What COVID-19 Bankruptcy Relief Measures Mean for Creditors
The global COVID-19 pandemic has plunged Australia into what some commentators have described as the worst recession since the Great Depression of 1929.
The disease’s disruption to our economy has been severe and is expected to be prolonged. The impact has already been obvious on the revenues of Australian businesses and the employment of workers. It is also the fact that many businesses and individuals who have loans from financial institutions, or receive goods from suppliers on credit, have been put in a position where they have – or will soon – default on their repayments and face bankruptcy.
This situation is, of course, stressful and challenging for lenders, faced with losing most of their assets, but also for creditors who need to make decisions about enforcing their rights to repayment, helping the lender via a repayment plan or debt agreement, or working out some other solution to recover the amount owing.
As a response to the COVID-19 pandemic, in March 2020 the Australian Financial Security Authority made changes to Australia’s Commonwealth bankruptcy laws to provide relief to those businesses and individuals experiencing financial difficulty.
These special measures were originally scheduled to end in late September but have now been extended to 31 December 2020.
Details of the relief measures
In order to help those whose ability to meet loan repayments or payment for goods supplied on credit, for example, has been affected by COVID-19, the key debt relief measures announced in March and now extended comprise:
- The minimum amount of debt required to activate a bankruptcy notice by a creditor against a debtor is increased from $5,000 to $20,000;
- the amount of time an individual has to respond to a bankruptcy notice is increased from 21 days to six months;
- people can apply for six months debt relief from creditors, an increase from the original 21-day period.
While major financial institutions are able to manage this extended period of debt relief for its lenders due to their size, smaller operators and business owners suppling goods on credit to consumers will be adversely affected. In many cases, they will not be able to pay their own bills and other liabilities as a result of the extension of debt relief for their consumers.
Accordingly, creditors will need to weigh up their options in initiating the enforcement process during this time.
Importantly, a Court Judgment is enforceable for up to six years (or twelve years with leave of the Court). In some instances, a court judgment can attract interest on the debt owed by the debtor at the post-judgment rate, with creditors able to take further steps such as a wage garnishee order to enforce repayment of the amount owing or seizure and sale of an asset. Accordingly, Bankruptcy may not be the only enforcement option available.
If a creditor decides to proceed to Bankruptcy then the customer/debtor can file for Temporary Debt Protection (TDP) with the Australia Financial Security Authority (AFSA), which stops the creditor from being able to take further enforcement action for a period of six months.
The TDP process requires the customer to file a brief statement of their financial affairs with information about income, assets and debts. This information is then supplied to the creditor in order to give them the full picture of the debtor’s position.
The creditor and debtor may then contact each other – with or without legal representation or intervention by the AFSA – during the six-month debt relief period to attempt to work out a debt repayment arrangement.
Personal Property Securities Register
For those supplying goods on credit terms to customers, the AFSA suggests registration on the Personal Property Securities Register (PPSR). An agreement with the customer combined with valid registration on the PPSR can assist creditors in having their invoices paid or the goods returned in the event that the customer is unable to pay or files for bankruptcy.
What if the debtor was already in bankruptcy?
Where a bankruptcy notice was issued before 25 March 2020, It remains the case that the debtor has 21 days to comply with the bankruptcy notice.
Additionally, for those in bankruptcy before the introduction of the Federal government’s Coronavirus Economic Response Package, any support payments are not claimable by the bankruptcy trustee as income or as an asset, regardless of whether you receive the payments before or after the date of bankruptcy.
COVID-19 supplement payments are claimable by the trustee if received before the date of bankruptcy and still in the debtor’s bank account when they become bankrupt.
How we can help you
If you are a creditor with customers facing bankruptcy or require assistance enforcing a Judgment, we at OMB solicitors can help you.
Whether it’s understanding the detail of the COVID-19 debt and bankruptcy relief measures (now extended until the end of 2020), helping you formulate a legally binding debt agreement with a debtor, or initiating court proceedings to enforce a debt, we will help you find a way to recover the debts owing to you so that you return to a strong financial position once the pandemic is over. Call our Gold Coast Lawyers today on (07) 5555 0000 or email us at [email protected] for an initial consultation.
One of the most frustrating aspects of running a business is not being paid on time for the goods and services you provide. Customers who don’t pay on time eventually cost your business time and money in chasing them to settle their bill, not to mention the impact on your cashflow.
While businesses in this situation certainly have legal rights that allow them to take action to collect from debtors, there are also many pre-emptive things a business can do to both reduce the prospect of indebted customers, and improve your internal processes for recovering debt. We’ve listed 10 essential points any business should consider when approaching the area of debt recovery.
Know who your customers are
Many of the problems with customers who struggle to pay stems from a lack of initial due diligence on the part of the business that extends them credit. By first checking publicly available company information and otherwise gathering as much information as possible about the business you’re lending to, you can effectively ‘screen’ those who are likely to be able to repay from those who are not… and hopefully reduce repayment problems.
Offer customers incentives for early or instant payment
A decision to offer a debtor a discount or some other incentive to pay you back early or on time obviously needs to be weighed against the costs of chasing them for payment. Many businesses will prefer to be paid back at a slight discount, maintaining cashflow, rather than spend time and effort chasing debts. If discounting payment is not an idea you wish to entertain, other incentives such as offering certain customers exclusive products or access can also encourage on-time payment
Have clear, transparent and accessible contracts and terms
While it seems obvious, many businesses use contracts that are either too vague on key details, or alternatively too heavy with legalese for those to whom they extend credit to understand. The guidance of a legal representative with experience in debt recovery is often essential in helping a business draft a succinct, clear and transparent document which sets out payment terms, methods of payment, time limits, manageable credit limits and penalties for non-payment by those they extend credit to. This can avoid any ‘they said-he said’ disputes later, and prove crucial if legal action for debt recovery is later required.
Provide different options for repayment
By diversifying the methods by which customers can pay, you can encourage them to honour their obligations rather than ignore or delay them. A payment plan or instalments might be better than not getting payment at all, but obviously this decision will depend on the size of your business and your cashflow position.
Make someone in the business a ‘debt recovery officer’
Many businesses make the mistake of having more than one person responsible for chasing up late or non-paying customers. This can lead to confusion and duplication, particularly in larger businesses with many clients. Ideally there is one person, or a dedicated team leader, responsible for debt collection, streamlining the interaction of the business with debtors. In smaller businesses, if this seems too big a job for one person, external experts can be employed. Many law firms now offer specialist debt recovery services.
Ensure there is a systematic invoicing process where you follow-up on late payments
Following on from point 5, a debt recovery officer should be managing a systemised process of invoicing and follow up of late payments. Whichever way this is done, the process should be accessible to all those involved in transactions between the business and clients. The process should also be clear and transparent for the customer, so they are aware of what the follow-up contact is in relation to.
Communicate verbally with the debtor
This point follows on from 5 and 6 but again, also applies to anyone in the business who deals with customers. In these days of email and online portals, it’s easier than ever for customers who owe money to ignore or put off requests for payment until it suits them to pay. Sometimes a good, old-fashioned chat on the phone between, say, the debt recovery officer and the client, can lead to quicker payment. There’s still no substitute for dealing with a real human.
Insist on a written payback commitment
While there may be a contract in place, and there have been polite requests for payment and even a friendly chat on the phone, you should also consider a written ‘payback’ commitment presented to the debtor when the debt becomes payable. Here the debtor acknowledges the debt, explains why it hasn’t been paid on time and promises to pay it back by a specific date in a return email or letter. This document, like a contract, will also assist if later legal action is required for non-payment.
Keep a record of all contact details and communication with the debtor
A comprehensive and accurate record of all the ways the business has contacted the debtor should be kept. These days, various software tools make this easy to do. A record of the contact made with the debtor will be vital if legal action needs to be commenced against the debtor.
Stop the account and take legal action
Obviously there comes a point where a business has tried everything to get a customer to pay, without success. At this stage the logical course of action for the business is to cut off service and/or credit to the client and consult a lawyer about the next steps to recover the debt/s.
OMB Solicitors has many years of experience in advising and guiding businesses on debt recovery actions. If any of the issues raised in this article provide you with questions or concerns, contact Gold Coast Lawyers today on (07) 5555 0000 or [email protected]
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Litigation can be inherently uncertain, time consuming and expensive. This is fundamentally why the majority of disputes that come across our desk are resolved out of court.
Parties are encouraged to participate in Alternative Dispute Resolution (“ADR“) in all jurisdictions in Australia. However, the type of ADR process used will differ depending on the nature and circumstances of the dispute. These processes can include Conciliation, Settlement Conferences, Arbitration or Mediation.
Whilst there are some matters that can only be resolved by determination at trial, if the parties can assess the value of what they are fighting for and weigh this up against the costs of going to trial, a resolution at Mediation will save on time, money, opportunity and emotion.
Mediate as a preferred Alternative Dispute Resolution Process?
Mediation is a common process used for settling disputes with the assistant of an impartial third party, ‘the Mediator’. It allows the parties to flesh out the real issues in dispute and to encourage the parties to compromise on certain matters in order to achieve an outcome.
Parties can mutually agree to participate in Mediation or, otherwise, in some instances, are ordered to participate by the Court.
Mediation can occur at any stage of the proceedings but the earlier the better, before the costs start to escalate and your wallet starts to hurt.
Benefits of Mediation
The five major benefits of participating in a Mediation are:
- Controlling the outcome
At mediation both parties will have an opportunity to have a say and agree on an outcome that they would be prepared to walk away with.
The parties can also agree to specific terms and releases which mutually benefit one another.
- No winner no loser
Mediation is likely the last opportunity for the parties to resolve the dispute prior to a final hearing. Once a final order is made there will only be one satisfied party, the successful one.
A resolution at Mediation will result in a mutually beneficial outcome without necessarily one party being more out of pocket more than the other (depending on the terms of settlement).
Mediations are conducted on a without prejudice basis which allows the parties to discuss matters openly and without pressure of offers being used against them at a final hearing.
Further, unlike the potential publicity of court proceedings, everything said at the mediation is entirely confidential to the parties (unless specifically agreed otherwise).
- Tying in other matters not subject of the proceedings
Mediation allows the parties to vent all issues, including issues which may not be particularly relevant or pleaded in one’s claim.
It also provides an opportunity for apologies, statements of regret, acknowledgements and confidentiality clauses to be included in the settlement which is more than what a hearing could provide.
- Saving money, time and stress of going to trial.
These benefits speak for themselves.
Gold Coast Lawyers at OMB Solicitors can assist you in resolving your dispute in a commercial and timely manner. We provide tailored advice to client’s based on the individual circumstances of the case.
The building and construction space is the source of many legal disputes that arise out of complicated contract arrangements. This will often lead to the parties enforcing their legal rights, which can lead to costly and protracted legal battles. To better understand the issues, and what you can do about them, in this podcast, Commercial Litigation expert, Cameron Marshall of OMB Solicitors discusses the matter.
Dan: Cameron, is there one intrinsic thing in these matters that tends to be the problem?
Cameron: Yes, I find that it’s probably, it sounds pretty simple but the thing that can be done is for the parties just to read and understand the contract that they’ve signed, that’s probably the first place to start to try and avoid any disputes.
Dan: Is it the case that most people don’t, is that common?
Cameron: I’d say quite a lot unfortunately, it sounds very basic but I see it quite a lot from in my field of work all the time, that disputes could’ve been quite easily avoided by the parties understanding what they had to do, and knowing which way to go when a dispute arises, yeah.
Dan: Is there something about the contract or particular clauses that you think that are typically the drama?
Cameron: Yeah, well, not … Yeah, typically they come from a whole range of problems, because I’ve been doing this job for 20 years odd, so I see a lot of different ones. So when I see things such as something as simple as just the parties, or how they may be named in the contract, they need to make sure that the exact legal entity is named. That comes a real problem if we ever have to enforce payment for work being done if we haven’t even got the contractual parties correct, because it gives wriggle room to a party trying to avoid payment, possibly.
Cameron: Other things like that come up is often when contracts have been negotiated, that’ll take a little bit of time and a start date for the commencement of the work might be included. But, often when the actual contract’s signed, that start date’s passed. So if we’re working on a practical completion date, we’re already halfway through that, we could be halfway through that period and the contractor will be facing some problems down the track, when the completion date’s quickly coming up and he might be getting pressed for completion, etcetera, etcetera. So it’s just those things that need to be sorted out beforehand.
Cameron: The construction schedule’s one that also comes up a lot. It’s one of those things that sometimes gets overlooked in the contractual negotiations, the contractors and the owners and the builders need to just make sure that the construction schedule is one that they can keep, and one that’s realistic. We don’t wanna, again, get into disputes with someone falling behind when the contract, construction schedule itself was just not able to be done.
Cameron: There are even situations where I’ve seen contracts not signed. So-
Cameron: We get a couple of hundred thousand dollars worth of work and the dispute arises and then one contractor says that they haven’t signed the contract. There’s legal ways of getting around that, but you don’t really wanna have to go there if you just check the contract and make sure it’s being signed by the proper party. So there are some of the examples that I see quite often.
Dan: Now, Cameron, when things go wrong, where’s a starting point for people to sort of consider how to resolve this, is it typically the case that they don’t do anything at all, they let these things linger, or what’s the best way around it?
Cameron: Well, again, let’s go back to the contract, let’s see what the contract might say. So let’s talk about a breach of the contract. Normal construction contract if someone’s noncompliant, maybe they haven’t paid a bill, maybe some bit of work is being delayed, then it’s something that can be addressed in the contract by simply providing a notice to the other party. Usually it has to be in writing, but once again, it clears the air and provides certainty as what the other party alleges isn’t done, and it gives time for the other party to do it, and if it’s not done then you can have a look at your legal rights, but again, you go back to the contract, see what it says, and it will guide you through a lot of the problems.
Cameron: There are dispute resolution clauses often in building contracts, now these can be used, I’ve seen one recently where we had a latent defect come up because of soil testing. And it needed to be, there was a dispute between the builder and the contractor, and it needed to be resolved so the parties went through their conciliation process and the arbitration process in the contract which required eventually an independent expert to decide whether it was a latent defect, latent condition sorry, and that resolved that issue so the contract could proceed. It’s not always the case the parties are happy with those rights, but it’s a lot better than going down the legal course if it can be done prior to incurring legal costs, yeah.
Dan: From a practise perspective Cameron, is sort of traits that you see of builders who may sort of sit on these things longer than they should in terms of bringing the issue to a resolution, sort of practical issues that sort of emanate?
Cameron: Well, the building site is, I’ve been on them before in my younger days, it’s a different world there, there’s a lot of trust between the parties and a lot of things spoken orally, which is the normal way to do it and good, but it’s not the good legal way to do it. So, what may be said by one party and understood, thought to be understood between the parties that things may be okay, may not be the situation and when a dispute does arise and the lawyers get involved, then again the contract will be the document that we all look at and will be the one that we’ll be trying to enforce. So, it’s one of those situations where on the building site you don’t wanna rest on your belief and understanding of what the other party thinks is the case, or what you think is the case, rather, let’s get it clarified, let’s go back to the contract, make sure what the parties are doing is understood, and then you can go forward. You don’t want, you thought it was the case, ’cause you’ll just end up in problems down the track.
Dan: So, undeniably, the real take-home message for people listening to this podcast, those that work within, in the industry, is to get advice and make sure these contracts are watertight.
Cameron: Yes, it’s just really … They’re a daunting document when you look at them, but once you’ve had a little bit of experience with them, and you read them, it’s, they’re pretty straightforward and they all have the general similar tone and vein to them, so just understand what you need to do, and if something does go wrong, how do you address it? There are ways to go enforce your legal rights through the courts and the different tribunals, but a lot of that can be avoided simply by knowing what you need to do under the contract and doing that.
Dan: Cameron, thanks for joining me.
An experienced solicitor offers viable solutions in the face of legal action.
Leading Gold Coast lawyer Simon Bennett says courts are often described as casinos for the rich. “Most people think only large companies and wealthy individuals can afford the cost of litigation and there is some truth in this,” he says. “When civil and business matters can only be resolved by legal action or it is necessary to defend against proceedings there are ways to minimise costs.
“It is essential to remove emotions from the equation. Litigation is often driven by feelings about justice or rights and wrongs. Legal action should only be taken after all the facts and the likely results are established. Few can afford the expense of proving a point in court.
“It is important to choose a specialist solicitor who is experienced and competent. Very few lawyers have experience in running complex litigation in the superior courts. An inexperienced solicitor may make costly tactical errors. Sound representation comes through experience, knowledge of court procedure, and rules of evidence. Poorly drafted court documents are often challenged or redone – this all adds to the cost.
“People who plan legal action should ask their solicitor detailed questions. This will show whether the solicitor has the necessary qualifications and experience. Superior court actions involve a barrister’s fee. The choice of barrister is crucial.
“Errors in the preparation and presentation of a case are costly and may result in a negative outcome. Ensure money is spent wisely by engaging a solicitor who has intimate knowledge of and a good relationship with the bar, and I don’t mean the local pub,” he says.
Simon says the best way of reducing legal costs is to work with a solicitor to establish a reasonable settlement. “Provide the solicitor with as much information as possible as soon as possible,” he says.
“A settlement that is commercially acceptable in the light of risks and costs is a positive result. If a settlement can’t be reached then at least the solicitor has the full picture and the opportunity to gain the tactical advantage,” he says.
This article was featured in Label Magazine, by Simon Bennett