Christmas 2020 – insolvencies loom
A perfect storm is brewing this Christmas for distressed companies.
The factors at play are:
- The moratorium on issuing statutory demands ends on 31 December 2020;
- The NSW commercial tenancy COVID relief measures expire on 31 December 2020;
- The limited ‘safe harbour’ on directors insolvent trading ends on 31 December 2020;
- Banks are now renegotiating deferred loan obligations;
- There is no moratorium operating on the director penalty notices regime;
- Courts are on vacation for Christmas until the end of January and operate with a vacation judge with limited workload capacity; and,
- Most businesses shut on or before 24 December 2020 for at least one week and 31 December 2020 falls in the week where most of NSW will be on holiday.
We have already published an article on the danger of missing statutory demands served by post to registered offices over this period. It’s likely that many statutory demands will be issued in early January 2021 due to the moratorium lapsing.
The 31 December dates are so obviously problematic given the Christmas break, that a short extension to the dates seems probable. An extension cannot be relied upon however, especially when leases are a State matter and company issues are Commonwealth matters.
Adding to the pressure on distressed companies, is a debate as to whether if the insolvent trading safe harbour has to be relied upon, it only operates if a formal insolvency appointment occurs before 31 December 2020.
One indicator that the Federal Government may not extend its deadlines, is that a new SME insolvency regime is meant to be starting on 1 January 2021. This is at a draft bill stage. It only aids companies with creditors under $1 million, who pay all employee entitlements and are up to date with tax return lodgements.
Query how long distressed companies can continue to rely on debt deferrals and moratoriums anyway. These are the “zombie” companies the financial press continue to write about.
All these factors ought to prompt directors of insolvent, or near insolvent, companies to seek expert insolvency law advice as to their options now, well ahead of these year-end deadlines.
We have the expertise to assist you on these issues.
This paper is a summary providing general information and is not specific legal advice.
Surry Partners Lawyers
© Surry Partners Lawyers 2020