By Connor & Co, 19 July updated 14 October 2021
The COVID-19 pandemic and resulting lockdowns and border closures have had significant financial impacts on individuals and businesses. The Australian Government has introduced temporary measures to provide financial relief to individuals and businesses impacted by the pandemic.
The Coronavirus Economic Response Package Omnibus Act 2020 (Cth) (Coronavirus Act) commenced on 25 March 2020, which provided for temporary amendments to legislation including bankruptcy legislation and corporation’s legislation for a period of 6 months.
On 21 September 2020, the temporary amendments were extended until 31 December 2020 by the Corporations and Bankruptcy Legislation Amendment (Extending Temporary Relief for Financially Distressed Businesses and Individuals) Regulations 2020.
Temporary financial relief for individuals
The Coronavirus Act amended the Bankruptcy Act 1966 and the Bankruptcy Regulations 1996 in respect of Bankruptcy Notices to:
- increase the statutory minimum amount for the issue of a Bankruptcy Notice from $5,000 to $20,000; and
- extend the period of compliance with a Bankruptcy Notice from 21 days to 6 months.
The changes apply to Bankruptcy Notices (and similarly to Debtor’s Petitions) issued initially during a 6 month period commencing on 25 March 2020 (and then extended until 31 December 2020).
Permanent changes to the Bankruptcy Regulations
On 1 January 2021, the Bankruptcy Amendment (Bankruptcy Threshold) Regulations 2020 (Cth) permanently increased the statutory minimum amount for the issue of a Bankruptcy Notice to $10,000.
On 1 April 2021, the Bankruptcy Regulations 1996 were replaced with the Bankruptcy Regulations 2021. The prescribed statutory minimum amount for the issue of a Bankruptcy Notice is $10,000.
Temporary relief for companies
Statutory Demands
The Coronavirus Act amended the Corporations Act 2001 and the Corporations Regulation 2001, Including in respect of Statutory Demands to:
- increase the statutory minimum amount for the issue of a Statutory Demand from $2,000 to $20,000; and
- extend the period of compliance with a Statutory Demand from 21 days to 6 months.
The changes apply to Statutory Demands issued during initially during a 6 month period commencing on 25 March 2020 (and then extended until 31 December 2020).
On 1 January 2021, a new regulation 5.4.01AAA was inserted into the Corporations Regulations 2001 to provide that, in relation to a company that is eligible for temporary restructuring relief, the statutory minimum amount for the issue of a Statutory Demand is $20,000 and the statutory period for compliance with a Statutory Demand is 6 months. This regulation applies until 31 July 2021.
Permanent changes to statutory Demands
In May 2021 the Corporations Amendment (Statutory Minimum) Regulations 2021 introduced a permanent increase to the statutory minimum amount for the issue of a Statutory Demand to $4,000, which applies to Statutory Demands served on or after 1 July 2021.
Safe Harbour from duty to prevent insolvent trading
The Coronavirus Act inserted a new s588GAAA into the Corporations Act 2001, which provides relief for a director from the duty to prevent insolvent trading if a debt is incurred in the ordinary course of the company’s business and during initially the 6 month period commencing on 25 March 2020 (and then extended until 31 December 2020), and before any appointment during that period of an administrator, restructuring practitioner or liquidator of the company.
Company Restructuring
On 1 January 2021, amendments to the Corporations Regulations 2001 introduced by the Corporations Amendment (Corporate Insolvency Reforms) Regulations 2020 commenced. The amendments include:
- The introduction of a new debt restructuring process for eligible companies with total liabilities of less than $1 million (reg 5.3B.03).
- Moving from a “creditor in possession” model to a more flexible “debtor in possession” model to allow eligible companies to restructure their existing debts while remaining in control of their business.
- A 20 business day period for the development of a restructuring plan by a small business restructuring practitioner (ref 5.3B.17), followed by 15 business days for creditors to vote on the restructuring plan reg 5.3B.21).
- That a creditor bound by a restructuring plan cannot make or proceed with an application to wind up the company or commence or proceed with proceedings or enforcement action to recover a debt from the company (reg 5.3B.30)
- A new, simplified liquidation process for companies with total liabilities not exceeding $1 million, to allow faster and less costly liquidation (reg 5.5.03).
Companies eligible for restructuring must pay all applicable entitlements to its employees (including superannuation) and comply with taxation laws.
Connor & Co Lawyers is experienced in advising individuals and businesses, creditors and debtors, in relation to bankruptcy and insolvency issues. If you would like advice regarding any of these issues, please contact us.
Amanda Johnstone
Partner
Connor & Co Lawyers
amanda.johnstone@connorco.com.au
About Connor & Co Lawyers
We are a Law firm located at Level 5, 50 Margaret Street Sydney NSW 2000 specialising in Business law, Banking & Finance, Dispute Resolution, Litigation and Environment & Planning matters.
Email: contact@connorco.com.cau
Website: www.connorco.com.au
Phone: 0292996696