Due to the COVID-19 pandemic, the Federal Government stepped in and legislated in March 2020 to...

Due to the COVID-19 pandemic, the Federal Government stepped in and legislated in March 2020 to temporarily suspend key aspects of insolvent trading law in the Corporations Act 2001 (Cth) for a period of six months. The suspension was recently extended to last until 31 December 2020. In view of these events, do you think that the Federal Government should permanently remove (ie. abolish) Australian insolvent trading law, especially considering that no such equivalent law exists in the United States? If so, discuss why? If not, discuss why not? Or, if you think insolvent trading law should be retained, but modified, discuss why?

Please provide long explanation why or why not. and the laws that support the claims.

Solutions

Expert Solution

As per the Section 95 A of the Company's Act, if a company is unable to pay its debts, as on the date and at which the payment gets due, a company is called insolvent. Insolvent trading is the situation at which a company cannot pay its debts, which are due, and continues the trade as before.

As far as limited companies are concerned, because of its insolvency (unabale to pay debt), business will naturally go into liq cuidation, stop trading and the firm will be sold to some other parties. During the time of insolvency, the company's administative officers do their maximum to help the companies to pay their debts.

Liqidation on the other hand is a process through which the company sells all assets before dissolving the company completely.

In Australia the term insolvency is related to companies. On the other hand in the case of individuals it is called bankruptcy.

The existing law in Australia, in connection with insolvency, helps to maintain an equitable balance with the interests of both the debtors and creditors.

It is vested in the Australian Secrities and investment commission has the power to offer some kind of relief to the companies which are unable to pay bebt,because of their financially risk situation.

The governments will inittiate a method which can help the critically distressed businesses to of restructure. This Covid - 19 pandemic is a situation which no economy can predict earlier. It affected all the economic activities all over the world very badly.

All the organizations are suffering and trying to overcome this situation some or other way. The growth of each business units will add additional unit of Gross Domestic production. Hence we can expect a favourable move from the part of the federal government to survive the companies by extending the implementation of Australian Dissolvancy Act.

Rahul Sunny answered 1 year ago

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