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Mitchell is the Managing Principal of Sharrock Pitman Legal. He is an Accredited Specialist in Commercial Law (accredited by the Law Institute of Victoria). He also deals with areas of Employment Law, Wills & Estate Planning and Probate and can answer all your questions related to probate.

For further information, contact Mitchell on his direct line:


CALL: (03) 8561 3318

The information contained in this article is current as at 21 May 2020 and may no longer be up-to-date. To view information on the latest coronavirus updates, please visit our COVID-19 Updates, Webinars and Resources page or alternatively contact us on (03) 9560 2922 for further information on any recent changes.

In response to the current coronavirus pandemic, the Federal Government recently introduced a number of financial measures in its Coronavirus Economic Response Package Omnibus Act 2020 (Vic)(“the Act’).

Much of the Act deals with economic stimulus measures, such as stimulus payments and superannuation draw-downs, however Schedule 12 is entitled “Temporary relief for financially distressed individuals and businesses” and deals with three key areas of temporary reform which we will address in this article, being:

  • changes to statutory demands against companies;
  • changes to bankruptcy notices and procedure, and
  • changes to a director’s liability for insolvent trading.

Statutory demands

Prior to the Act coming into force, if a debt (or debts) totalling $2,000.00 or more were owed by a company, a creditor could issue a statutory demand to the company requiring payment of the debt. If the debt were not paid or the statutory demand set aside by a Court within 21 days, then the company would have committed an act of insolvency and could be wound up by a Court on the application of the creditor, based on a presumption that the company was insolvent.

For all statutory demands issued between 25 March 2020 and 24 September 2020, the Act now increases the minimum demand amount to $20,000.00 and also extends the time for compliance from 21 days to 6 months.

Creditors can still exercise their rights in relation to secured property, but unsecured creditors who obtain a judgment are unlikely to have many effective remedies in the short term, particularly if the debtor company does not own significant unencumbered assets.

Bankruptcy

Similarly, bankruptcy notices, which follow a similar process against individuals as statutory demands do for companies, have had the statutory minimum amount increased from $5,000.00 to $20,000.00 and the time for compliance extended from 21 days to 6 months.

Additionally, any sequestration (bankruptcy) petitions must be founded on a debt of at least $20,000.00 (regardless of whether a bankruptcy notice or some other act is relied upon to establish insolvency).  

Finally, if a debtor makes a declaration of intention to present a debtor’s petition (voluntary bankruptcy), usually that debtor is protected from unsecured creditors taking action for a period of 21 days. This period has also been extended to six months.

Insolvent trading

The Corporation Act 2001 (Cth) makes directors of a company personally liable for debts incurred whilst the company was insolvent, subject to a number of pre-requisite criteria and any available defences. One of the amendments in recent years was to excuse directors from personal liability if, in general terms, it could be shown that debts were incurred by the company as part of a course of action that was reasonably likely to provide a better outcome for the company than immediately placing the company into external administration (known as the “safe harbour provisions”). This assessment can be difficult for directors at the best of times, but in the current rapidly changing economic landscape it is now an invidious task.

Accordingly, the Act now provides that directors will not be personally liable for debts incurred whilst the company was insolvent between 25 March 2020 and 24 September 2020 (and before an administrator or liquidator is appointed) provided that the debt was incurred in the ordinary course of business. The Explanatory Memorandum in relation to the Act provides that:

A director is taken to incur a debt in the ordinary course of business if it is necessary to facilitate the continuation of the business during the six month period [commencing on 25 March 2020]

This is a broad provision and, importantly, debts that are incurred for the sole purpose of changing the way the company does business may still qualify as being incurred “in the ordinary course of business”. For example, the Explanatory Memorandum specifically states that a director obtaining a loan to move some business operations online could be a debt incurred in the ordinary course of business, as could continuing to pay employees during the pandemic.

Critically, the former requirement that the course of action must be reasonably likely to provide a better outcome for the company than immediate external administration is not required to be met during this six month period.  

That said, other duties of directors at common law and under the Corporations Act have not been modified or suspended, and still must be complied with by directors. These include the duty to act honestly, the duty to use care and diligence, and the duty not to use their position to cause detriment of the company.

How long will these provisions be in place?

It is not known whether the temporary changes made by the Act will be extended beyond the initial six month period, however this may occur depending on the course that the pandemic and the consequent economic effects that take in the months to come.

What is certain is that the above changes provide an increased impetus for creditors and debtors to negotiate to seek mutually acceptable resolutions to outstanding debts. In relation to director’s liabilities, the changes make it important for directors to make flexible but well-reasoned plans as to their business’ response to the current economic circumstances.

How can Sharrock Pitman Legal assist?

At Sharrock Pitman Legal, as Accredited Commercial Law and Commercial Litigation Specialists, we can provide you with commercially-focused legal advice to assist you to ensure that your business carries on and thrives in this new economic landscape. Please feel free to contact our Litigation team on 1300 205 506 or fill in the contact form below.

The information contained in this article is intended to be of a general nature only and should not be relied upon as legal advice. Any legal matters should be discussed specifically with one of our lawyers.

Liability limited by a scheme approved under Professional Standards Legislation.

Written by one of our lawyers

,

.

Simon Matters

For further information contact

Simon Matters

Simon is a Senior Associate of Sharrock Pitman Legal.

He is an Accredited Commercial Litigation Specialist (accredited by the Law Institute of Victoria) and deals with Litigation, Mediation of Disputes, and Law for Charities & Not for Profits. For further information, contact Simon Matters on his direct line (03) 8561 3324.

More on

Litigation [Courts & Tribunals]

However, in this article we will set out the factors that influence how long it will take to obtain a Grant of Probate and to administer an estate in Victoria.

The basics

First things first: what is a Grant of Probate? A Grant of Probate is effectively a document issued by the Supreme Court of Victoria which formally authorises an executor to manage the estate of a deceased person in accordance with their Will. Without Probate, the asset holders (say a bank or share registry) cannot be satisfied as who has the correct authority to receive the deceased's assets and may refuse to pay out.

Sometimes, for smaller estates or if assets are mostly jointly owned with a surviving spouse, asset holders might agree to release payment without requiring a Grant of Probate. This is usually on the basis that the person who receives payment promises to repay (or Indemnify) the asset holder if it turns out they paid to the wrong person.

If there is no Will, then you cannot obtain a Grant of Probate. Instead you obtain Letters of Administration. This is effectively the same, in terms of authorising someone to administer the estate, and would usually be obtained by the person who is the closest next-of-kin to the deceased.

“A Grant of Probate is effectively a document issued by the Supreme Court of Victoria which formally authorises an executor to manage the estate of a deceased person in accordance with their Will.”

Timeframes for Probate in Victoria

In order to obtain a Grant of Probate, the Court needs to be given information about the assets and liabilities of the estate, the deceased person, the witnesses to the Will, the executors and the Will itself. An advertisement of your intention to apply for Probate must also be placed on the Supreme Court website for at least 14 days prior to any application.

Often, making enquires to obtain all the necessary information can take a number of weeks. Also, you will need the Death Certificate for the application for Grant of Probate and possibly for making proper enquires regarding the assets and liabilities. Waiting for the Death Certificate to issue can therefore add a few more weeks to the process. Overall, if you have your application for Grant of Probate lodged within 1 to 2 months from the date of death, you are making timely progress.

The Court itself does not take long to process the application (maybe another 1 to 2 weeks) and this is done 'on the papers' using the electronic Court filing system. This means you do not have to go to a court hearing. There is also a general discretion for the Court to issue a 'Requisition' asking that you provide more information before they process the application and this can delay matters.

“Overall, if you have your application for Grant of Probate lodged within 1 to 2 months from the date of death, you are making timely progress.”

So, here we are a few months after death and you finally have a Grant of Probate. It is important to remember that this is the start of the estate administration and not the end. For a very simple estate, you might only need a further month or so to cash the assets and pay them to the correct beneficiaries. However, it can often be more complex than that. Factors that determine the timeframe to administer the estate include:-

  • Some assets will take time to cash or transfer. For example, if selling a property, final settlement might be 60/90/120 days from the day of sale.
  • There is a 6 month period for challenges to be brought against the estate and executors must wait until this period expires before distributing the estate, if there is any risk that a disgruntled family member might come forward.
  • There might need to be final tax returns for the deceased or for the estate. Failing to wait for the ATO to process these could leave the executor personally liable for a tax bill.
  • You might need to advertise for creditors to come forward and wait for a period of months while this advertising timeframe expires. This protects the executor if they are unsure of all of the deceased's financial dealings and creditors.
  • It might not always be a good time to immediately cash estate assets. For example, the shares just took a nose-dive, do you still sell regardless of available price?

There is a general rule that executors have an 'executor's year' to complete the estate administration. This means that you should be aiming to have the estate finalised and distributed within 12 months from the date of death.

The information contained in this article is intended to be of a general nature only and should not be relied upon as legal advice. Any legal matters should be discussed specifically with one of our lawyers.

Liability limited by a scheme approved under Professional Standards Legislation.

Need help with Probate?

Our expert legal team is ready to take your call!

Mitchell is the Managing Principal of Sharrock Pitman Legal. He is an Accredited Specialist in Commercial Law (accredited by the Law Institute of Victoria). He also deals with areas of Employment Law, Wills & Estate Planning and Probate and can answer all your questions related to probate.

For further information, contact Mitchell on his direct line:

DIRECT LINE: 
(03) 8561 3318

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About Sharrock Pitman Legal

For fifty years Sharrock Pitman Legal has made a significant and long term contribution to meeting the legal needs of business owners and residents in the City of Monash and greater Melbourne area.