Federal Treasurer Josh Frydenberg announced on Monday (7 September 2020) that the temporary insolvency and bankruptcy protections, currently available for businesses financially distressed by the Coronavirus pandemic, will be extended until 31 December 2020.

The measures in place under the current package[1] were developed as a ‘regulatory shield’ to ensure that businesses could continue trading once the pandemic passes and normal activity resumes. The temporary provisions were scheduled to end on 30 September 2020, however as Melbourne announces further extension of its Stage 4 Lockdown, it is apparent that a large section of Australia’s business activity will remain affected for some time.

For a rundown of the legislation changes, first introduced in March to protect affected businesses – see our previous article here.

It is thought that the proposed Regulations (which are yet be released) will extend the following temporary regulatory changes until 31 December 2020, unless they are extended further:

  1. A temporary increase in the threshold at which creditors can issue a statutory demand on a company and the time companies have to respond to statutory demands they receive; and
  2. Temporary relief for directors from any personal liability for trading while insolvent.

Statutory Demands

A creditor wanting to issue a statutory demand under the new temporary provisions may only do so for debts of $20,000 or more (increased from the pre-Covid threshold of $2,000). Those in receipt of a statutory demand will also have an extended period of six months to respond to the statutory demand (increased from the previous period of 21 days).

For further information on statutory demands see our quick guide for contractors and builders here.

Insolvent Trading

Directors will not be under a duty to prevent insolvent trading with respect to any debts incurred in the ordinary course of the company’s business (albeit, temporarily). This means that directors will be relieved of any personal liability they would otherwise face as a consequence of insolvent trading, at least until 2021. However, it is critical that directors continue to do all things necessary to perform their duties as required at law and if concerned to obtain appropriate advice, including from insolvency practitioners.

Egregious cases of dishonesty and fraud will still be subject to criminal penalties and any debts incurred by the company will still be payable by the company.

“the extension of these measures will lessen the threat of actions that could unnecessarily push businesses into insolvency and external administration at a time when they continue to be impacted by health restrictions.” (Treasurer & Minister for Industrial Relations Joint Media Release)

You can read the Joint Media Release here.

To see if any of the temporary changes to insolvency legislation and procedures affect your business, please get in touch with the Morrissey Law + Advisory team.


[1] Coronavirus Economic Response Package Omnibus Act 2020, Sch 12 – Temporary relief for financially distressed individuals and businesses


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