In March 2020, The Australian Government introduced new bankruptcy and insolvency regulations to assist businesses and individuals who have been impacted by COVID-19 and are facing financial distress. The temporary insolvency relief was intended to expire on 30 September 2020 but has been extended until 31 December 2020. While this extension does provide directors against further insolvency trading liability, it does not negate the obligations placed on directors by the Corporations Act.
- The amount creditors can issue statutory demands increased from $2,000 to $20,000;
- The time threshold companies have to respond to statutory demands increased from 21 days to six months;
- The threshold at which creditors can initiate bankruptcy proceedings against a company increased from $5,000 to $20,000;
- The time threshold companies have to respond to bankruptcy notices increased from 21 days to six months;
These adjusted measures free directors from any personal liability for trading while insolvent, however cases of dishonesty or fraud will still incur criminal penalties.
Treasurer Josh Frydenberg advised that these changes are intended to provide greater flexibility for businesses and individuals to operate during the coronavirus crisis and lessen the threat of actions that could unnecessarily push businesses into insolvency. Businesses should however be wary of taking the ‘relaxed’ approach by their corporate counterparties in light of these changes.
For more information on the Extended Insolvency Relief package or for any other advice regarding your business, speak to Paris Financial – The Small Business Tax Champions.