Government passes temporary relief from insolvent trading, statutory demands and bankruptcy notices

The Australian Parliament has passed legislation granting temporary relief for businesses from statutory demands and liability for insolvent trading. Individuals will also be granted temporary relief in relation to bankruptcy notices.

Introduction

The Australian Parliament has passed a suite of temporary insolvency measures to combat the economic impacts of coronavirus. The changes, which are expected to come into effect shortly, will provide temporary relief from statutory demands and liability for insolvent trading.

The measures are contained in the Coronavirus Economic Response Package Omnibus Bill 2020 (Cth), which was passed on 23 March 2020. The bill is currently awaiting royal assent.

The changes

Although the measures have not yet come into effect, the legislation will have the effect of:

• increasing the statutory minimum for issuing a creditor’s statutory demand from $2,000 to $20,000
• increasing the statutory minimum for commencing bankruptcy proceedings from $5,000 to $20,000
• increasing the period for responding to a creditor’s statutory demand or a bankruptcy notice from 21 days to six months
• extending the period within which unsecured creditors cannot take action to recover a debt against a debtor who declares an intention to present a debtor’s petition from 21 days to six months
• granting company directors temporary relief from trading while insolvent for a period of six months in relation to further debts incurred in the ordinary course of the company’s business.

However, the changes will not affect the fact :

• debts incurred during this six-month period will still be due and payable
• creditors will still be able to commence court action to recover debt
• cases of dishonesty and fraud will still be subject to criminal prosecution.

Comments

In relation to directors’ liability for insolvent trading:

• the changes do not protect a director in respect of debts already incurred
• the changes only protect debts incurred during the six-month period in the company’s ordinary course of business
• directors will still need to prudently consider whether incurring the debt will be in the ordinary course of business
• directors should obtain appropriate advice including advice regarding the application of safe harbour provisions.

The changes do not affect statutory demands served before the commencement of the legislation. Similarly, bankruptcy notices issued and petitions or declarations presented before the commencement of the legislation will not be subject to the changes.

It is also important to note that the changes do not affect:

• a creditor taking court action to recover a debt
• the enforceability of personal guarantees
• secured creditors taking action to enforce their security.

If you would like more information regarding these issues, please contact Graham Roberts on +61 7 3231 2404 or Charles Sweeney on +61 7 3231 2940.