• COVID-19 VUCAP Risk

Insolvency Relief - Impact Assessment

Updated: Mar 30

Support for businesses unable to make payments as they fall due.



Situation

Source: Australian Government - The Treasury [Fact Sheets]

Source: Australian Financial Review


The government will increase the threshold at which a creditor can issue a statutory demand from $2000 to $20,000, while the threshold for the minimum amount of debt required for a creditor to initiate bankruptcy proceedings will increase from $5000 to $20,000. Both measures will last for six months.


The time companies have to respond to such demands they receive will also be increased from 21 days to six months.



Furthermore, there will be relief for directors from personal liability when the company is trading while insolvent.




What does this mean?


The measures will naturally protect the debtor and whilst in theory have a knock on effect to the creditor, there is little likelihood that delinquent debts will increase as a result of this protective measure. It is more likely that this will keep debtor operating and increase the debtors chances of collecting the debt.


The measures will naturally protect the debtor and whilst in theory have a knock on effect to the creditor, there is little likelihood that delinquent debts will increase as a result of this protective measure. It is more likely that this will keep the debtor operating and increase the creditor's chances of collecting the debt. However, small operators or those with low liquidity will be at a knock on risk.


The measures will naturally protect the debtor and whilst in theory have a knock on effect to the creditor, there is little likelihood that delinquent debts will increase as a result of this protective measure. They will increase as a result of the COVID-19 situation, it is more likely that this will keep debtors operating and increase the creditors chances of collecting the debt.


Organisations should be advised of these changes and adjust their risk controls accordingly. This may include entering into good faith negotiations with creditors.



Summary of the VUCAP view of this position and the impact on organisations


Political - Favourable over the next 6 months

Economic - Favourable over the next 6 months

Sociocultural - Favourable over the next 6 months


Business should monitor changes carefully.


cc 2020 VUCAP Pty Ltd - This information is collated via public and VUCAP internal sources and is free for use or distribution.

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