Australia's exposure to natural disasters — bushfire, flood, cyclone, and drought — means that at some point most B2B creditors will face a situation where a debtor has been directly affected by a declared natural disaster. The question of how to handle outstanding debts in that context is not only ethical but also practical: the approach you take will affect whether you recover anything, when you recover it, and how the relationship is managed.
What the regulatory framework says
The ASIC and ACCC joint Debt Collection Guideline notes that collectors should take into account a debtor's particular circumstances, including whether they have been affected by a natural disaster. For consumer debts, the National Consumer Credit Protection Act 2009 (Cth) contains formal hardship provisions that require creditors to assess and respond to hardship applications. For B2B debts, there is no equivalent statutory obligation, but the same principle applies as a matter of good practice and brand risk.
Following major natural disasters, state and federal governments sometimes issue formal guidance or legislative relief affecting certain classes of obligations. These should be monitored — proceeding with aggressive recovery action during a period of legislated relief can create legal risk as well as reputational risk.
Practical approach for affected debtors
- Make contact early, but with appropriate sensitivity. Acknowledge the situation explicitly. Do not pretend the debt does not exist, but frame the conversation around what is possible rather than what is owed.
- Pause formal recovery action temporarily. A short pause — typically 30 to 90 days depending on severity — is reasonable and generally in the creditor's interest: threatening legal action against a business that has lost its premises or stock is unlikely to produce payment and is likely to damage the relationship.
- Agree a payment arrangement as operations resume. Once the debtor's situation is stabilising, negotiate a structured repayment plan. Get it in writing. A debtor who has survived a disaster and received accommodation from their creditors is often a better long-term payer than one who has been pursued aggressively.
- Monitor for insolvency risk. Some disaster-affected businesses do not recover. If the debtor's viability is in doubt, it may be appropriate to lodge a PPSR claim (if you have a registered security interest) or to take protective steps before trading resumes and new creditors take priority.
When to refer despite the circumstances
Natural disaster does not extinguish a debt. If a debtor is using disaster as a shield to avoid payment on a debt where their business is actually operating, or if the debt predates the disaster and was already in default, a different approach may be warranted. The test is whether the debtor's inability to pay is genuinely connected to the disaster and whether a reasonable accommodation is likely to result in recovery.
Speak to Merion if you are navigating a recovery situation involving a disaster-affected debtor and want guidance on the appropriate approach.