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COVID-19 debt hibernation – Australia’s opted for putting all debts into a box and locking it up – until 25 September 2020
COVID-19 Debt Hibernation
Australia adopted a COVID-19 debt hibernation policy to cope with the crisis, but how is this policy coping, for example with Virgin? Are we doing this differently to other countries, notably the UK and US, and should we reform?
These are some of the question Ben Sewell of Sewell & Kettle in Sydney will cover in this episode. Here is what we learned but please listen as Ben Sewell explains this much better than we ever could.
To listen while you drive, walk or work, just access the episode through a free podcast app on your mobile phone.
COVID-19 Debt Hibernation
Different to the US and UK, Australia chose COVID-19 debt hibernation until 24 September 2020. So you have time to get back on your feet or consider insolvency. And we as a nation have time to consider reform. And as a result there is very little insolvency at the moment.
Debt hibernation is not debt forgiveness. Debt hibernation ends one day and it will on 25 September 2020. And then the usual insolvency process restarts. So there is a ‘tsunami’ of insolvency expected from October 2020 onwards – be it receivership, liquidations or voluntary administration.
Stay Open and Trade
The current temporary safe harbour from insolvent trading is a strong statement to business to stay open and not appoint a liquidator. Winding up a company has poor collection value. So your creditors will have a vested interest in you surviving this crisis.
Debtor-In-Possession
The UK has just implemented a debtor-in-possession system where the insolvency practitioner is a ‘monitor’ not controller in administrations.
UK also got rid of receivership in their last series of reforms. In contrast, Australia often has dual appointments of receivers and administrators, for example Dick Smith.
UK
Different to Australia’s debt hibernation, the UK chose a debt forgiveness regime. And they could because of reforming their insolvency system to a debtor-in-possesion regime.
US
Chapter 11 in the US focuses on turnarounds. Not in Australia. Australia’s insolvency laws are good at terminating unsustainable businesses, but not at turning them around. Restructuring is not a priority in Australia.
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Last Updated on 16 March 2021
Tax Talks spoke to Ben Sewell - Principal at Sewell & Kettle - for more details.
