Covid-19 – Temporary reforms to insolvency laws

The Coronavirus Economic Response Package Omnibus Bill 2020 has passed both houses of parliament.

The new legislation was announced on Sunday, 22 March 2020 and was fast tracked through parliament as part of the Government’s response to the economic impact of COVID-19.

The Australian Government have released a Fact Sheet which sets out the changes in simple terms.  The steps taken by the Government are drastic, and they need to be.  The purpose of the new law is to lessen the economic impact caused by the cash flow constraints on Australian companies as a result of Covid-19 and give some relief from adverse creditor action in a bid to avoid businesses closing down.

Statutory Demands

1.         There will be an increase in the monetary threshold from $2,000 to $20,000 – being the minimum limit that a Creditor can issue a Statutory Demand to a company for.

2.         The compliance timeframe will be extended from 21 days to six (6) months – to avoid the presumption of insolvency arising where the debt is unpaid or no steps are taken to pay the debt.

3.         These changes apply to statutory demands issued post commencement of the law.

4.         The amendments apply for the next 6 months (subject to any extension).


1.         The monetary threshold for a creditor issuing bankruptcy proceedings has increased from $5,000 to $20,000.

2.         There will also be an extension of time for debtors to respond to a bankruptcy notices from 21 days to six (6) months.

Debtor’s Petitions

The usual moratorium period once a debtor presents a Notice of intention to a present a debtor’s petition has been extended from 21 days to six (6) months.
The purpose of the extensions to the timeframes is to give debtors more time to pay the debt or attempt to negotiate payment arrangements with creditors before being forced into insolvency or bankruptcy.

Company Directors

Directors will also receive some temporary relief from personal liability for insolvent trading. The new laws effectively provide for a six-month moratorium against directors having personal liability for trading a company whilst insolvent (i.e. it cannot pay its debts as and when they fall due).  The statutory provisions will not be enforceable for a period so that directors will not be liable for debts incurred by an insolvent company if the debt is incurred in the next six months.

Temporary relief from personal liability for insolvent trading will only apply with respect to debts incurred in the ordinary course of the company’s business however, dishonesty and fraud will still be subject to criminal penalties and debts will also still be payable by the company.

Such provisions will not apply retrospectively.

Moving forward

It should be noted that creditors still have the power to enforce debts via a demand letter or through court action as is usually the case.

It is important to note that the Courts in different states and jurisdictions are taking varied steps to deal with this crisis and we will advise you about any limitations that may apply to you in that respect as and when the need arises.

If you have any questions in relation to the above proposed changes, please do not hesitate to contact us on (07) 5591 5099 and a member of our team will be happy to help.


Author: Matt Kollrepp

Director: Ian Kennedy

Date: 26 March 2020