Temporary Changes to Insolvency Laws

Monday, 6 April 2020   

Temporary Changes to Insolvency Laws

 In an unprecedented move the Federal Government has announced temporary changes to some aspects of existing insolvency laws as part of the plan to try and keep businesses operating during this unique health crisis time.

Insolvent Trading

With one of the most stringent insolvent trading regimes in the world, it is not surprising that one of the announcements that the government has made is a "softening" of these laws for six months. During this time, directors will be relieved from their duty to prevent a company from trading whilst insolvent with respect to debts incurred in the ordinary course of carrying on its business. It flows that directors will not become personally liable for such debts as would normally be the case under the normal insolvent trading regime. It is hoped that this will give directors confidence to continue to trade, to the extent practically possible, during this extraordinary time we find ourselves in. The government has made it clear that this relief only relates to debts incurred in the ordinary course of business and not where dishonesty and fraud are involved.

Temporary Increase In Thresholds and Time to Comply

For both personal and corporate insolvency matters, the government is providing a temporary increase to the amount required to issue a Statutory Demand against a company and a Bankruptcy Notice against an individual. The government is also increasing the time within which a company and an individual has to comply with a Statutory Demand and a Bankruptcy Notice respectively. Set out below are the new temporary changes:

  1. Statutory Demand
    The threshold is increasing from $2,000 to $20,000. The time period within which to comply is going from 21 days to six months.

  2. Bankruptcy Notice
    Similarly, the threshold amount for a Bankruptcy Notice to be issued is also increasing, this time from the current amount of $5,000 to $20,000. The government is also increasing the time within which to comply with a Bankruptcy Notice from the existing 21 days to six months.

    In addition to the above matters, there is also change to the time period so far as it relates to where a debtor declares an intention to present a debtors petition. Currently, there is a period of protection for the debtor of 21 days before an unsecured creditor can take action to recover debts. In line with the other extension of time periods, this protection is increasing to six months. This, the government hopes, will allow a debtor more time to consider the options that are best for them.

    The government has said that all of the changes set out above will apply for six months.

ATO Enforcement May Be Suspended

Businesses may also seek tailored reductions in, or deferrals of, payments owing to the ATO. Consistent with the temporary relief on time to comply with Statutory Demands and Bankruptcy Notices, the ATO may also defer enforcement action including Director Penalty Notices and winding up action. The ATO has released a Media Release with further details.