2020 was a year like never before. The world faced the unforeseen challenges associated with COVID-19 that seem to have changed forever many of the traditional aspects of business and personal life. From the hit to the global economy, interrupting both domestic and international trade, the devastating impact to the hospitality, tourism and other sectors that employ thousands of people, to immediate, unplanned and long lasting shutdowns that created a sense of isolation never before seen. The Australian Government’s response was swift and decisive and time will tell whether the various measures have delivered the intended outcomes.
From a debt collection viewpoint, we saw Australia’s insolvent trading laws temporarily amended in March last year, resulting in the response time to a statutory demand and bankruptcy notice extending from 21 days to 6 months.The moratorium was further extended to 31st December 2020 as the economic damage caused by the pandemic became evident. At the same time, the limit for initiating either a bankruptcy or wind up was increased to $20,000 and a temporary COVID-19 safe harbour defence for directors from insolvent trading liability was also introduced. Many thousands of commercial and consumer loans were placed on hold as a range of support packages were launched to assist businesses and consumers impacted by the job losses and shutdowns.
At the same time the ATO was encouraged to provide greater flexibility and accommodate the circumstances of tax payers with greater flexibility which included temporary reduction of payments or deferrals, and suspension of enforcement action against both organisations and individuals.
To support small business, the Government has introduced a simplified version of the Administration process for SME’s making access to insolvency advice and restructuring easier and more cost effective. A new ‘debtor-in-possession’ debt restructuring process aims to maximise the chance of survival for small businesses in trouble. Under this process, the directors of the company will work with an independent small business restructuring practitioner (SBRP) to develop and implement a debt restructuring plan. Throughout the process, directors will retain control of the company, a moratorium will prevent creditors enforcing their debt and the company will be permitted to trade in the ordinary course of business. The restructuring plan is developed by the directors and the SBRP over a period of 20 business days following which it is circulated by the SBRP for creditors to vote upon. If more than 50% of the company’s creditors (by value) vote in favour of the plan, it is adopted.
To date, the take up of the take-up of the SBRP has been very low, so it remains to be seen how effective this initiative will be in the longer term.
To obtain a copy of the Government fact sheet Click here.
The intention is that in 2021, the economy will gradually return to normal and businesses and individuals will be encouraged to support themselves instead of relying on stimulus measures to get them through. The real test will come after March 31st 2021 when all of the existing stimulus measures are removed and, in the absence of further targeted support measures, the natural eco system of our economy will be encouraged to return. For credit professionals in the banking and finance sector, 2021 will be another year of firsts. As professional lenders, the management of consumer and commercial credit risk is front and centre of operations. From origination, through acceptance and ongoing risk management, 2021 will be another year of firsts both in terms of policy development and execution.
The team at Shield Mercantile are uniquely placed to support consumer financiers through this period of change. Using their 30 years of knowledge and experience they consistently outperform their peers in all aspects of their service.