Update: Extension to the temporary changes to insolvency laws – insolvent trading and statutory demands
In the Davies Collison Cave Legal Update webinar on 16 July 2020, we discussed the temporary changes to Australian insolvency laws that had been introduced in response to the COVID-19 pandemic. These changes, enacted under the Coronavirus Economic Response Package Omnibus Act 2020 (Cth) (Act), affected provisions of the Corporations Act 2001 (Cth) relating to:
- insolvent trading where debts had been incurred in the ordinary course of the company’s business; and
- the statutory demand regime.
Broadly, the temporary changes:
- provided a temporary safe harbour defence for directors from liability arising by virtue of insolvent trading (in addition to the existing safe harbour regime); and
- increased the monetary thresholds and timing for compliance for statutory demands. Creditors can only issue a statutory demand for a debt amounting to (or exceeding) $20,000, and debtors have six months to respond before the presumption of insolvency applies.
The temporary changes were intended to run for six months from the day after which the Act received Royal Assent, being 25 March 2020. Accordingly, the provisions were scheduled to sunset on 25 September 2020.
On Monday, 7 September 2020, the Treasurer and the Minister for Industrial Relations issued a joint media release indicating the Federal Government’s intention to extend the temporary relief for financially distressed businesses up to and until 31 December 2020.
This means that directors will continue to enjoy the additional safe harbour relief provided by the Act until 31 December 2020, and any statutory demands issued on or before that date will be subject to the extended compliance time and increased monetary threshold.
The joint media release indicated that regulations would soon be enacted to effect this extension. We will provide a further update once these are available.
You can access the Davies Collison Cave Legal Update webinar slides and a video of the presentation from 16 July 2020 here.