As part of the government’s economic response to COVID-19 it provides temporary relief for financially distressed businesses.

It aims to provide a safety net by reducing the threat of actions against businesses and attempting to provide confidence to directors to continue to trade during this difficult time.

To create that safety net, the government has temporarily changed elements of how creditor actions commence and director’s exposure to personal liability in an insolvency scenario, which include:

• Statutory demands against companies: threshold amount increased from $2,000 to $20,000 and time to respond extended from 21 days to six months;
• Bankruptcy notice against individuals: threshold amount increased from $5,000 to $20,000 and time to respond extended from 21 days to six months. Moratorium period for a ‘declaration of intention’ to present a debtor’s petition extended from 21 days to six months; and
• Directors’ personal liability for insolvent trading paused for six months.

The Coronavirus Economic Response Package Omnibus Act 2020 (Cth) which contains the reforms to the operation of various insolvency laws came into effect from 25 March 2020 for a period of 6 months.

The temporary relief for financially distressed individuals and businesses has been extended to 31 December 2020.