Introduction
As the extension of the temporary relief and protection provided by the
Corporations and Bankruptcy Legislation Amendment (Extending Temporary Relief for Financially Distressed Businesses and Individuals) Regulations 2020 during the outbreak of COVID-19 came to an end on 31 December 2020, as of 1 January 2021:
- the minimum debt threshold for issuing a bankruptcy notice was reduced to $10,000, which is lower than the temporary threshold of $20,000, but higher than the pre-COVID-19 threshold of $5,000;
- the amount of time an individual has to respond to a bankruptcy notice reverted to 21 days; and
- temporary debt protection for relief from creditors reverted to 21 days.
We outline below five things you should know.
1. What is Temporary Debt Protection (TDP)?
TDP is a mechanism under Division 2A, Part IV of the
Bankruptcy Act 1966 (
Act) which provides a debtor with a twenty-one (21) day protection period in which unsecured creditors cannot take enforcement action to recover money owing by the debtor.
2. Eligibility
A debtor can apply to Australian Financial Security Authority (
AFSA) for TDP, unless they:
- received TDP in the last 12 months;
- are party to an active debt agreement or personal insolvency agreement; or
- have been served with a Creditor’s Petition.
3. Limitations of TDP
TDP does not:
- prevent creditors from contacting you to seek payment of the debt;
- prevent creditors from commencing proceedings or taking a fresh step in a proceeding in respect of a debt (such as obtaining judgment), except if it relates to enforcing a judgment;
- prevent secured creditors from pursuing repossession of assets held by them in security;
- prevent creditors from proceeding on a Creditor’s Petition already served on the debtor;
- apply to child support, HELP debts and fines imposed by a Court.
4. Process
A debtor may apply for TDP by creating an Insolvency Services account and lodging a TDP form (formerly known as the Declaration of Intention to Present Debtor's Petition form) with AFSA.
If AFSA accept the debtor’s application, they will send the debtor and their creditors confirmation in writing and a copy of the debtor’s financial affairs. This confirmation will contain the debtor’s AFSA administration number which may be used by creditors for verification of the TDP.
If the application is declined, AFSA will notify the debtor in writing.
5. Beware
In presenting a TDP to AFSA, the debtor is committing an act of bankruptcy under section 40(1)(da) of the Act. A creditor is able to rely on this act of bankruptcy to petition with the Court for the debtor’s bankruptcy (within 6 months of the act of bankruptcy).
After the 21 days have lapsed, the debtor does not become a bankrupt, the TDP ends and creditors may resume enforcement action with respect to their debts.
What’s expected?
Whilst bankruptcy and debt relief has ended with most provisions returning to pre-COVID-19 status, options remain for debtors who require extra time to get their financial affairs in order, seek financial advice and/or negotiate with their creditors. The TPD process is one of those options which may become useful with JobKeeper ending on 28 March 2021, particularly for sole traders.
The team at Hicksons can assist you with any enquiries in respect of the TPD process and other options available to you.
Post by Hicksons Partner, Marc Rossi, Hicksons Associate, Roxanna Lam, and Hicksons Solicitor, Gumneet Mangat.