The escalating responses to COVID-19 have caused a lot of the disruption to usual business procedures. What are the main points to consider if you are involved in or contemplating a commercial dispute?
Debts and dialogue
Discuss early and often with the other side to resolve disputes as soon as possible and prevent matters escalating. This applies to all disputes, but especially in relation to debts, both for accounts receivable and accounts payable. Understandably, businesses are feeling the pinch at the moment.
Some industries are also more directly affected by reduced consumer spending, potentially leading to a greater number of unpaid debts. Both creditors and debtors should seek to communicate early and attempt to negotiate a reasonable way to manage payments in light of their respective business conditions.
Keep a close watch on new mail and important deadline
Many businesses have transitioned to remote work arrangements. All businesses should ensure that they do not overlook physical mail collection and processing and formal emails while staff are working remotely. There are several reasons for this:
1. Debt collection: Don’t miss or ignore formal debt collection processes. Letters of demand and similar correspondence should be given the priority they deserve.
2. For companies: Beware statutory demands. Statutory demands (a formal notice served under section 459E of the Corporations Act 2001) are generally served by post on the company’s registered office, so it is essential that companies continue to prioritise mail processing. If your company receives a statutory demand, it will be presumed to be insolvent unless you initiate a legal challenge to the debt claimed in the demand within 21 days of receiving the demand. The presumption of insolvency is recognised as grounds to appoint a liquidator to wind up the company and may also operate as a default under loans and other agreements.
The Federal Government’s response to COVID-19 includes a temporary change to the rules regarding statutory demands. From 25 March 2020, the 21-day deadline for responding to a statutory demand is increased to 6 months. In other words, if your company received a demand on or before 24 March 2020, you must initiate a legal challenge within 21 days, but if your company receives a demand on or after 25 March 2020, it must initiate a challenge within 6 months.
Under the new rules, a statutory demand can only be used for debts of $20,000 or more.
3. Contract renewal dates: Some contracts require options to be exercised or renewals to be expressly notified, or in some cases, termination to be expressly notified to prevent an automatic renewal. Ensure you are well aware of these dates and are ready to respond to them in advance, so that you aren’t caught off-guard during the ongoing disruption.
Changes to Court operations
If you are already involved in Court proceedings, the proceedings will continue. There may be some delays and changes to the usual hearing procedures as the Courts adopt new health-sensitive practices.
The NSW Supreme, District and Local Courts are implementing procedural changes to protect their staff, litigants and the public from the spread of the coronavirus. Generally speaking, cases will increasingly be managed electronically and future directions hearings conducted by electronic means (such as teleconferencing or audio-visual link technology). Similar changes are happening in the Federal Court.
Some cases will be adjourned at short notice as the Courts seek to accommodate urgent cases and transition to electronic management technologies. Courts also have limited service capacities and must try to manage their caseload with the staff and resources they have. Litigants should be conscious that the situation is evolving rapidly and changes can occur at short notice.
Considerations for starting a case
In light of the responses by Courts and businesses, it is important to give extra thought to how to deal with a potential commercial dispute. We list below some important questions to consider
1. Have you reached out to the other side and attempted to negotiate a solution
2. What are the main obstacles to reaching a commercial resolution? Is the barrier something that cannot be easily overcome due to the impact of the coronavirus
3. Is there a way you can prevent a (potential) dispute from escalating and/or to minimise your losses? For example, if the issue is non-payment of a debt, can you negotiate with the other side to temporarily stop work (if permitted under your contract or terms of service) in order to prevent the debt from increasing
4. All court cases require participants to invest time and money to achieve a resolution. Currently, the Courts are transitioning to electronic case management and this may result in increased delays in resolving cases. Consider:
(a) Are you in a position to commit financial resources to the dispute, or is there a way you can limit your losses and devote your resources to other areas of your business?
(b) How will you manage possible extra delays in the court timetable?
The coronavirus presents many challenges to business. For those dealing with actual or prospective commercial disputes, the key takeaways are to remain aware of your current contractual commitments and be proactive in handling correspondence and engaging with creditors and debtors so you are in the best position to decide how to commit your business’ resources.