On Monday 23 March 2020, a series of coronavirus (COVID-19) response bills were quickly passed through before Federal Parliament, seeking to quickly legislate economic relief to individuals and businesses affected by the pandemic of COVID-19. I
Within Schedule 12 of the Coronavirus Economic Response Package Omnibus Bill 2020 (Cth) (“the Bill’), there are aims to avoid the risks of individuals and businesses in financial distress becoming bankrupt or insolvent by providing safety nets in two key ways:
- a safety net to help businesses to continue to operate during a temporary period of liquidity, rather than enter voluntary administration or liquidation; and
- a safety net to individuals to assist them with managing debt and avoiding bankruptcy.
Amendments within the Bill will specifically look at increasing thresholds for commencing bankruptcy proceedings and increasing timeframes and flexibility in respect of creditor’s statutory demands. These amendments look to the financial pressures on individuals and business that are resultant from the current economic turmoil.
Most notably, the following changes in law will come into force, provided the bill is passed:
(a) Increased threshold for commencing bankruptcy proceedings
The minimum amount of debt required to be owed before a creditor can initiate involuntary bankruptcy proceedings against a debtor to be temporarily increased to $20,000 as opposed to the current $5,000 minimum
Additionally, the statutory minimum for a creditor to issue a statutory demand to a debtor is temporarily to be increased to $20,000 as opposed to the current $2,000 minimum.
(b) Six-month safe harbor for Director’s duty to prevent insolvent trading
On top of those changes, a new section will provide that directors have temporary relief from personal liability for insolvent trading if:
- debts are incurred in the ordinary course of business;
- the debt is incurred during the six-month period starting on the day the new law commences; and
- the debt is incurred before any appointment of an administrator or liquidator.
Currently directors owe a duty to prevent insolvent trading.
(c) Increased time to respond for creditor’s statutory demands and bankruptcy proceedings
The time frames of 21 days will also be extended to a temporary 6 months in instances where:
- A debtor must comply with a bankruptcy notice;
- A debtor is protected from enforcement action by a creditor following presentation of a declaration of intention to present a debtor’s petition; or
- A debtor must respond to a statutory demand.
Do you need help for financial distress as a result of COVID-19?
Our COVID-19 Response Team can assist you with legal guidance through this period. Contact us, or call (07) 3252 0011 and speak with one of our client engagement team to set up a remote appointment.