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Pressure Points: temporary changes to insolvency laws to be extended to 31 December 2020 (Australia)

07 September 2020 | Australia
Legal Briefings – By Paul Apáthy, Lauren Wright and Angus Dick

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The Australian Federal Government has announced the temporary amendments to insolvency and corporations laws will be extended until 31 December 2020 in light of the continuing challenges of COVID-19. 

In brief

In a joint media release made by the offices of the Treasurer and the Attorney General, the Australian Federal Government announced today that the temporary insolvency and bankruptcy protections introduced by the Coronavirus Economic Response Package Omnibus Act 2020 (Cth) (the Act) on 25 March 2020 will be extended until 31 December 2020.

The measures were due to expire on 25 September 2020 but will be extended through Regulations, the precise details of which are yet to be released.

Which temporary measures are being extended?

The Australian Federal Government’s media announcement indicated that the extension will apply to the:

  • temporary changes to statutory demands: under the temporary measures, the threshold for statutory demands has been increased to $20,000 (rather than $2,000) and companies have 6 months to respond to statutory demands (rather than 21 days);
  • temporary insolvent trading safe harbour: under the temporary measures, directors are protected from insolvent trading liability for debts incurred in the ordinary course of the company’s business; and
  • temporary​ bankruptcy protections: under the temporary measures the threshold for bankruptcy proceedings has been increased to $20,000 (rather than $5,000), individuals have 6 months to respond to bankruptcy notices (rather than 21 days) and the period of protection a debtor receives after making a declaration of intention to present a debtor’s petition has been extended to 6 months (from 21 days). 

Herbert Smith Freehills commentary

Given the protracted lockdown in Victoria and the persisting closure of state borders around the nation, it was widely anticipated that the government would extend the temporary bankruptcy and insolvency relief introduced in the Act for some period beyond the original six month duration.

However the decision to extend the measures until 31 December 2020 is surprising given the potential for this timing to trigger a surge of insolvencies over the holiday period, a period where many Australian business typically shut down. It may be that the shorter extension is being proposed to give the government time to consider what protections will be appropriate once the immediate challenges of the COVID-19 lockdowns have passed, and more details regarding the government’s plan will likely emerge over the coming days.

That said, the government’s announcement will likely be welcomed by the business community, particularly in Victoria, as the nation continues to grapple with the economic fallout from COVID-19.

At this stage there is no indication that there will be any reduction in the monetary or timing thresholds applicable to the statutory demand or bankruptcy notices as part of this further extension of the temporary measures, or whether this extension will be accompanied by any other law changes. 

Our summary of the current regime is available here – we will update this in the coming days, once the Regulations are released.

For further details, refer to the Treasurer’s media release, the original Act, and the Explanatory Memorandum.

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