Last year, we wrote about debt recovery during the uncertainty of COVID-19.

The 2020-21 budget came with a raft of reforms to Australia’s insolvency framework aimed at simplifying the restructuring and liquidation processes for small businesses.

In recognition that the recovery from the impact of COVID-19 is going to be a long and winding road, the government has announced that “further insolvency reforms [are coming] to support business dynamism” in its 2021/22 budget.

Some of the changes flagged by the government include:

• A review of the insolvency safe harbour protections introduced in 2017 to assess whether they are still achieving their goals;
• A review of protections for businesses which use the trust structure as part of their operations;
• Increasing the minimum threshold for statutory demands from $2,000 to $4,000 to enable small companies to avoid winding up over relatively small debts.

We will bring you more updates as the situation unfolds.

In the meantime, consider whether a statutory demand is an appropriate mechanism for recovering a debt of $4,000 or more owed to your client by a company.

Generally, a statutory demand can be an effective and quick way to pressure a debtor company to pay its debt because there are serious consequences if it does not apply to the court to set aside the statutory demand or pay up within 21 days.

If it does neither, the debtor is presumed to be insolvent and may be wound up in any subsequent liquidation proceedings. There are risks with this approach, including adverse cost consequences for the creditor if the debtor does commence court proceedings and successfully obtains an order to set aside the statutory demand.

It is not unusual for the debtor to make off-setting claims against the creditor and to dispute the debt to try and defeat the statutory demand or the sum claimed by the creditor, particularly in the building industry.

We can assist you in assessing if the statutory demand framework can help you you in recovering your client’s debts.

This article is intended to be general commentary only and should not be taken as legal advice. Before taking action, ensure you obtain legal advice in relation to your client's specific circumstances.