Insolvency & Bankruptcy Protections Extended

On 7 September 2020, the Federal Government announced that the temporary changes to the creditors’ statutory demand and insolvent trading laws have been extended to 31 December 2020.

Regulations will be made to extend the changes originally announced in March, from 25 September to 31 December 2020 and include:

  • Increasing the threshold at which creditors can issue statutory demands to a company, from $2,000 to $20,000;
  • Increasing the threshold at which creditors can initiate bankruptcy proceedings against a company from $5,000 to $20,000;
  • Increasing the time companies have to respond to statutory demands and bankruptcy notices from 21 days to 6 months;
  • Temporary relief for directors from any personal liability for insolvent trading.

Many businesses, particularly those in Victoria who have been hit by ongoing Covid-19 restrictions, will welcome the extension which will provide additional time to get their trading back on track.

However, for many credit teams that had been holding off on issuing a statutory demand or a bankruptcy notice until the end of September (when it was expected that the rules would revert), this extension will require them to review their strategy.

The number of companies that fell into external administration decreased by 56% year-on-year in July according to latest ASIC figures, so it is yet to be seen if these measures have assisted businesses to stay afloat or if they are simply prolonging a potentially unprecedented wave of insolvencies.

View the Treasurer's update here.