The Coronavirus Economic Response Package Omnibus Act 2020 (Cth) (Act) has come into force. The Act, among other things, makes temporary amendments to the Australian insolvency and corporations laws in light of the economic impacts of the coronavirus.
Why have the amendments been made?
The Act provides temporary relief for financially distressed businesses and individuals in response to the coronavirus to avoid unnecessary insolvencies and bankruptcies. The Act provides a safety net to help:
- businesses to continue to operate during a temporary period of illiquidity, rather than enter voluntary administration or liquidation; and
- individuals with managing debt and avoiding bankruptcy.
When do the amendments commence?
The temporary amendments commence on 25 March 2020 (Commencement Date) and, if applicable, apply to statutory demands served and bankruptcy notices issued on or after the Commencement Date.
What are the amendments?
Essentially, from the Commencement Date for 6 months, the new Act temporarily:
- increases the current minimum threshold for creditors issuing a statutory demand on a company under the Corporations Act 2001 (Cth) from $2,000 to $20,000;
- extends the statutory timeframe for a company to respond to a statutory demand from 21 days to 6 months;
- increases the threshold for the minimum amount of debt required for a creditor to initiate bankruptcy proceedings from $5,000 to $20,000;
- increases the time a debtor has to respond to a bankruptcy notice from 21 days to 6 months;
- extends the timeframe in which a debtor is protected from enforcement action by a creditor following presentation of a declaration of intention to present a debtor’s petition from 21 days to 6 months; and
- relieves directors of their duty to prevent insolvent trading regarding a debt incurred by the company if the debt is incurred:
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- in the ordinary course of the company’s business, that is, it is necessary to facilitate the continuation of the business. Examples include a director taking out a loan to move some business operations online and/or debts incurred through continuing to pay employees during the coronavirus epidemic;
- during the 6 months from the Commencement Date, or a longer period as prescribed by the regulations (Temporary Safe Harbour Period); and
- before any appointment of an administrator or liquidator of the company during the Temporary Safe Harbour Period.
How can we help?
Vincent Young’s Commercial + Insolvency team has extensive experience in restructuring, insolvency and corporate matters. Please contact us to discuss your particular circumstances.
Ly Hoang
Partner, Commercial + Insolvency
T +61 2 9261 5900
M +61 436 448 100
E ly.hoang@vincentyoung.com.au