Extension of Temporary Changes to Insolvency Laws for Companies and Individuals

By September 7, 2020 May 17th, 2022 Bankruptcy, Blogs, COVID-19, Insolvency, Policy & Procedure

September 2020

Extension of Temporary Changes to Insolvency Laws for Companies and Individuals

The Australian Federal Government has announced that it will extend the temporary amendments to insolvency, corporation and bankruptcy laws, put in place to assist in the COVID-19 pandemic, until 31 December 2020.  This extension has been the subject of widespread support and was highly anticipated.

The extension of insolvency and bankruptcy law relief will apply as follows:

  1. Temporary bankruptcy protection – under the temporary measures put in place earlier this year, the minimum threshold for bankruptcy proceedings against an individual was increased to $20,000, and the time for an individual to comply with a Bankruptcy Notice was extended to 6 months. The previous threshold for bankruptcy proceedings was $5,000 and 21 days for compliance with a Bankruptcy Notice.  In addition, the period of protection for an individual making a declaration of an intention to file a debtor’s petition has been extended from 21 days to 6 months.
  2. Temporary changes to statutory demands against companies – the temporary measures increased the threshold for statutory demands from $2,000 to $20,000 and provided a period of 6 months for companies to respond to statutory demands, rather than 21 days.
  3. Temporary safe harbour insolvent trading provisions – under the temporary measures, a company director is protected from a claim for insolvent trading of the company, for debts incurred in the ordinary course of the company’s business.

Given the second wave of COVID-19 lockdown in Victoria, the continuing issues in New South Wales and, to a lesser, degree, Queensland, the extension of insolvency protection measures was widely anticipated.

Various industry bodies have advocated for such measures for some period.  The CEO and managing director of the Australian Institute of Company Directors welcomed the Government’s announcement with the following statement:

We are 6 months into a COVID-19 challenge that will extend for 18 months or longer.  With this measure extended, many businesses will now be able to weather the immediate storm which, in the long run, will be a better outcome for the Australian economy.

The end date of the extension has come as a surprise in some quarters, given that an extension to 31 December 2020 gives rise to a potential for an increase in insolvencies in January 2021, during what is traditionally a holiday period in Australia.  There is conjecture that these measures will be further extended, given that the JobKeeper legislation has been extended to 31 March 2021.

Notwithstanding the extension of these temporary measures, it is important for both company directors and individuals to be careful in exercising their duties as a director, or with respect to their individual debt circumstances.  Directors will only have the benefit of these provisions if they carry out their duties with due diligence and in the ordinary course.

Whilst the extension of these temporary measures is welcome, there are many businesses and individuals for whom the insolvency regime may still provide a better outcome than continuing to trade.  For example, a number of high profile retail companies have gone into voluntary administration over the past few months, and then entered into a Deed of Company Arrangement with creditors.  This has allowed their business to quarantine debt and restructure, in order to become leaner and more viable for the new post COVID-19 trading conditions.

Contact Us

If you or your company are experiencing financial difficulties and need help with understanding your options, contact us today.  We would be happy to assist you with specific advice on the best course of action available, including through the use of insolvency laws and the temporary extension announced by the Government.

Craig Higginbotham
8 September 2020

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