The regulatory relief for businesses that have been impacted by the COVID-19 crisis has been expanded with temporary insolvency and bankruptcy protections extended until 31st December 2020.
As the economy begins its long road to recovery, businesses experiencing financial hardship need support and flexibility to restructure, or in the worst case, be able to wind down their operations in an orderly manner. Part of that support is to lessen the threat of actions that could unnecessarily force a business into bankruptcy.
Regulations will be made to extend the temporary increase in the threshold at which creditors can issue a statutory demand on a company and the time companies must respond to statutory demands they receive. The changes will also extend the temporary relief for directors from any personal liability for trading while insolvent.
As a business owner, you must continue to assess your ongoing financial liability, as well as the impact of incurring further debts. However, this legislation will support sustainable businesses and allow them to continue in the face of this unprecedented experience.
The Federal Government has outlined the relief measures as per below:
The Government is temporarily increasing the current minimum threshold for creditors issuing a statutory demand on a company under the Corporations Act 2001 from $2,000 to $20,000.
The statutory time frame for a company to respond to a statutory demand will be extended temporarily from 21 days to six months.
The threshold for the minimum amount of debt required for a creditor to initiate bankruptcy proceedings against a debtor will temporarily increase from its current level of $5,000 to $20,000.
Failure to respond to a bankruptcy notice is the most common act of bankruptcy. The time a debtor must respond to a bankruptcy notice will be temporarily increased from 21 days to six months.
When a debtor declares an intention to enter voluntary bankruptcy by making a declaration of intention to present a debtor’s petition there is a period of protection when unsecured creditors cannot take further action to recover debts. This period will be temporarily extended from 21 days to six months.
Directors will be temporarily relieved of their duty to prevent insolvent trading with respect to any debts incurred in the ordinary course of the company’s business. This will relieve the director of personal liability that would otherwise be associated with the insolvent trading.