Insolvency update: Temporary amendments to the Corporations Act provide breathing room for businesses in financial difficulty amid COVID-19 pandemicMar 26, 2020
In response to the COVID-19 pandemic, the Federal Government has now implemented temporary changes to insolvency laws.
The Treasurer was given temporary power to amend provisions of the Corporations Act 2001 (the Act) so that the changes would have almost immediate effect.
Amendments to the Act are intended to assist many small and medium sized businesses experiencing financial difficulty because of the pandemic, and prevent those companies going into liquidation.
The changes are contained in the Coronavirus Economic Response Package Omnibus Act 2020, which took effect on 25 March 2020, after receiving royal assent on 24 March 2020.
Key amendments affecting corporations are:
- the minimum threshold for issuing a Creditor’s Statutory Demand (CSD) has been increased from $2,000 to $20,000;
- the time to respond to a CSD has increased from 21 days to 6 months; and
- Directors and officers’ liability for insolvent trading during the next six months will be effectively waived (directors should, however, still comply with their duties under the Act).
In addition, the amendments also give individuals in financial trouble who are issued with a Bankruptcy Notice six months to respond, instead of the standard 21 days. The threshold for issuing a Bankruptcy Notice has also increased from $5,000 to $20,000.
The changes will have effect for six months. Any person who is served with a CSD or a Bankruptcy Notice between 25 March 2020 and 25 September 2020 will have the extended period of time to respond. Anyone issuing a CSD or Bankruptcy Notice should also be aware of the increased threshold and time to respond.
If you have received a CSD or Bankruptcy Notice and need advice, or if you need assistance on recovering debts during these extraordinary times, please contact David Weinberger, Principal Lawyer and Head of Litigation and Dispute Resolution, on (03) 8600 8872, or Rebecca Hazeltine, Lawyer, on (03) 8600 8811.
This Insolvency update was authored by Rebecca Hazeltine, Lawyer.
Note: This update is a guide only and is not intended to constitute legal advice.