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Insolvency reforms cause permanent increase to the statutory demand threshold

05 May 2021

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Insolvency reforms cause permanent increase to the statutory demand threshold

The Federal Government has foreshadowed further changes to Australia’s insolvency laws. These changes build on the raft of measures introduced over the previous year discussed in our earlier articles here and here.   

A significant change is a permanent increase in the threshold at which creditors can issue a statutory demand from $2,000 to $4,000. We are awaiting confirmation of the date from which this increase will apply.

With a view to “further simplifying and streamlining insolvency law”, the Federal Government will also:

  • consult on the treatment of ‘trading trusts’ under insolvency law
  • review the ‘safe harbour’ provisions to determine whether they remain fit for purpose. These provisions were only introduced in 2017
  • consult on improvements to schemes of arrangement, including a moratorium on creditor enforcement while such schemes are being negotiated.

At the start of this year, the government introduced the small business restructuring reforms as we previously announced here. While the reforms are generally viewed positively by the insolvency profession, the lack of consultation before their implementation was a concern. We anticipate that issues will arise from the reforms not being thoroughly considered outside of government. 

The government has obviously taken that feedback on board. We welcome the changed approach to ensure a considered consultation process on the above issues before implementing any changes. 

On the issue of trading trusts, the tax and asset protection benefits of trusts have meant that trading trusts have become increasingly common in Australia. However, the insolvency regime has not kept up with this change and we are regularly advising insolvency practitioners and directors on the implications and complications of insolvent trusts. Amendments to the laws to fix this anomaly are therefore welcomed. 

We will continue to monitor these proposed changes and the consultation process, and provide guidance as it comes to hand.

The relevant press release can be read here

The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.

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