Temporary changes to bankruptcy and insolvency laws aimed at helping businesses and individuals survive Coronavirus

By Robert Lamb, Director at Hillhouse Legal Partners
| 2 min. read
debt recovery, insolvency & restructuring

Key takeaways

  • The government intends to relieve directors from the risk of personal liability for insolvent trading, where the debts are incurred in the ordinary course of business
  • The minimum threshold at which creditors can issue a statutory demand to a company that owes them money will temporarily increase from $2,000 to $20,000 for six months.
  • The threshold for a creditor to initiate bankruptcy proceedings against an individual will temporarily increase from $5,000 to $20,000 for six months.

The laws and guidelines to help businesses impacted by the Coronavirus pandemic are evolving daily and bankruptcies and insolvencies are areas where changes are still being finalised by Treasury and the Federal Government.

The Federal Government has announced some changes, including its intention to make temporary amendments to bankruptcy and insolvency laws because of the challenges COVID-19 now poses for many otherwise profitable and viable businesses.

These probable changes are temporary and the Government advises the changes will be in place for 6 months.

A general overview of the measures unveiled by Treasury were: 

Insolvent trading (companies)

  • Relieving directors from any personal liability for trading while insolvent in relation to debts incurred in the ordinary course of business (this will apply for six months).
  • The company will still be liable for the debts incurred and egregious cases of dishonesty and fraud will be subject to criminal penalties.

Statutory demands (companies)

  • Increasing the threshold at which creditors can issue a statutory demand on a company from $2,000 to $20,000 (this will apply for six months).
  • Allowing companies six months (rather than the current 21 days) to respond to statutory demands served on them (this will apply for six months).

Bankruptcy proceedings (individuals)

  • Increasing the threshold for a creditor to initiate bankruptcy proceedings against an individual from $5,000 to $20,000 for six months.
  • Increasing the time period for debtors to respond to a bankruptcy notice (from 21 days to six months).
  • Extending the period of protection a debtor receives after making a declaration of intention to present a debtor’s petition (from 21 days to six months). 

Once these measures are implemented, we believe they will assist many small and medium businesses to continue trading through the current period of disruption, rather than requiring them to appoint administrators due to solvency concerns. 

It is more crucial than ever to seek commercial and strategic advice to best navigate you and your business through this incredibly challenging time. There are options but you need to act early. Please get in touch if we can assist or you would like to discuss.

The information in this blog is intended only to provide a general overview and has not been prepared with a view to any particular situation or set of circumstances. It is not intended to be comprehensive nor does it constitute legal advice. While we attempt to ensure the information is current and accurate we do not guarantee its currency and accuracy. You should seek legal or other professional advice before acting or relying on any of the information in this blog as it may not be appropriate for your individual circumstances.