Relaxed insolvency laws now in force to offset economic impact of COVID-19

On 24 March 2020, the Coronavirus Economic Response Package Omnibus Bill 2020 received Royal Assent, meaning that the changes proposed in that bill to "lessen the threat of insolvency" for individuals and businesses in the current coronavirus pandemic have now become law. The changes will be in place for a period of six months starting from today and ending on 25 September 2020, unless this grace period is extended in the future.


By way of summary, the legislative changes involve the following measures:

  1. Increasing the monetary threshold in which creditors can issue a statutory demand (being increased to $20,000 rather than $2,000) on a company and the time companies have to respond to statutory demands (being increased to 6 months rather than 21 days).
  1. Increasing the threshold for a creditor to initiate bankruptcy proceedings against individual debtors (being increased to $20,000 rather than $5,000).
  1. Increasing the time period for individual debtors to respond to a bankruptcy notice (being increased to 6 months rather than 21 days).
  1. Extending the period of protection for individual debtors after a declaration of intention has been made to present a debtor’s petition (being increased to 6 months rather than 21 days).
  1. Relieving directors from any personal liability for insolvent trading during this period (in relation to debts incurred in the "ordinary course of the company's business").
  1. Providing companies flexibility with certain provisions of the Corporations Act 2001 (Cth) by way of either providing relief from complying with specific obligations in the Act or modifying obligations to enable compliance with the Act during the pandemic (with any instrument being made to affect these changes to be in force for 6 months from the date it is made).
For a discussion of the government's proposal which culminated in the Coronavirus Economic Response Package Omnibus Bill 2020, please see our article Get out of gaol free – Australian Government announces temporary changes to insolvency laws in response to novel coronavirus outbreak.

If you or your business will be affected by these insolvency changes and you are looking for advice, please get in touch with our Litigation and Dispute Resolution Team today. We have extensive experience in advising directors, liquidators, creditors and other stakeholders of companies in an insolvency context and would be more than happy to assist.


Danyal Ibrahim Senior Associate
Jennifer Bradley Lawyer