providing more flexibility in the Corporations Act. Treasury ministers will be given a time limited instrument-making power in the Corporations Act to grant time limited relief from regulatory requirements where these will interfere with the ability of companies to manage their businesses through the impacts of the coronavirus. Each instrument would be effective for up to six months from when the instrument is created.

We’re providing additional assistance to business to trade through the crisis. The government will also provide a safety net for businesses to allow them to get through a temporary period of insolvency and recover when economic growth picks up. To do this, we are amending the Corporations Act to temporarily increase the threshold for a creditor to initiate bankruptcy proceedings, to increase the time period for debtors to respond to a bankruptcy notice and to extend the period of protection a debtor receives after making a declaration or intention to present a debtor’s petition. There will also be temporary relief for directors from any personal liability for trading while insolvent. For owners or directors of a business that are currently struggling due to the coronavirus, the Australian Taxation Office will tailor solutions for their circumstances, including temporary reduction of payments or deferrals or withholding enforcement actions, including director penalty notices and wind-ups. This will provide directors with additional confidence to continue to trade through this difficult period.