COVID-19 – Changes to Insolvency and Corporations Law

The Australian Federal Government has passed temporary amendments to insolvency and corporations laws as COVID-19 poses challenges to many otherwise profitable and sustainable business. The changes made, contained in Schedule 12 of the Coronavirus Economic Response Package Omnibus Act 2020 (Cth) are intended to avoid unnecessary insolvencies and bankruptcies. These changes had taken effect since 25 March 2020 and will have no retrospective application.

What are the changes?

1. Insolvent Trading (Companies)

Directors will be temporarily relieved from the risk of personal liability for trading insolvent.

This temporary relief will operate for a six-month period starting 25 March 2020 alongside the existing safe harbour regime where the debts are incurred:

1. in the ordinary course of business;
2. during the six-month period starting on the Effective Date (or any longer period prescribed by regulations); and
3. before any appointment during this period of an administrator or liquidator.

2. Statutory Demands (Companies)

For statutory demands served on or after 25 March 2020, the minimum threshold at which creditors can issue a statutory demand has increased from $2,000 to $20,000 for a period of 6 months. Debtor companies will then have 6 months to respond to a statutory demand rather than the current 21 days.

AS these changes apply for 6 months from 25 March 2020, it will result in a significant reduction in the use of statutory demands by creditors to force debtor companies to make payment.

If you would like to inquire about Insolvent Trading or Statutory Demands or find out more about your rights and options, Straits Lawyers are here to help. Simply send us an email at info@straitslawyers.com or give us a call on 8410 9069 to arrange an appointment for an online interview.

Please note that this article does not constitute legal advice and Straits Lawyers will not be legally responsible for any actions you take based on this article.