Insolvency and bankruptcy protections extended for businesses struggling with COVID-19

The Morrison government has extended temporary bankruptcy protections that save small business owners from personal liability for trading while insolvent during the COVID-19 pandemic.

Initially announced in late-March, the insolvency and bankruptcy protections were slated to expire later this month, but will now last until December 31.

These relief measures essentially make it much more difficult for creditors to pursue businesses for outstanding debts, causing a sharp decline in insolvency proceedings in recent months.

Specifically, the measures:

• Increase the threshold at which creditors can issue statutory demands to a company, from $2,000 to $20,000;
• Increase the time companies have to respond to statutory demands, from 21days to six months;
• Increase the threshold at which creditors can initiate bankruptcy proceedings against a company, from $5,000 to $20,000;
• Increase the time companies have to respond to bankruptcy notices, from 21 days to six months; and
• Free directors from any personal liability for trading while insolvent.

Treasurer Josh Frydenberg said the extension builds on $314 billion in monetary support outlaid to businesses throughout the COVID-19 pandemic.

“The extension of the temporary changes to the insolvency and bankruptcy laws until 31 December 2020 will continue to provide businesses with a regulatory shield to help them get to the other side of this crisis,” Frydenberg said in a statement.

“The extended relief will also help to maintain confidence, allowing viable businesses to survive as they adapt to a new COVID-safe economy.

“The Morrison Government will continue to provide the necessary support to help businesses get to the other side of this crisis.”

The number of companies that have fallen into external administration has plummeted since the insolvency protections were introduced in March, with the latest ASIC figures revealing a 56% decrease year-on-year in July.

But creditor advocates had warned an extension of the insolvency measures would hurt their industry and heighten the number of businesses likely to fall on tough times when the protections do expire.

The insolvency industry published a white paper outlining its case last week, arguing creditors are being short-changed by the current rules.

But businesses, particularly those hit by ongoing coronavirus restrictions in Melbourne, will relish the extension, which will provide additional time to get their trading back on track.

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