Covid-19 – Temporary Amendments To Insolvency Laws Extended To 31 December 2020

8 September 2020

In March 2020, we reported about the measures the Federal Government took to protect Australian businesses from the fallout from the Covid-19 Pandemic. Amongst the suite of measures introduced –

  • Directors were to be relieved from trading whilst insolvent in respect of debts incurred in the normal course of business for a period of six months (however noting that the company will still be liable for incurring debts and the incurring of debts involving dishonesty and fraud would still be subject to criminal penalty);
  • Creditors were not able to issue any statutory demand on a company unless the debt owed by the company exceeds $20,000;
  • Those companies served with a statutory demand were to have six months (not the usual twenty-one days) to respond to or deal with the demand; and
  • The bankruptcy threshold to initiate a bankruptcy notice against an individual debtor were to be increased to $20,000 and the debtor was to have six months (rather than twenty-one days) to deal with the notice or present a debtors petition.

These measures were all due to end on 25 September 2020. On 7 September 2020, the Federal Treasurer and Attorney General issued a joint media release to announce that these measures will now be extended until 31 December 2020.

Whilst these measures and initiatives received wide spread support when they were first announced in March this year, a growing number of commentators and organisations have become increasingly critical of the extension of these measures past September for a number of reasons including the fact that -

  • Landlords, financiers, suppliers and other creditors who themselves have suffered through the Covid-19 fallout will be unable to enforce their debts and agreements they have entered into with debtors for a longer period of time and crucially through the usually busy Christmas period; and
  • With so many businesses on “life support” through the fallout, many who have accessed government programs such as JobKeeper and Covid-19 rent relief will inevitably fail leading to an even larger number of insolvencies once these government support programs come to an end.

In this time then it’s critical that businesses seek the assistance of professional advisors to take a temperature check and to discuss plans to determine whether they can possibly trade on into the future or to attempt to minimise the damage and loss should it not be able to resuscitate or restructure the business once these measures come to an end.

Should anyone need to discuss any of these Covid-19 relief measures or require assistance, they can contact either Howard Chait on 0417 344 184 or or Hugh Maclaren on 0418 373 060 or at any time.