COVID-19 response: Changes to insolvency laws

The increasing spread of COVID-19, and now the unprecedented measures being taken by governments to slow that spread, is having and will continue to have a significant impact on economies around the globe, including Australia. As the situation has not been seen before, it is difficult for businesses and individuals to plan ways to limit the impact on their ability to continue trading – and pay their debts.

In recognition of the unique challenges facing businesses today, the Australian Government has responded by acting to relax laws relating to insolvency.

Key points for businesses and individuals to be aware of include:

• directors will be relieved of their personal liability for insolvent trading for a period of six months. However, egregious cases of dishonesty and fraud will still be subject to criminal penalties
• the minimum threshold for a creditor to issue a statutory demand to a debtor company will increase from $2,000 to $20,000
• the period in which a debtor company has to respond to a statutory demand will increase from 21 days to six months
• the minimum threshold for the issuing of a personal bankruptcy notice will increase from $5,000 to $20,000
• the period in which a person has to respond to a bankruptcy notice will increase from 21 days to six months

Businesses and individuals will remain liable for debts incurred in this period.

The bill is currently before Parliament and will likely be passed this week.

At this point in time, it appears that the measures will apply for a period of six months. The amendments, as currently proposed, will not be retrospective but will apply from the date the amendments commence.  

The full government fact sheet explaining the changes can be found here.

This is an evolving situation, and businesses still need to be mindful of their obligations as directors to avoid insolvent trading (among other matters). More than ever, it is important to understand your obligations and how to act to protect yourself and your business in these trying times – being on the front foot and acting swiftly can be the difference between a positive outcome, and the winding up of your business.

Authors: Chris Brodrick, Nicola McGrady & Mitchell Waters

Disclaimer
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this newsletter is accurate at the date it is received or that it will continue to be accurate in the future.

Published by:

Chris Brodrick

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